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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
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[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-19349
SOFTWARE SPECTRUM, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1878002
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2140 MERRITT DRIVE, GARLAND, TEXAS 75041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 840-6600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value on June 26, 1996 of the Registrant's voting
securities held by non-affiliates was $84,437,370.
At June 26, 1996, the Registrant had outstanding 4,357,441 shares of its Common
Stock, par value $.01 per share.
Documents Incorporated by Reference
There is incorporated by reference in Part III of this Annual Report on Form
10-K the information contained in the registrants' proxy statement for its
annual meeting of shareholders to be held August 15, 1996 and in Part II of
this Annual Report the registrants' annual report to shareholders for the 1996
fiscal year.
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FORWARD
Software Spectrum, Inc. (the "Company") or its representatives from
time to time may make or may have made certain forward-looking statements,
whether orally or in writing, including without limitation any such statements
made or to be made in the Management's Discussion and Analysis of Financial
Condition and Results of Operations, press releases and other information
contained in its various filings with the Securities and Exchange Commission.
The Company wishes to ensure that such statements are accompanied by meaningful
cautionary statements, so as to ensure to the fullest extent possible the
protections of the safe harbor established in the Private Securities Litigation
Reform Act of 1995. Accordingly, such statements are qualified in their
entirety by reference to and are accompanied by the following discussion of
certain important factors that could cause actual results to differ materially
from those projected in such forward-looking statements.
The Company cautions the reader that this list of factors may not be
exhaustive. The Company operates in a rapidly changing business, and new risk
factors emerge from time to time. Management cannot predict every risk factor,
nor can it assess the impact, if any, of all such risk factors on the Company's
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those projected in any forward-
looking statements. Accordingly, forward-looking statements should not be
relied upon as a prediction of actual results.
HIGHLY COMPETITIVE ENVIRONMENT
The desktop technology marketplace is intensely competitive. The
Company faces competition from a wide variety of sources including other
software suppliers, hardware manufacturers and resellers, technology service
providers, personal computer retail stores (including superstores), mail order
and other discount business suppliers and software publishers. Certain of the
Company's competitors, particularly software publishers, have substantially
greater financial resources than the Company. Because of the intense
competition within the microcomputer software channel, companies that compete
in this market, including the Company, are characterized by low gross and
operating margins. Consequently, the Company's profitability, particularly
during periods of rapid growth, is highly dependent upon effective cost and
management controls.
NEW DEVELOPMENTS AND RAPID TECHNOLOGICAL CHANGE
The market for the Company's products and services is characterized by
rapidly changing technology, evolving industry standards and frequent
introductions of new products and services. The Company's future success will
depend in part on its ability to enhance existing technology services and to
offer new services on a timely basis as well as its ability to attract and
retain skilled technical professionals required to deliver these services.
Additionally, the Company's business results can be adversely affected by
disruptions in customer ordering patterns and the impact of new product
releases.
CHANGING METHODS OF SOFTWARE DISTRIBUTION
The manner in which microcomputer software products are distributed
and sold is continually changing, and new methods of distribution may emerge or
expand. Software publishers may intensify their efforts to sell their products
directly to end-users, including current and potential customers of the
Company. Other products and methodologies for distributing software to users
may be introduced by publishers, present competitors or other third parties.
If microcomputer software suppliers' participation in these programs is reduced
or eliminated or if other methods of distribution of software, which exclude
the microcomputer software channel become common, the Company's business and
financial results could be materially adversely affected.
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RELIANCE ON FINANCIAL INCENTIVES, MARKETING FUNDS AND VOLUME DISCOUNTS
As part of its supply agreements with certain publishers and
distributors, the Company receives substantial incentives in the form of
rebates, cooperative advertising funds, market development funds and volume
purchase discounts. A reduction or discontinuance of these incentives,
discounts or advertising allowances could have a material adverse effect on the
Company's business and financial results.
DEPENDENCE ON VENDORS
A large percentage of the Company's sales are represented by popular
microcomputer business software products from a small number of vendors. In
fiscal 1996, approximately 55% of the Company's net sales were derived from
products published by Microsoft and Lotus. The Company has direct
relationships with these publishers. Most of the Company's contracts with
vendors are terminable by either party, without cause, upon 30 to 60 days'
notice. The loss or significant change of the Company's relationship with
these vendors could have a material adverse effect on the Company's business
and financial results. Although the Company believes the software products
would be available from other parties, the Company may have to obtain such
products on terms that would adversely affect its financial results.
VOLUME LICENSING AND MAINTENANCE AGREEMENTS
The Company serves as a designated services provider for volume
licensing and maintenance ("VLM") agreements between many of its customers and
major publishers of microcomputer software. VLM agreements are typically used
by customers seeking to standardize desktop software applications and
consequently involve significant quantities of unit sales for each customer.
Although unit volume sales are increased by sales through VLM agreements, lower
gross margins are generally realized on such sales as compared to sales of
full-packaged software products. If the Company were to continue to experience
an increase in the percentage of sales made pursuant to VLM agreements, gross
margins on the sale of software products are likely to decline.
ACQUISITION RISK
Between October 1995 and May 1996, the Company has completed three
acquisitions. Because these acquisitions have been made only recently, there
can be no assurance that the acquired businesses will achieve results
anticipated at the time of the acquisitions or be successfully assimilated by
the Company.
ECONOMIC CONDITIONS AND GEOGRAPHIC EXPANSION
The Company's business is sensitive to the spending patterns of its
customers, which in turn are subject to prevailing economic and business
conditions. Further, sales to large corporations have been important to the
Company's growth and its ability to continue its historic rate of growth is
dependent on its continued success in such market. The Company's recent
geographic expansion outside the United States involves currency exchange
risks, political risks and other risks of doing business abroad.
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PART I
ITEM 1. BUSINESS
The Company is a leading worldwide supplier of microcomputer business
software and technology services to organizations. The Company's customers are
primarily large entities including many multinational organizations with a
significant number of microcomputers. The Company also sells products and
services to mid-tier businesses through its telephone and catalog sales
efforts. The Company provides its customers with a wide variety of business
software products, volume software licensing services and technology support
and assists them in the implementation, deployment and ongoing support of their
personal computing strategies. The Company has established supply arrangements
with major microcomputer software publishers, including Microsoft, IBM/Lotus,
Novell, Attachmate, Symantec, and Corel. The Company markets software titles
for IBM, IBM-compatible and Macintosh microcomputers, including software for
all major operating systems such as Windows, Windows 95, OS/2, DOS, Novell
NetWare and Microsoft Windows NT.
The Company was incorporated under the laws of the State of Texas in
April 1983. The Company's principal facilities and its executive offices are
located at 2140 Merritt Drive, Garland, Texas 75041, and its telephone number
at that location is (214) 840-6600. Except where the context otherwise
requires, the term "Company" as used herein includes Software Spectrum, Inc.
and its subsidiaries.
OVERVIEW
The Company plays a major role in the microcomputer business software
industry as a leader in desktop technology focusing on providing microcomputer
business software and technology services to organizations. The Company's
strategy is to invest in its infrastructure, both in terms of people and
systems, to provide a high level of customer service while maintaining a
cost-efficient operating structure to enable the Company to competitively price
its products. The Company controls its costs in part by centralizing its
administrative support and customer service operations while utilizing a
geographically dispersed field sales force and technology services staff
strategically located in major business markets. The majority of the Company's
revenues are derived from sales to large organizations, including a significant
number of multinational entities.
The Company derives revenues from three primary areas including sales
of PC software to large organizations ("Large Account Sales"), sales to
mid-tier accounts ("TeleSales and Catalog Sales") and sales of technology
services through its Technology Services Group (the "Technology Services
Group").
The largest component of the Company's business is providing
microcomputer software, licenses and related services to large organizations
with over 1,000 PCs, including a majority of the companies in the Fortune 500.
Large Account Sales concentrates on building and expanding relationships
through face to face calling efforts throughout major global desktop technology
markets. The Company's field sales representatives market not only
microcomputer software products, but also the fee-based services available to
customers through the Company's Technology Services Group. Through its
strategically located, centralized operations centers in North America, Europe
and Asia/Pacific, the Company supports the global marketing efforts of the
Large Account Sales group.
TeleSales and Catalog Sales serves mid-tier businesses that have less
than 1,000 PCs through the Company's outbound calling and catalog sales
efforts. At March 31, 1996, this group consisted of approximately 70 people
located in Garland, Texas that market Software Spectrum's products and services
by phone to organizations throughout North America. In the fiscal year ended
March 31, 1996, revenues derived from the Telesales and Catalog Sales groups
accounted for approximately 17% of the Company's revenues.
The Company's Technology Services Group provides fee-based services,
including consulting, training and support for a number of specific
technologies including advanced networking infrastructure, enterprise messaging
and groupware, distributed client/server application development, enterprise
software management services, and Internet/Intranet services. Technology
Services Group's strategy is to focus on a limited number of technologies to
allow its personnel to develop in depth knowledge to support complex customer
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requirements. The Technology Services Group also provides fee-based telephone
support services. This service, known as SmartLine, is utilized by
organizations that choose to outsource their internal help desk function, as
well as by software publishers that desire to outsource their technical support
services. As of March 31, 1996, the Company had ten Technology Service Group
offices in North America and Europe. For the year ended March 31, 1996, the
Technology Service Group represented approximately 4% of the Company's
revenues. Following its recent acquisitions, the Company has increased the
number of Technology Service Group offices to twenty, including locations on
three continents. See "Customer Services--Global Operations" and "Fee-Based
Services--Technology Services Group" below.
The Company adapts its services to specific customer requests,
consults with customers on developing strategies to efficiently manage the
customer's investment in PC software and hardware and provides accurate and
timely delivery of products. The Company provides its customers with
information, advice and assistance through its marketing, sales and technical
staff on the wide range of procurement choices available. For customers
electing to standardize desktop software applications or otherwise take
advantage of right-to-copy arrangements, the Company provides volume licensing
and maintenance ("VLM") agreement services and support. Under VLM agreements,
the Company acts as a designated service provider to sell licensing rights
to software that permit customers to make copies of a publisher's software
program from a master diskette and distribute this software within a customer's
organization for a fee for each copy made. Maintenance agreements entitle
customers to all upgrades of certain products during a specified period of
time, typically two years. By utilizing VLM agreements, customers are able to
consolidate their worldwide purchases and acquire software under a single
master agreement for a given publisher from a global supplier such as the
Company. Among its other services, the Company offers on-site consultants for
large corporations, training and support of complex technologies, strategic
planning for information systems departments, software selection assistance and
determination of price and availability of hard to find software products.
The Company serves an important role in the software industry by
providing a service-oriented and cost-effective means for microcomputer
software publishers to market, sell, distribute and provide support for their
products. The services provided by the Company assist publishers by building
product awareness, marketing products directly on behalf of publishers to
businesses and other organizations, and providing additional technical support
and services for software products. The Company is also instrumental in the
selection, design and implementation of VLM programs for its customers. The
Company believes that maintaining its relationships with major publishers is
important to the Company's future growth and profitability. The Company will
often coordinate product introductions and marketing programs with publishers,
which may involve joint regional product seminars and cross-selling of selected
complementary products. Due to its volume of purchases, the Company believes
it is able to obtain favorable pricing, avail itself of marketing funds
provided by major publishers and work closely with publisher personnel on
various marketing and selling matters such as the introduction of new products,
programs and related service opportunities. As in prior years, certain major
publishers have continued to restrict the number of direct relationships
maintained with this channel, limiting such relationships to those entities,
such as the Company, with significant product sales, technology service
capabilities and marketing capabilities.
The Company has continued to experience significant growth in the sale
of software to its customers through VLM agreements. For fiscal 1996, sales
through VLM agreements represented approximately 46% of net sales of the
Company, compared to 35% and 15% of net sales for fiscal years 1995 and 1994,
respectively. Prior to fiscal 1994, sales pursuant to VLM agreements were not
significant. Since individual software packages and documentation may not be
provided to each user, and due to volume pricing incentives and lower
distribution costs, customers utilizing VLM agreements can purchase licenses
for software at a lower cost than by purchasing individual shrink-wrapped
software packages. In general, the Company receives lower gross margins on
sales made through VLM agreements.
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ACQUISITIONS
In October 1995, the Company acquired Software Alternatives, Inc., a
leading microcomputer software supplier to business organizations in Canada for
approximately $2.5 million. This acquisition significantly increased the
Company's market presence in Canada.
On April 2, 1996, the Company acquired The Essentially Group Limited
("Essentially Group"), a leading information technology company in Australia
and New Zealand that sells microcomputer software, hardware and related
technology services to organizations. Under the terms of the agreement, the
Company purchased Essentially Group for approximately $9 million, including a
combination of cash and Company stock. The acquisition provides the Company
with operations in Australia and New Zealand and a foundation from which to
expand throughout the Asia/Pacific region. The acquisition of Essentially
Group completes the Company's global operations strategy which is to have
centralized operations centers in North America, Europe and Asia/Pacific to
serve major desktop technology markets in key worldwide markets and provides
the Company with an immediate presence in the Asia/Pacific market.
On May 13, 1996, the Company acquired from Egghead, Inc., certain
operating assets of Egghead's corporate, government and education division
("CGE"). CGE is a leading supplier of microcomputer business software to
corporations, government agencies and educational institutions in North
America. Under the terms of the agreement, the Company purchased the CGE
division for $45 million. The purchase was funded with existing cash and bank
financing. In connection with the transaction, the Company assumed control of
CGE's North American sales force and leased Egghead's call center facility
located in Spokane, Washington, which serves several thousand customers.
Egghead retained all existing inventory, accounts receivable, and substantially
all of the liabilities of the CGE division.
With these acquisitions, the Company has become one of the world's
largest providers of microcomputer business software and technology services to
organizations. The Company's customer base includes an expanded group of
multinational customers which should enhance the Company's global growth.
Also, the larger customer base provides additional opportunities for growth of
the Technology Services Group. CGE's base of government and educational
customers creates a significantly larger presence in these two specific
customer segments for the Company, as well.
CUSTOMER SERVICES
Licensing, Procurement, Distribution and Deployment Services
The Company's customers can purchase software applications in a number
of different ways. VLM agreements, or right-to-copy agreements, allow a
customer to either purchase a license for each user in a transaction-based
process or track and periodically report its software copies, paying a license
fee for each copy made. The Company sells, supports and services the various
VLM arrangements currently utilized by software publishers. For customers, the
overall cost of using one of these methods of acquiring microcomputer software
is likely to be substantially less than the option of purchasing shrink-wrapped
full packaged software products.
Since each major publisher has chosen a different set of procedures
for implementing VLM agreements, businesses are faced with a significant
challenge to sort through all such alternatives and procedures to ensure that
they are utilizing the appropriate agreements, complying with the publishers'
licensing terms and properly reporting and paying for their software licenses.
In order to address the wide range of procurement choices available to its
customers, the Company provides information, advice and assistance to its
customers relating to their procurement decisions through the Company's
marketing, sales and technical staff and through its publications. See
"- World Wide Web Site, Publications and Software Library" and "Sales and
Marketing."
Increasingly, large corporate customers are electing to standardize
desktop applications and coordinate their enterprise-wide microcomputer
management responsibilities. To help these customers develop or improve
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their microcomputer software management programs, the Company developed a
software management process that is called the Assurance Process. The Assurance
Process and corresponding implementation services allow these customers to
effectively utilize the benefits associated with VLM programs. Assurance
provides the Company's customers with a methodology for evaluating the
individual customer's microcomputer software management process and analyzing
issues in implementing VLM programs offered by various publishers. The service
options available from the Company are designed to assist the customer in
implementing its software management plan, including internal distribution
services, communication with end users, telephone support and reporting and
compliance under VLM arrangements.
The Company's licensing consultants are Software Publishing
Association (SPA) certified software managers that are trained to provide
customers with advice in the evaluation of various VLM programs offered by
publishers and customer activity analysis. In addition to the Company's
extensive experience dealing with VLM agreements, it has continued to invest in
technology based systems to support the special requirements necessary to
service VLM agreements for its customers. In fiscal 1996, the Company
developed SOLO 95, a custom, client/server based system which provides
individualized customer contract management data, assists customers in
complying with VLM agreements, and provides customers with necessary reporting
mechanisms.
The Company provides disk duplication services for a number of
customers that have purchased software through VLM agreements. The Company
will duplicate diskettes for software purchased through VLM agreements on
behalf of customers, may bundle this software with a customer's internal
documentation and software packages and third party software manuals and will
distribute these diskettes and bundles to a customer's various sites and
locations.
A component of the Company's procurement services is its ability to
provide timely delivery of its products to customers by maintaining a
sufficient inventory of the most popular software products. In May 1996, the
Company relocated its Chicago product fulfillment operations to Louisville,
Kentucky, and the Company plans to consolidate the remainder of its United
States distribution operations in Louisville during July 1996. Stocked
products are generally shipped the same day that the Company receives a
customer order. Most of the Company's products are ordered by the customer's
procurement or information systems department and often are billed to the
department of the end-user, which may be located at a different site than the
procurement or information systems department. The Company provides customers,
upon request, open-order status and purchase activity reports formatted to each
customer's specifications. Also, the Company's electronic data interchange
("EDI") capabilities allow customers to submit orders (or other data) from
their computer systems to the Company via modem. EDI improves order accuracy
and reduces administrative costs for corporate customers and the Company.
Global Operations
Under VLM agreements, multinational customers can consolidate their
worldwide volume purchases of software under a single master agreement for a
given publisher. The Company is able to sell software through these VLM
programs globally. To address this opportunity, as well as the international
growth in the demand for microcomputer software and technology services, the
Company began its global expansion in 1993.
In 1993, the Company opened a Canadian office in Toronto and in 1994
established a European headquarters in The Hague and an operations center in
Dublin. The Company augmented European operations by establishing a Technology
Services Group office in London in 1996.
The Company's acquisition of Essentially Group in April 1996
significantly extends Software Spectrum's global reach by providing an
immediate presence in the Asia/Pacific region. Essentially Group's established
customer base, management team and services capabilities provide the Company
with many of the key resources needed to permit further expansion throughout
the Asia/Pacific region. The Essentially Group acquisition completes the
Company's strategy to provide operations centers in North America, Europe and
Asia/Pacific. Today, Software Spectrum does business in over 40 countries,
provides support services in 15
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languages, invoices customers in many local currencies, and can provide
consolidated worldwide reporting to customers.
Fee-Based Services
Technology Services Group
Through its Technology Services Group, the Company provides fee-based
technical services including consulting, training and support services. The
Company's service offerings are centered around a number of specific
technologies including advanced networking infrastructure, enterprise messaging
and groupware, distributed client/server application development, enterprise
software management ("ESM") services and Internet/Intranet services. These
technologies address customers' needs (i) to provide access to information at
sites throughout the world within their organizations; (ii) to enable employees
at different locations to communicate with each other in a cost-efficient
manner; (iii) to provide more flexible access to mission critical information;
and (iv) to provide strategies for controlling the rising cost of supporting
distributed computing.
As of March 31, 1996, the Company had established Technology Services
Group offices in Dallas, Chicago, Atlanta, Houston, San Francisco, Los Angeles,
Minneapolis, New York City, Toronto and London. The Company has also entered
into an agreement with Delfin Systems, Inc., a Washington DC-based, privately
held developer and supplier of information systems, products and services for
government and commercial markets, to provide technology services on behalf of
the Company to the Company's customers in the Mid-Atlantic region of the United
States. Following its recent acquisitions, the Company has increased the
number of Technology Services Group offices to twenty, and in addition to North
America and Europe, it now has locations in Australia and New Zealand. The
Company provides messaging and information-sharing solutions to provide a
stable communications platform for enterprise-wide connectivity.
The Company is a Microsoft Solutions Provider, Lotus Notes Business
Partner and Novell Platinum Reseller and is authorized to sell, support, train
and develop applications in many complex products. The Company's advanced
networking infrastructure design capabilities cover a broad range of topologies
and protocols including local area and wide area networks and the ability to
design interfaces to many mainframes and minicomputers. The Company provides
messaging and information-sharing solutions to provide a stable communications
platform for enterprise-wide connectivity.
The Company's ESM services are designed to help customers with the
evaluation, implementation, operation, and support of electronic desktop
management solutions, such as Microsoft's Systems Management Server and
Symantec's Norton Administrator for Networks. These services help customers
manage and support their software assets at various sites from a single
location. Utilizing these electronic software distribution products and ESM
services, customers can inventory hardware and software assets, perform
software product distribution, and provide electronic help desk services.
In addition, the Company offers education and technical training
opportunities for information technology professionals in the various
technologies supported by the Company, with such seminars and training provided
at the customer's or the Company's location.
The Company also provides fee-based telephone support services on
behalf of software publishers and to end users of business customers that
choose to fully or partially outsource their internal help desk function on a
number of technologies, including client/server applications and network
operating systems. The Company's SmartLine personnel utilize resources and
capabilities equivalent to those described under the caption "Technology
Support Center" below.
Fulfillment Services
During fiscal 1995 and 1996, the Company provided fulfillment services
to a major customer. In February 1996, the Company discontinued its
fulfillment services.
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Electronic Services and Capabilities
The Company offers a number of services and is implementing systems to
support its customers' gradual migration toward electronic commerce and
electronic software distribution ("ESD").
ESD takes two forms; the first is distributing software within an
organization, via a company's internal network. ESD technology within the
large organization is a means to permit an organization to reduce the total
cost of ownership of desktop computing assets. ESD can provide hardware and
software asset management, remote desktop support and automatic installation of
operating systems, packaged and customer applications, and their related
upgrades, to the desktop.
Through its Technology Services Group, the Company supplies enterprise
software management services for customers who adopt ESD within their
organizations. These services help manage distributed PC environments through
use of products such as the Microsoft Systems Management Server and Symantec's
Norton Administrator for Networks.
The second form of ESD is between businesses via electronic links such
as the Internet. This form of ESD supports the fast, convenient delivery of
software products. The Company strongly endorses recent announcements allowing
software applications to be made available for ESD. The Company intends to
participate in this method of distribution as communication technology
improvements enable this form of ESD to become more widely used.
The Company opened its World Wide Web site on the Internet in 1995 to
provide customers with links to useful information about the Company, its
products and services and publishers the Company represents. The Company also
offers an Internet online catalog that includes thousands of products. This
electronic catalog provides a wide range of products for customers to choose
from. The Internet catalog provides information about products through a
comprehensive search engine, extensive product descriptions, and third-party
reviews.
The Company has invested in new technologies throughout the years.
The Company's continuing investment in electronic software distribution and
electronic commerce evidences its commitment to meeting the changing needs of
customers.
Maintenance and Upgrade Services
A number of customers who have elected to purchase software licenses
through VLM agreements have also purchased maintenance which allows customers
to receive new versions, upgrades or updates of software products during the
maintenance period in exchange for a specified annual fee, often paid to the
Company in quarterly installments. Upgrades and updates are revisions to
previously published software that improve or enhance certain features of the
software and correct any errors found in previous versions.
The Company believes it offers several advantages to its customers in
the upgrade process. Customers that have not elected to purchase maintenance
agreements are still able to upgrade multiple units of specific products, often
bypassing cumbersome publisher requirements. The Company stocks a number of
upgrade products and provides detailed tracking and reporting of customer
upgrade purchases. Upgrades are sold on the same basis and with the same
payment terms as other products sold by the Company.
Seminars
Seminars are an important means by which the Company markets and sells
products and services. Through these seminars, businesses are able to acquaint
members of their organizations with new product offerings and upgrades and
receive information concerning trends in microcomputer technology and the
industry in general. The Company's seminar series includes events addressing
VLM arrangements and electronic distribution, as well as strategic
implementation of client/server and other advanced
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product technologies and solutions. A portion of the marketing funds
the Company receives from various publishers is used to defray the costs of
presenting these seminars that generally are conducted in conjunction with
publisher representatives. Members of the Company's marketing and support
staff present and coordinate all aspects of these seminars. In fiscal 1996, the
Company presented 160 seminars in over 65 major metropolitan areas throughout
North America and in Western Europe.
World Wide Web Site, Publications and Software Library
The Company's World Wide Web Site on the Internet provides customers
with information concerning the Company, its products and services, and the
publishers represented by the Company. The Company also provides information
through various Company publications. A portion of the marketing funds
provided to the Company by publishers is used to offset the Company's cost of
producing these publications. The Company publishes newsletters, service and
product brochures, product catalogs, and also provides other timely information
coincident with major product releases. The Company's "Micronews" is a monthly
newsletter distributed, both electronically via the Internet and in hard copy,
that features new product announcements and news articles on current industry
topics and technical white papers.
The Company distributes a semi-annual publication which includes more
in-depth analyses of various product offerings called the "Licensing and
Software Management Guide." This publication provides comprehensive
information on the many facets of software licensing. The Guide provides the
purchasing requirements and qualification restrictions of the numerous VLM
publisher programs. Issues such as concurrent licensing and copying software
on home or portable computers are identified. Because of the potential savings
a corporation can realize by utilizing alternative procurement methods,
customers have displayed a significant amount of interest in this publication.
In addition, the Software Publishers Association utilizes this publication in
connection with its certified software manager course curriculum.
The Company offers a software evaluation library which enables a
customer to evaluate software programs without charge or obligation. The
Company's software evaluation library consists of many popular software
packages marketed by the Company, which are provided as demonstration copies.
Upon request, customers may use the demonstration copies in order to assist
them in making a purchasing decision.
The Company also markets to mid-tier businesses by publishing
merchandising catalogs which offer a large range of software and peripheral
products. In addition to its Internet catalog described above, the Company's
catalog operations include plans to publish over 5 million catalogs in fiscal
1997. See "Electronic Services and Capabilities" above.
Technology Support Center
The Company's Technology Support Center in Garland, Texas provides
support for customers in three principal business categories. First, technical
support personnel handle support calls from customers' technical personnel for
escalation services. The staff in the Company's Technology Support Center is
experienced in all major microcomputer software titles and can provide support
for software products running on most major microcomputer operating systems and
environments, including Windows, Windows 95, DOS, Macintosh, OS/2, Microsoft
Windows NT, Novell Netware and other network operating systems. Second, the
Company provides technical support to large organizations to augment or replace
the customer's internal help desk capabilities for the customer's employees.
This service has various support options from desktop application products to
advanced technical products to enterprise software solutions. The Company's
SmartLine service is designated as a Microsoft Authorized Support Center (one
of eight in the United States), a Lotus Premium Business Partner and a Novell
Authorized Service Center. Third, the Technology Support Center contracts with
software publishers, hardware providers and OEM manufacturers to provide
telephone support on their behalf to customers. The Technology Support Center
includes large capacity file servers, multiple CD ROM databases and other
sources that enable the Company's support personnel to recreate a customer's
individual problem, develop a solution and guide the customer through the
solution in a step-by-step basis.
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<PAGE> 11
The Company's software evaluation library and demonstration equipment
allow the Company's staff to test applications before recommending a solution
or product. The Company's Technology Support Center operates an electronic
bulletin board that allows customers to download patch disk information.
Customers may also utilize the Internet as the electronic means to forward
support questions and receive answers from the Company.
SALES AND MARKETING
The Company performs sales and marketing activities for its large
account customers through its account executives, customer service
representatives and its marketing and support staff. The Company organizes
account management teams to service and support each of its major customers.
Generally each team consists of one account executive and a team of customer
service representatives. These teams are supported by technical, marketing and
sales support personnel located at one of the Company's operations centers.
Account executives are assigned a specific territory and/or specific
accounts by the Company, which generally includes major metropolitan areas in
one or more countries, states or provinces. Account executives market the
overall service and price advantages of using the Company as the customer's
preferred software and services supplier. The account executive concentrates on
generating new customer relationships, maintaining and improving existing
customer relationships and increasing the volume of software and services
provided to large corporate customers.
Account executives work directly with procurement managers, management
information system managers and computer support managers of existing and
potential customers to identify the specific needs of each customer and to
facilitate the purchase of software products and services by the customer's
organization. Account executives maintain close contact with customers in
order to provide them with timely communications and assistance with any
special or strategic requests. Account executives' responsibilities include
providing customers with useful and relevant product information to assist the
customer in its selection of software available for the desired application,
providing customers with information and guidance on software procurement
options including VLM agreements, implementation and deployment of software
under VLM agreements, assisting customers in identifying and defining technical
service needs, and planning product presentations and seminars by
representatives of the Company and publishers. For national and international
accounts, there may be several account executives working with the customer in
different parts of North America, Europe and Asia/Pacific with all efforts
being coordinated by a designated national or international account executive.
The number of accounts handled by each account executive depends on the
relative size of the accounts and the level of service required by each
customer within the territory assigned to the account executive.
The Company's licensing consultants work with the Company's customers
to provide advice and consultation on VLM programs and to complete detailed
customer account analysis and reporting. The Company also assigns a team of
customer service representatives to each account. Customer service
representatives, who are based primarily at the Company's operations centers
located in Garland, Spokane, Toronto, Dublin and Sydney handle all aspects of
the day-to-day customer account servicing, including common presale technical
questions, customer order placement, order status inquiries, requests for a
demonstration product for evaluation and searches for hard-to-find products.
This enables customer service representatives to develop close relationships
with individuals within the customer's organization and to better service them
by being familiar with their account. By assigning a specific team of customer
service representatives to specific customers, the Company adds additional
direct contacts that reinforce customer relationships.
To solicit business from mid-tier organizations, the Company utilizes
its TeleSales and Catalog Sales group. While product price and delivery terms
are key factors in mid-tier organization markets, the Company also provides a
broad range of VLM agreement support and services and technical services to
this category of customers. Initial contact and sales are made typically
through telephone inquiries.
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<PAGE> 12
SUPPORT SYSTEMS
The Company has been converting its operating and financial reporting
systems to the client/server environment. The conversion is expected to be
substantially completed during fiscal 1997. The Company has developed certain
proprietary support systems that facilitate the delivery of product and
services to its customers. The Company has invested in technology based
systems to support the special requirements necessary to service VLM agreements
for its customers. SOLO 95, a custom, client/server-based system, provides
individualized contract management data, assists customers in complying with
the terms of their VLM agreements and provides customers with necessary
reporting mechanisms. Using individualized data in SOLO 95 in conjunction with
the Company's contract management database, the Company representatives can
guide a customer through the various purchasing options and assist in
administering VLM agreements. SOLO 95 also provides the Company's customer
service representatives with customer profile and account status, order status
information, and product pricing and availability details. The Company's
on-line purchase order entry system provides its purchasing department with a
daily queue of orders to be placed based on current inventory levels, daily
sales orders, and pre-established minimum and maximum levels of inventory for
each part number. Once purchase orders are placed with a vendor, the Company's
accounting records are automatically updated and orders are held pending
on-line receipt, using a bar code receiving system.
PRODUCTS
In addition to selling, supporting and servicing the various VLM
arrangements available from software publishers, the Company offers and
maintains an inventory of approximately 1,600 business software titles, ranging
in price from approximately $10 to $35,000. The Company also stocks a variety
of peripheral products and accessories. Although the Company maintains an
inventory of only the most popular products, the Company offers more than
38,000 different software and peripheral products.
The software applications offered by the Company include major
business programs such as spreadsheet, word processing, electronic mail,
groupware, database, and graphics, as well as operating systems, utilities and
languages. For the fiscal year ended March 31, 1996, the top 20 software
titles sold by the Company represented approximately 50% of the Company's net
sales.
The Company maintains a database of hard-to-find software required by
customers as well as software available from the Company's major publishers and
vendors. The Company continually adds to its database, information on these
types of products and their sources of supply in order to expedite customer
requests.
The Company also sells hardware, peripheral products and accessories,
such as modems, expansion cards and keyboards. The Company expects that for the
foreseeable future, sales from software products will continue to be its
primary source of revenues.
DISTRIBUTION AND INVENTORY CONTROL
In May 1996, the Company relocated its Chicago distribution operations
to Louisville, Kentucky. The Company plans to consolidate the remainder of its
United States distribution operations to Louisville in July 1996. The Company
generally ships products that it carries in inventory the same day the Company
receives the customer order utilizing independent carriers. During its fiscal
year ended March 31, 1996, the Company shipped an average of 1,500 orders per
day. The Company bar codes every product in its inventory in order to reduce
the risk of shipping errors and to provide better inventory control. The
Company conducts a physical inventory three to four times each year and seeks
to maintain strict control of inventories to minimize the risk of product
obsolescence and to maximize inventory turns. As of March 31, 1996, the Company
held approximately 25 days of anticipated sales of shippable products in
inventory, based on data from the immediately preceding monthly period. On
average, the Company turns its inventory twelve times per year. The Company
has exchange and return privileges with the major vendors with which it does
business. These arrangements reduce the risk of loss resulting from obsolete
goods and damaged merchandise. As of March 31, 1996, the Company did not have a
significant order backlog.
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<PAGE> 13
CUSTOMERS
In fiscal 1996, the Company handled more than 6300 active customer
accounts. Following its recent acquisitions, the Company's customer base has
approximately doubled. The Company's customer base includes corporations,
government agencies, non-profit institutions and other business entities.
Fortune 1000 companies and other large organizations in foreign countries
comprise the Company's primary customer base. The Company's recent
acquisitions greatly increased the government agency segment of the Company's
business and established a presence for the Company in the educational market.
The Company also sells software to mid-tier organizations through its TeleSales
and Catalog Sales group. Sales contracts with large customers for the
procurement of products generally cover a one to three year period subject to
the customers' rights to terminate the contract upon notice. These contracts
usually include provisions regarding price, availability, payment terms and
return policy. Contracts covering technology services vary in length depending
on the services to be provided and are generally terminable upon 30 days'
notice. Standard payment terms with the Company's customers are net 30 days
from the date of invoice or net 10 days in the case of summary periodic
billings to customers. Although customer arrangements vary, the Company
generally affords its customers with product return and exchange privileges,
which are typically limited to 30 to 60 days following shipment, with respect
to unopened stocked products and defective or damaged products. In the fiscal
year ended March 31, 1996, no single customer represented more than 3% of the
Company's revenues. The Company does not believe that the loss of any single
customer would have a material adverse effect on its business.
The Company recognizes revenue from products sold at the time the
product is shipped to or a license is purchased by the customer. The Company
believes that returns of products by customers are not, and have not
historically been, material. Maintenance and services revenue is recognized
ratably over the contractual period or as the services are provided.
VENDORS
Substantially all of the Company's sales from software are derived
from products purchased from publishers and distributors. The decision whether
to buy products directly from publishers or through distributors is determined
on a vendor-by-vendor basis based on cost, availability, return privileges,
demand for a particular product and the benefits of a close strategic
relationship. For the fiscal year ended March 31, 1996, approximately 75% of
the Company's sales represented products purchased from its ten largest
vendors. For the fiscal years ended March 31, 1996 and 1995, products from
Microsoft accounted for approximately 44% and 39% of net sales, respectively,
and products from Lotus accounted for approximately 10% of net sales in each
year. In fiscal 1996, Microsoft and Lotus were the Company's two largest
vendors.
The Company has contractual relationships with all its major vendors
covering price, payment terms and return privileges. These contracts are
non-exclusive and non-territorial and are generally terminable by either party
without cause upon 30 to 60 days' notice. The Company's contracts with its
major vendors are generally for one or two year terms, and the majority contain
no provision for automatic renewal.
Publisher contracts generally permit the Company to return or dispose
of products in exchange for credit against future purchases in the event that a
product is defective or made obsolete, whether through the development of
upgrades or new releases or otherwise. In addition, such contracts permit the
Company to stock balance its inventory, generally on a quarterly basis, by
allowing returns for credit against future purchases of a limited portion
(usually 3% to 15%) of the products previously purchased by the Company. The
agreements also typically provide that the Company may obtain credit against
future purchases if the vendor subsequently lowers its prices on products that
have been purchased by the Company within a 30 to 90 day period prior to such
price decrease. The purpose of the foregoing stock balancing and price
protection provisions is to permit the Company to maintain an inventory of
products that is sufficient to meet its customers' needs while reducing the
obsolescence risks associated therewith. Such contracts do not typically
require the Company to ensure end-user compliance with its publishers'
licensing and copyright or patent right protection provisions. Certain of the
Company's contracts with vendors provide for early payment discounts.
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<PAGE> 14
Under the terms of its vendor contracts, the Company is not generally required
to meet any minimum purchase or sales requirements, except to the extent that
the Company's level of purchases or sales may affect the amount or availability
of financial incentives, advertising allowances and marketing funds. The
reduction in amount, discontinuance of or the Company's inability to meet
requirements established by vendors for achieving financial incentives,
advertising allowances and marketing funds could have an adverse effect on the
Company's business and financial results. The material terms of the Company's
contracts with Microsoft and Lotus do not differ in any material respect from
the comparable terms of the Company's arrangements with other major publishers.
COMPETITION
The microcomputer software market is intensely competitive. The
Company faces competition from a wide variety of sources, including traditional
software resellers, hardware dealers and aggregators and large systems
integrators. Current competitors from the software reseller category would
include Stream International, Inc. The Company believes that it possesses a
number of significant differentiating features from this group. These features
include the Company's operations presence in major global microcomputer
business markets, its extensive technology services capabilities and offerings,
extensive VLM services, and custom computer systems that support the Company's
business and knowledgeable, industry-experienced personnel.
Newer competitors include hardware dealers and aggregators such as
VanStar and Entex. These companies are also competing in the large
organization market with marketing efforts to provide customers with complete
software and hardware services. Other competitors include large systems
integrators such as DEC and EDS. These companies do have a global presence and
technology services. The Company believes its VLM services, custom computing
systems specifically designed to support the Company's business and
knowledgeable industry-experienced personnel are differentiating factors in
this group of competitors.
The manner in which microcomputer software products are distributed
and sold is continually changing and new methods of distribution may emerge or
expand. Software publishers may intensify their efforts to sell their products
directly to end-users, including current and potential customers of the
Company. In the past, direct sales from software publishers to end-users have
not been significant, although end-users have traditionally been able to
purchase upgrades directly from publishers. From time to time some publishers
have instituted programs for the direct sale of single large order quantities
of software to major corporate accounts, and the Company anticipates that these
types of transactions will continue to be used by various publishers from time
to time in the future. The Company could be adversely affected if major
software publishers successfully implement programs for the direct sale of
software through volume purchase agreements or other arrangements intended to
exclude the channel. The Company believes that the total range of services it
provides to its customers cannot be easily substituted by publishers,
particularly because publishers do not offer the scope of services or product
offerings required by most of the Company's customers. However, there can be no
assurance that publishers will not increase their efforts to sell substantial
quantities of software directly to end users. In addition, the acceptance of
VLM agreements by organizations as a method to purchase software has continued
to expand over the past year. With a few exceptions for small licensing
transactions, publishers generally permit VLM agreements to be offered only by
large suppliers such as the Company, who have the capability to service and
support these volume programs. Should publishers permit others to sell VLM
agreements for higher volume transactions, or should additional competitors
develop the capabilities required to service and support large licensing
programs, the Company's competitive advantage could be negatively impacted. If
the channel's participation in VLM agreements is reduced or eliminated or if
other methods of distribution of software become common, the Company's business
and financial results could be materially adversely affected. Management
believes that greater acceptance of VLM agreements will be one of the factors
that over time will lead to electronic distribution of software. Microsoft
recently announced that it would allow desktop software applications to be made
available through electronic distribution by certain selected channel partners.
The Company intends to participate in this method of software distribution as
communications technology improvements permit electronic software distribution
to be made efficiently. The Company's continuing investment in electronic
software distribution and electronic commerce reflects the Company's commitment
to meeting the changing needs of its customers. There
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<PAGE> 15
continues to be an increase in the sale of microcomputers to home and small
businesses with many popular software application programs bundled with the
hardware. If bundling of software with hardware becomes accepted by large
corporate customers in the future, such bundling could have an adverse effect
on the Company's business.
EMPLOYEES
As of March 31, 1996, the Company had approximately 835 employees in
North America and Europe. The Company has entered into non-competition
agreements and/or non-solicitation agreements with substantially all of its
sales and Technology Services Group personnel. None of the Company's employees
is represented by a union. Following its recent acquisitions, at June 15,
1996, the Company had approximately 1,400 permanent and temporary employees
worldwide.
ITEM 2. PROPERTIES
The Company currently leases approximately 130,000 square feet of
space in Garland, Texas (a suburb of Dallas) for its corporate headquarters.
As of March 31, 1996, the Garland leases had a remaining term of 48 months with
monthly payments of approximately $44,000. In connection with its acquisition
of the CG&E division, the Company entered into a three year lease at an initial
monthly rental of $32,500 increasing to $40,000 in the third year for its call
center operations (approximately 54,000 square feet) in Spokane, Washington.
The Company has recently relocated its Chicago distribution facility to
Louisville, Kentucky where the Company leases approximately 62,500 square feet
of space for approximately $18,000 per month. The term of the Louisville lease
is three years. Within North America, the Company also leases office space in
various markets for its Technology Services Group.
With respect to its European-based operations, the Company currently
leases space in Dublin, The Hague and London. In Asia/Pacific, the Company
leases office space in seven markets.
ITEM 3. LEGAL PROCEEDINGS
On March 4, 1994, a lawsuit was filed in the United States District
Court for the Northern District of Texas against the Company and Judy O. Sims
by Rebecca Lovelace and Ira Newman. The suit was filed as a class action on
behalf of all persons who purchased common stock of the Company from June 21,
1993 to January 26, 1994. On July 5, 1994, a lawsuit was filed against the
Company and Ms. Sims by Gerald Klein as a class action on behalf of all persons
who purchased the Company's common stock from June 21, 1993 through June 13,
1994. Each of these lawsuits alleged that the defendants violated the Federal
securities laws in connection with the Company's quarterly earnings
announcement on January 26, 1994, and the events and circumstances surrounding
the Company's dismissal of Coopers & Lybrand LLP as its Independent Auditor in
June 1994.
On February 23, 1995, the District Court entered an order
consolidating the two cases. On March 10, 1995, the District Court entered an
order granting the Company's and Ms. Sims' motions to dismiss. On April 2,
1996, the United States Court of Appeals for the Fifth Circuit affirmed the
District Court's order dismissing the plaintiffs' claims with prejudice.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. The ultimate disposition of these matters
will not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders during
the fourth quarter of the fiscal year ended March 31, 1996.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded over the counter and is listed on
the Nasdaq National Market System under the symbol SSPE. The information
appearing on page 31 of the Company's 1996 Annual Report to Shareholders under
the caption "Quarterly Financial Data and Market Information" is incorporated
herein by reference.
On June 18, 1996 there were 162 holders of record (representing
approximately 2,000 beneficial owners) of the Company's common stock. The
Company has never paid cash dividends on its common stock. The Board of
Directors presently intends to retain all earnings for use in the Company's
business and does not anticipate paying cash dividends in the near term.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears on page 17 of the
Company's 1996 Annual Report to Shareholders under the caption "Selected
Consolidated Financial Data", which information is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information appearing on pages 18 through 21 of the Company's 1996
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information appearing on pages 22 through 31 of the Company's 1996
Annual Report to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective June 11, 1994, the Company dismissed its prior independent
accountants, Coopers & Lybrand LLP ("C&L") and retained Grant Thornton LLP
("Grant Thornton") as its new independent accountants. C&L's reports on the
Company's financial statements for the fiscal years ended March 31, 1993 and
March 31, 1992 contained no adverse opinion or a disclaimer of opinion, and
were not qualified or modified in any respect. The decision to change
accountants was approved by the Company's Audit Committee and its Board of
Directors.
The Company was notified by C&L on the evening of May 16, 1994, that
C&L needed additional time to complete its audit procedures. At that time, C&L
also requested an attorney's letter concerning legal release of liabilities.
As a result, the Company's scheduled May 17, 1994 announcement of its financial
results for the fiscal year ended March 31, 1994 was delayed. During the
subsequent weeks, C&L continued to work on completing its audit and had been in
discussions with the Company concerning the appropriate accounting treatment
relating to certain credits recorded primarily to sales and cost of sales
during the fiscal year ended March 31, 1994. At a meeting between the Company
and C&L on May 31, 1994, C&L suggested that the Company might want to review
with another independent accounting firm the appropriate accounting treatment
for these credits. On June 1, 1994, the Company retained Grant Thornton to
analyze the accounting issues relating to these credit items. On June 2, 1994,
Grant Thornton met privately with C&L to ensure there
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<PAGE> 17
was a mutual understanding of the facts and circumstances relative to the
credit items. On June 6, 1994, Grant Thornton met again with C&L to review and
discuss the appropriate accounting treatment for these items. After further
research, discussion and consultation, the Company determined that it disagreed
with C&L's position. On June 11, 1994, the Company's Audit Committee met with
C&L to review the accounting issues relating to these credit items. Following
this meeting, C&L was dismissed from its engagement as the auditors for the
Company and the Company engaged Grant Thornton. The Company authorized C&L to
respond fully to all inquiries of Grant Thornton including those related to the
subject matter of the disagreement.
The Company disagreed with the position C&L took regarding the proper
accounting treatment for certain credit items arising from inventory and
receivables activity. C&L took the position that certain credit items recorded
on the Company's balance sheet represented liabilities and could therefore not
be removed from the balance sheet and recorded to the income statement until
the statute of limitations expires or there is a legal release, regardless of
the remote possibility that the Company would be required to utilize its assets
to pay future claims. C&L indicated that it had relied on SFAS No. 76 to
determine the appropriate accounting treatment of these credits arising from
inventory and receivable activity. While C&L did not complete its audit
procedures, C&L indicated that application of its approach to accounting for
these credit items would result in an estimated reduction of net income for the
nine months ended December 31, 1993 of approximately $300,000 - $600,000 and
might require restatement of quarterly financial information as well as changes
in disclosure.
The Company's accounting practice has been to record these credit
items as payables at the time they arise. The Company's experience has been
that when these items reach a certain age, they will not result in a probable
future transfer or use of assets and therefore do not represent liabilities.
Accordingly, the Company has concluded the excess credits should be removed
from the balance sheet. During the quarter ended June 30, 1993, the Company
refined its methodology and applied a more objective, systematic approach to
eliminating these excess credits from the balance sheet and recording them to
the income statement. Previously, the Company made periodic determinations to
take these excess credit items into income.
Grant Thornton advised the Company orally that it was of the opinion
that the Company's treatment of these items was in accordance with generally
accepted accounting principles. Grant Thornton reviewed the information
provided in response to this item and has advised the Company that it does not
have any new information or clarification of the Company's views and it agrees
with the statements made by the Company under this Item.
C&L's letter responding to the Company's request pursuant to Item
304(a)(3) of Regulation S-K is incorporated by reference to this Report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the current directors of the Company, and the
persons nominated for election as directors of the Company at its Annual
Meeting of Shareholders to be held on August 15, 1996, appears in the Company's
Proxy Statement relating to the Annual Meeting under the caption "Election of
Directors". Such information is incorporated herein by reference.
EXECUTIVE OFFICERS
Officers are elected annually by the Board of Directors and serve
until their successors are elected and qualified. The current executive
officers of the Company are as follows:
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<TABLE>
<CAPTION>
Officer
Name Position Since Age
---- -------- ------- ---
<S> <C> <C>
Judy O. Sims Chief Executive Officer and President 1988 43
Richard G. Sims Senior Vice President 1983 42
Keith R. Coogan Executive Vice President, Chief 1990 44
Operating Officer
Roger J. King Vice President of Sales and Marketing 1990 43
Robert B. Mercer Vice President, Chief 1994 44
Information Officer
Deborah A. Nugent Vice President of Finance, 1992 42
Treasurer and Secretary
Lisa M. Stewart Vice President of Customer Operations 1996 33
</TABLE>
Judy O. Sims has served as Chief Executive Officer of the Company
since April 1988 and Chairman of the Board since July 1992. In April 1996, she
also assumed the title of President. Ms. Sims is a co-founder of the Company
and has been a director of the Company since its inception in 1983. Ms. Sims
served as Treasurer of the Company from 1983 to October 1990 and as Vice
President from April 1987 to April 1988. Ms. Sims was employed by the national
accounting firm of Grant Thornton LLP from 1977 to 1985, where she last served
as an audit partner. Prior to joining Grant Thornton LLP, Ms. Sims was
employed by the national accounting firm of Coopers & Lybrand LLP. Ms. Sims is
a Certified Public Accountant. Ms. Sims is married to Richard Sims.
Richard G. Sims is a co-founder of the Company and has been a director
of the Company since 1983. In April 1996, Mr. Sims assumed the title of Senior
Vice President with responsibility for the Company's Asia/Pacific expansion and
operations. He is also integrally involved with internal information systems
design. From 1983 to March 1996, Mr. Sims served as President of the Company.
From 1980 to 1983, Mr. Sims served as controller for International Power
Machines ("IPM"), a publicly-held manufacturer of uninterruptable power supply
systems for mainframe computers. Prior to joining IPM, Mr. Sims served as
controller for Sue Ann, Inc., a publicly-held women's sportswear manufacturer,
and a staff accountant for Coopers and Lybrand LLP. Mr. Sims is a Certified
Public Accountant. Mr. Sims is married to Judy Sims.
Keith R. Coogan was promoted to Executive Vice President and Chief
Operating Officer in April 1996. Mr. Coogan has been a Vice President of the
Company since October 1990 and was Secretary of the Company from May 1991
through July 1992. From October 1990 to March 1992, Mr. Coogan also served as
Treasurer of the Company. From May 1989 until joining the Company, Mr. Coogan
served as Vice President of Finance for Leather Center Holdings, Inc. a
privately-held manufacturer and retailer of leather furniture. From January
1986 to May 1989, he was Vice President and Chief Financial Officer of Trinity
Texas Corporation and Ward Hunt Investments, both of which were privately-held
real estate sales and development organizations. Mr. Coogan is a Certified
Public Accountant.
Roger J. King has been Vice President of Sales and Marketing since
April 1996. From September 1990 to March 1996, Mr. King served as Vice
President of Sales of the Company. Mr. King was employed by Lotus Development
Corporation from September 1987 to September 1990, where he last served as
Regional Manager for the software business group and was responsible for
product sales in a 14-state region. From July 1985 to September 1987, Mr. King
was a Vice President of the banking software group of Sterling Software,
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<PAGE> 19
Inc., a software development company. Prior thereto, he spent nine years with
IBM in various sales and sales management positions.
Robert B. Mercer has been a Vice President and the Chief Information
Officer of the Company since January 1994. Mr. Mercer is responsible for
internal software application development and information systems processing
for the Company. From March 1992 until joining the Company, Mr. Mercer was the
Vice President and Chief Information Officer of Lechters, Inc., a publicly-held
specialty retailer. From 1988 to March 1992, he served as Senior Vice
President and Chief Information Officer of KG Men's Store, a privately-held
clothing store chain.
Deborah A. Nugent has been Vice President of Finance and Treasurer
since March 1992 and Secretary of the Company since July 1992. From July 1991
until joining the Company, Ms. Nugent served as Assistant Treasurer and Chief
Financial Officer of Mothers Against Drunk Driving. From April 1988 to April
1991, she served as Vice President, Treasurer and Chief Financial Officer of
USF&G Capital Investors, Inc., a capital investments subsidiary of USF&G
Corporation. From July 1986 to April 1988, she was Chief Financial Officer of
The Tower Group, Inc., a privately-held real estate sales and development
company. Prior thereto, Ms. Nugent was employed by the national accounting
firms of Grant Thornton LLP and Coopers & Lybrand LLP. Ms. Nugent is a
Certified Public Accountant.
Lisa M. Stewart was promoted to Vice President of Customer Operations
in April 1996. From January 1994 through March 1996, Ms. Stewart served as
Director of Customer Operations for the Company after having served in various
sales and sales management and operations positions. Prior to joining the
Company in 1988, Ms. Stewart was employed by Fox T.V. and Hilton Services
Corporation.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the Company's Proxy
Statement for its Annual Meeting of Shareholders to be held on August 15, 1996,
under the caption "Executive Compensation", which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the Company's Proxy
Statement for its Annual Meeting of Shareholders to be held on August 15, 1996,
under the captions "Stock Ownership of Principal Shareholders" and "Stock
Ownership of Management", which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert D. Graham, a member of the Company's Board of Directors, is a
shareholder of the law firm of Locke Purnell Rain Harrell (A Professional
Corporation), counsel to the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) and (2) - Index to Financial Statements and Schedules - The
information required by this portion of Item 14 is set forth in a
separate section following Part IV of this Report.
(3) - The following documents are filed or incorporated by reference
as exhibits to this Report:
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<PAGE> 20
<TABLE>
<S> <C>
2 Asset Purchase Agreement dated as of March 23, 1996 by and among Software Spectrum, Inc., Egghead,
Inc. and DJ&J Software Corporation, as amended by First Amendment to Asset Purchase Agreement dated
May 13, 1996 (incorporated by reference to the Company's Current Report on Form 8-K dated March 26,
1996 and the Company's Current Report on Form 8-K dated May 23, 1996).
3.1 Restated Articles of Incorporation of the Company, filed with the Secretary of State of Texas on May
12, 1989, as amended (incorporated by reference to the Company's Registration Statement No. 33-40794
on Form S-1).
3.2 Restated Bylaws of the Company, as amended (incorporated by reference to the Company's Registration
Statement No. 33-40794 on Form S-1).
10.1(a) House Account Agreement (U.S.), dated as of September 4, 1986, as amended, between Lotus Development
Corporation and the Company (incorporated by reference to the Company's Registration Statement
No. 33-40794 on Form S-1).
10.1(b) Amendment to House Account Agreements dated as of June 25, 1992, between Lotus Development
Corporation and the Company (incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1993).
10.1(c) Educational House Account Agreement Addendum dated as of March 23, 1994 between Lotus Development
Corporation and the Company (incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1994).
10.2 Lotus Passport Reseller Authorization Agreement dated March 31, 1994 between Lotus Development
Corporation and the Company (incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1994).
10.3(a) Microsoft 1995/1996 Channel Agreement dated July 1, 1995 between Microsoft Corporation and the
Company, including Addenda dated July 1, 1995 (Appointment as a Direct Reseller) and Addenda dated
July 1, 1995 (Appointment as a Large Account Reseller).
10.3(b) Large Account Reseller Rebate Addendum to the 1995/1996 Microsoft Channel Agreement dated July 1,
1995, as amended by Amendment No.1 dated January 1, 1996.
10.3(c) Microsoft Government Select Government Contractor Addendum to the 1995/1996 Microsoft Channel
Agreement dated as of July 1, 1995.
10.3(d) Rebate and Marketing Fund Addendum to the 1995/1996 Microsoft Channel Agreement dated as of July 1,
1995, as amended by Amendment No. 1 dated January 1, 1996.
10.4 Microsoft Corporation 1995/1996 Authorized Government Large Account Reseller Agreement dated April
1, 1995 between Microsoft Corporation and the Company.
10.5(a) Commercial Lease Agreement, dated May 1, 1990, between CIIF Associates II Limited Partnership and
the Company (incorporated by reference to the Company's Registration Statement No. 33-40794 on Form
S-1).
10.5(b) Amendment to Lease Agreement dated March 31, 1995 between CIIF Associates II Limited Partnership and
the Company (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995).
</TABLE>
-17-
<PAGE> 21
<TABLE>
<S> <C>
10.6(a) Commercial Lease Agreement dated as of April 19, 1993, between Kancro, L.P. and the Company
(incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993).
10.6(b) Amendment #2 - Expansion Agreement to Lease Agreement dated as of June 20, 1994 between Kancro, L.P.
and the Company (incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994).
10.6(c) Third Amendment to Commercial Lease Agreement dated effective April 1, 1995 between Kancro, L.P. and
the Company (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995).
10.7 Industrial Building Lease dated as of June 7, 1993 between LaSalle National Trust, N.A. and the
Company (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993).
10.8 Form of Call Center Lease (Spokane) (incorporated by reference to the Company's Current Report on
Form 8-K dated March 26, 1996).
10.9 Loan Agreement dated as of September 30, 1994 between the Company and NationsBank of Texas, N.A. as
amended by First Amendment for Loan Agreement dated November 6, 1995. (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995).
10.10 Promissory Note dated September 30, 1994 executed by the Company in favor of NationsBank of Texas,
N.A. (incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995).
10.11 Credit Agreement dated as of May 3, 1996 between the Company and Texas Commerce Bank, National
Association, as Agent (incorporated by reference to the Company's Current Report on Form 8-K dated
May 23, 1996).
10.12 1989 Stock Option Plan of the Company, as amended (incorporated by reference to the Company's
Registration Statement No. 33-40794 on Form S-1).
10.13 Software Spectrum, Inc. Employee Stock Purchase Plan (incorporated by reference to the Company's
Registration Statement No. 33-53284 on Form S-1).
10.14 The Software Spectrum, Inc. 1993 Long Term Incentive Plan (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994).
10.15 Employees' Profit Sharing Plan of the Company, Adoption Agreement dated December 14, 1994
(incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995).
10.16 Lease Agreement dated March 8, 1996 by and between Riverport Commerce Center, Inc. and the Company.
10.17 Lease Agreement dated April 26, 1996 by and between Beneficiaries of American National Bank Trust
Number 104601-03 and the Company.
10.18 Non-Employee Directors' Retainer Stock Plan (incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the Quarter ended December 31, 1995.)
11.1 Statement regarding Computation of Primary Earnings Per Share.
11.2 Statement regarding Computation of Fully Diluted Earnings Per Share.
</TABLE>
-18-
<PAGE> 22
<TABLE>
<S> <C>
13 Software Spectrum, Inc.'s 1996 Annual Report to Shareholders.
16 Letter dated June 29, 1994 from Coopers & Lybrand LLP addressed to the Securities and Exchange
Commission (incorporated by reference to the Company's Current Report on Form 8-K/A dated June 11,
1994).
23 Consent of Grant Thornton LLP, Independent Accountants
24 Power of Attorney (included on the signature page of this Form 10-K).
27 Financial Data Schedule
99 Purchase and Sale Agreement dated as of April 2, 1996 by and among Software Spectrum, Inc., Software
Spectrum (NZ) Limited and Essentially Group Limited, Essentially Group (NZ) Limited, Essentially
Software (Wellington) Limited, The McNabb Family Trust, McNabb No. 2 Family Trust, McNabb No. 3
Family Trust, RMAD Trust, David Colvin and Gary McNabb.
</TABLE>
(B) REPORTS ON FORM 8-K
During the three months ended March 31, 1996, a report on Form 8-K was
filed by the Company on March 26, 1996, reporting the Company's entry
into an Asset Purchase Agreement with Egghead, Inc. and DJ&J Software
Corporation.
-19-
<PAGE> 23
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Software Spectrum, Inc., a
Texas corporation, and the undersigned directors and officers of Software
Spectrum, Inc., hereby constitutes and appoints Judy O. Sims its or his true
and lawful attorney-in-fact and agent, for it or him and in its or his name,
place and stead, in any and all capacities, with full power to act alone, to
sign any and all amendments to this Report, and to file each such amendment to
this Report, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, hereby
granting unto said attorney-in-fact and agent full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises as fully to all intents and purposes as it or he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOFTWARE SPECTRUM, INC.
By /s/ Judy O. Sims
-------------------------------
Judy O. Sims, Chief Executive
Officer and President
Date: June 27, 1996
-20-
<PAGE> 24
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C> <C>
/s/ Judy O. Sims Chief Executive Officer, President and June 27, 1996
- - ----------------------------------
Judy O. Sims Director (Principal Executive Officer)
/s/ Richard G. Sims Senior Vice President and Director June 27, 1996
- - ----------------------------------
Richard G. Sims
/s/ Deborah A. Nugent Vice President of Finance, Treasurer June 27, 1996
- - ----------------------------------
Deborah A. Nugent and Secretary (Principal Financial
Officer and Principal Accounting Officer)
/s/ Mellon C. Baird Director June 27, 1996
- - ----------------------------------
Mellon C. Baird
/s/ Robert D. Graham Director June 27, 1996
- - ----------------------------------
Robert D. Graham
/s/ Frank Tindle Director June 27, 1996
- - ----------------------------------
Frank Tindle
</TABLE>
-21-
<PAGE> 25
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of Software Spectrum,
Inc. and subsidiaries appearing on pages 22 through 31 of the Company's 1996
Annual Report to Shareholders have been incorporated herein by reference under
Item 8 of Part II of this report.
Report of Grant Thornton LLP
Consolidated Balance Sheets as of March 31, 1996 and 1995
Consolidated Statements of Income for the three years ended
March 31, 1996
Consolidated Statements of Shareholders' Equity for the three years
ended March 31, 1996
Consolidated Statements of Cash Flows for the three years ended
March 31, 1996
Notes to Consolidated Financial Statements
The following financial schedule of Software Spectrum, Inc. and
subsidiaries for the three years ended March 31, 1996, is filed herewith:
Schedule II Valuation and Qualifying Accounts and Reserves S-1
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required or are inapplicable and therefore have been omitted. Individual
financial statements of Software Spectrum, Inc. have been omitted since
consolidated financial statements are being filed and no significant amount of
the assets of the subsidiaries included in the consolidated financial
statements being filed are restricted as to transfer to Software Spectrum, Inc.
-22-
<PAGE> 26
Report of Independent Certified Public Accountants on Schedule
Board of Directors
Software Spectrum, Inc.
In connection with our audit of the consolidated financial statements of
Software Spectrum, Inc. and Subsidiaries referred to in our report dated June
6, 1996, which is included in the annual report to shareholders and
incorporated by reference in Part II of this form, we have also audited
Schedule II for each of the three years in the period ended March 31, 1996. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
June 6, 1996
<PAGE> 27
SOFTWARE SPECTRUM, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<S> <C> <C> <C> <C>
ADDITIONS
BALANCE AT CHARGED TO WRITE-OFFS BALANCE
BEGINNING COSTS AND NET OF AT END
OF YEAR EXPENSES RECOVERIES OF YEAR
----------- ---------- ---------- -----------
Allowance for Doubtful Accounts:
- - -------------------------------
Fiscal year ended March 31, 1996: $1,371,000 $ 633,000 ($803,000) $1,201,000
Fiscal year ended March 31, 1995: $1,662,000 $ 244,000 ($535,000) $1,371,000
Fiscal year ended March 31, 1994: $1,688,000 $ 194,000 ($220,000) $1,662,000
Inventory Valuation Account:
- - ---------------------------
Fiscal year ended March 31, 1996: $1,123,000 $1,249,000 ($1,375,000) $ 997,000
Fiscal year ended March 31, 1995: $ 985,000 $1,173,000 ($1,035,000) $1,123,000
Fiscal year ended March 31, 1994: $ 852,000 $ 755,000 ($ 622,000) $ 985,000
</TABLE>
S-1
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- - -------
<S> <C>
2 Asset Purchase Agreement dated as of March 23, 1996 by and among Software
Spectrum, Inc., Egghead, Inc. and DJ&J Software Corporation, as amended by First
Amended to Asset Purchase Agreement dated May 13, 1996 (incorporated by reference
to the Company's Current Report on Form 8-K dated March 26, 1996 and the Company's
Current Report on Form 8-K dated May 23, 1996).
3.1 Restated Articles of Incorporation of the Company, filed with the Secretary of
State of Texas on May 12, 1989, as amended (incorporated by reference to the
Company's Registration Statement No. 33-40794 on Form S-1).
3.2 Restated Bylaws of the Company, as amended (incorporated by reference to the
Company's Registration Statement No. 33-40794 on Form S-1).
10.1(a) House Account Agreement (U.S.), dated as of September 4, 1986, as amended,
between Lotus Development Corporation and the Company (incorporated by reference
to the Company's Registration Statement No. 33-40794 on Form S-1).
10.1(b) Amendment to House Account Agreements dated as of June 25, 1992, between Lotus
Development Corporation and the Company (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993).
10.1(c) Educational House Account Agreement Addendum dated as of March 23, 1994 between
Lotus Development Corporation and the Company (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994).
10.2 Lotus Passport Reseller Authorization Agreement dated March 31, 1994 between
Lotus Development Corporation and the Company (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994).
10.3(a) Microsoft 1995/1996 Channel Agreement dated July 1, 1995 between Microsoft
Corporation and the Company, including Addenda dated July 1, 1995 (Appointment as
a Direct Reseller) and Addenda dated July 1, 1995 (Appointment as a Large Account
Reseller).
10.3(b) Large Account Reseller Rebate Addendum to the 1995/1996 Microsoft Channel
Agreement dated July 1, 1995, as amended by Amendment No.1 dated January 1, 1996.
10.3(c) Microsoft Government Select Government Contractor Addendum to the 1995/1996
Microsoft Channel Agreement dated as of July 1, 1995.
</TABLE>
-23-
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
- - -------
<S> <C>
10.3(d) Rebate and Marketing Fund Addendum to the 1995/1996 Microsoft Channel Agreement
dated as of July 1, 1995, as amended by Amendment No. 1 dated January 1, 1996.
10.4 Microsoft Corporation 1995/1996 Authorized Government Large Account Reseller
Agreement dated April 1, 1995 between Microsoft Corporation and the Company.
10.5(a) Commercial Lease Agreement, dated May 1, 1990, between CIIF Associates II Limited
Partnership and the Company (incorporated by reference to the Company's
Registration Statement No. 33-40794 on Form S-1).
10.5(b) Amendment to Lease Agreement dated March 31, 1995 between CIIF Associates II
Limited Partnership and the Company (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995).
10.6(a) Commercial Lease Agreement dated as of April 19, 1993, between Kancro, L.P. and
the Company (incorporated by reference to the Company's Annual Report on Form 10-
K for the fiscal year ended March 31, 1993).
10.6(b) Amendment #2 - Expansion Agreement to Lease Agreement dated as of June 20, 1994
between Kancro, L.P. and the Company (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1994).
10.6(c) Third Amendment to Commercial Lease Agreement dated effective April 1, 1995
between Kancro, L.P. and the Company (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995).
10.7 Industrial Building Lease dated as of June 7, 1993 between LaSalle National
Trust, N.A. and the Company (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1993).
10.8 Form of Call Center Lease (Spokane) (incorporated by reference to the Company's
Current Report on Form 8-K dated March 26, 1996).
10.9 Loan Agreement dated as of September 30, 1994 between the Company and NationsBank
of Texas, N.A. as amended by First Amendment to Loan Agreement dated November 6, 1995
(incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995 and the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
10.10 Promissory Note dated September 30, 1994 executed by the Company in favor of
NationsBank of Texas, N.A. (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995).
</TABLE>
-24-
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
- - -------
<S> <C>
10.11 Credit Agreement dated as of May 3, 1996 between the Company and Texas Commerce
Bank, National Association, as Agent (incorporated by reference to the Company's
Current Report on Form 8-K dated May 23, 1996).
10.12 1989 Stock Option Plan of the Company, as amended (incorporated by reference to
the Company's Registration Statement No. 33-40794 on Form S-1).
10.13 Software Spectrum, Inc. Employee Stock Purchase Plan (incorporated by reference
to the Company's Registration Statement No. 33-53284 on Form S-1).
10.14 The Software Spectrum, Inc. 1993 Long Term Incentive Plan (incorporated by
reference to the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994).
10.15 Employees' Profit Sharing Plan of the Company, Adoption Agreement dated December
14, 1994 (incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995).
10.16 Lease Agreement dated March 8, 1996 by and between Riverport Commerce Center,
Inc. and the Company.
10.17 Lease Agreement dated April 26, 1996 by and between Beneficiaries of American
National Bank Trust Number 104601-03 and the Company.
10.18 Non-Employer Directors' Retainer Stock Plan (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended December 31, 1995).
11.1 Statement regarding Computation of Primary Earnings Per Share.
11.2 Statement regarding Computation of Fully Diluted Earnings Per Share.
13 Software Spectrum, Inc.'s 1996 Annual Report to Shareholders.
16 Letter dated June 29, 1994 from Coopers & Lybrand LLP addressed to the Securities
and Exchange Commission (incorporated by reference to the Company's Current
Report on Form 8-K/A dated June 11, 1994).
23 Consent of Grant Thornton LLP, Independent Accountants
24 Power of Attorney (included on the signature page of this Form 10-K).
27 Financial Data Schedule
99 Purchase and Sale Agreement dated as of April 2, 1996 by and among Software
Spectrum, Inc., Software Spectrum (NZ) Limited and Essentially Group Limited,
Essentially Group (NZ) Limited, Essentially Software (Wellington) Limited, The
McNabb Family Trust, McNabb
</TABLE>
-25-
<PAGE> 31
No. 2 Family Trust, McNabb No. 3 Family Trust, RMAD Trust,
David Colvin and Gary McNabb.
-26-
<PAGE> 1
EXHIBIT 10.3A
MICROSOFT CORPORATION
1995/1996 CHANNEL
AGREEMENT
This Microsoft Corporation 1995/1996 Channel Agreement ("Agreement") is entered
into as of the 1st day of July, 1995 between MICROSOFT CORPORATION ("MS")
having its principal place of business at One Microsoft Way, Redmond, WA
98052-6399 and SOFTWARE SPECTRUM, INC. ("CUSTOMER") having its principal place
of business at 2140 Merritt Drive, Garland, TX 75041.
1. DEFINITIONS
All capitalized terms included in this Agreement are as defined in Schedule A
attached hereto.
2. TERM OF AGREEMENT
2.1 TERM
This Agreement shall take effect on the date indicated above and shall continue
until June 30, 1996.
2.2 TERMINATION
Either MS or CUSTOMER may terminate this Agreement and/or any amendment hereto
at any time, with or without cause, upon thirty (30) days prior written notice.
Neither party shall be responsible to the other for any costs or damages
resulting from the termination of this Agreement. Rights to payment of money
which have accrued prior to termination shall survive termination. Any Product
acquired by CUSTOMER pursuant to this Agreement which is in its Possession as
of the termination of this Agreement shall be distributed by CUSTOMER subject
to the restrictions in this Agreement, or may be returned to MS only within
sixty (60) days of termination as authorized herein. CUSTOMER shall make a
final report to MS within ninety (90) days of termination of this Agreement.
Termination of this Agreement shall automatically terminate any amendments
hereto.
3. CUSTOMER OBLIGATIONS
3.1 FINANCIAL STATEMENT
CUSTOMER will provide to MS' credit management, quarterly Financial Statements
within forty-five (45) days after the end of each calendar quarter. CUSTOMER
Financial Statements will be used by MS' credit department solely for the
purpose of establishing and reviewing CUSTOMER's credit. Financial Statements
should be forwarded to attn. Credit Manager, Finance, Microsoft, One Microsoft
Way, Redmond, WA 98052-6399.
3.2 NO OTHER PRODUCT WARRANTIES BY CUSTOMER
Neither CUSTOMER nor any of its employees or agents shall have any right to
make any other warranties or promises for the use of Product which are not
contained in the written warranty document accompanying the Product. CUSTOMER
may, however, make representations and give instructions for the use of the
Product which are contained on the Product label or container, or End User
documentation provided with the manual or MS product literature denoted by a MS
part number or authorized in writing by MS.
3.3 NO ALTERATIONS OF PRODUCT
CUSTOMER shall not alter the Product or Product packaging, and shall have no
authority to make copies of MS diskettes or documentation. CUSTOMER shall
distribute Product to its customers in unopened packages as shipped by MS.
Microsoft Confidential - Disclosure Prohibited
<PAGE> 2
3.4 USE OF TRADEMARKS
The appropriate trademark symbol (either "(TM)" or "(R)" in a superscript
following the Product name) shall be used whenever a Product name is first
mentioned in any advertisement, brochure, or other material circulated or
displayed by CUSTOMER. MS' current trademark list is available upon requested.
3.5 AUTHORIZED DISTRIBUTION
Product acquired under this Agreement shall be distributed only within the
Territory. CUSTOMER shall not, without the prior written consent of MS,
distribute Product to any Reseller or End User whom they have reason to believe
may re-distribute such Product outside of the Territory.
3.6 TAXES
CUSTOMER shall be liable for all sales, use, value added, duties, tariffs or
other similar taxes of any nature whatsoever associated with the distribution
of the Product, and shall indemnify and hold MS harmless from any such taxes or
expenses.
4. MS OBLIGATIONS
4.1 ASSISTANCE WITH REPORTING
Upon request, MS shall use best efforts to assist CUSTOMER in data reporting,
and will work with CUSTOMER's MIS department to facilitate the data reporting
process.
4.2 NO WARRANTIES FOR PRODUCT NOT MANUFACTURED BY MS
MS makes no warranties as to items distributed under a third party name,
copyright, trademark or trade name which may be included within the retail
package of a Product sold hereunder.
4.3 AUDITS
During the term of this Agreement and for a period of two (2) years following
its termination, MS may audit the applicable records and operations of CUSTOMER
as is reasonable to verify CUSTOMER's compliance with the terms of this
Agreement. CUSTOMER shall promptly correct any errors and omissions disclosed
by such audit. Any audit will be conducted during CUSTOMER's normal business
hours in such a manner as not to unreasonably interfere with CUSTOMER's normal
business activities.
5. CUSTOMER AND MS OBLIGATIONS
5.1 PRODUCT WARRANTY; LIMITATION OF LIABILITY
(a) MS warrants its software and hardware
Product to End Users as defined in the written limited warranty document
accompanying each Product. All replacement Product is delivered subject to the
terms of the MS limited Product warranty. THE ABOVE LIMITED WARRANTIES ARE IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, OR STATUTORY, INCLUDING
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND
OF ALL OTHER OBLIGATIONS OR LIABILITIES ON MS' PART.
(b) NEITHER MS NOR ANYONE ELSE WHO HAS BEEN
INVOLVED IN THE CREATION, PRODUCTION, OR DELIVERY OF ANY PRODUCT WHICH ARE THE
SUBJECT OF THIS AGREEMENT SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE)
ARISING OUT OF THE USE OR INABILITY TO USE ANY PRODUCT EVEN IF MS HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 2
<PAGE> 3
(c) IN ANY CASE, THE LIABILITY OF MS (i)
UNDER ANY PROVISION OF THIS AGREEMENT; (ii) FOR ANY DAMAGES CAUSED BY A PROGRAM
DEFECT OR FAILURE IN ANY PRODUCT OR (iii) ARISING FROM A COURT OF PROPER
JURISDICTION HOLDING ANY OF THE ABOVE WARRANTIES OR DISCLAIMERS OF WARRANTIES
INADEQUATE OR INVALID SHALL BE LIMITED TO THE AMOUNT ACTUALLY PAID BY CUSTOMER
TO MS UNDER THIS AGREEMENT. MS' LIMITATION OF LIABILITY IS CUMULATIVE WITH ALL
OF MS' EXPENDITURES BEING AGGREGATED TO DETERMINE SATISFACTION OF THE LIMIT.
THE EXISTENCE OF CLAIMS OR SUITS AGAINST MORE THAN ONE PRODUCT LICENSED UNDER
THIS AGREEMENT WILL NOT ENLARGE OR EXTEND THE LIMIT. CUSTOMER RELEASES MS FROM
ALL OBLIGATIONS, LIABILITY, CLAIMS OR DEMANDS IN EXCESS OF THE LIMITATION.
5.2 SEMESTER PROGRAMS
(A) MARKETING FUNDS
Each Semester, MS may allow CUSTOMER to participate in programs which provide
the opportunity to earn marketing funds. CUSTOMER's participation in such
programs shall be governed by CUSTOMER's then current Microsoft Rebate and
Marketing Fund Addendum to this Agreement, and Microsoft's Marketing Fund
Guidelines, as such may be promulgated and modified by MS, in its sole
discretion, from time to time.
(B) REBATES
Each Semester, MS may allow CUSTOMER to participate in programs which provide
the opportunity to earn rebates as described in CUSTOMER's current Microsoft
Rebate and Marketing Fund Addendum to this Agreement, and CUSTOMER's Rebate
Program Guidelines, as such may be promulgated and modified by MS, in its sole
discretion, from time to time.
(C) ELECTRONIC DATA INTERCHANGE
MS shall require CUSTOMER to provide weekly and monthly sales reporting during
the term of this Agreement. Such sales reporting shall be submitted to MS in
accordance with the Electronic Data Interchange (EDI) Guidelines as provided to
CUSTOMER by MS, from time to time.
6. PATENT, COPYRIGHT AND TRADEMARK INFRINGEMENT
MS shall defend and pay the amount of any final adverse judgement against
CUSTOMER, or settlement to which MS has consented, resulting from claims of
infringement of any United States patent, copyright, trademark and/or service
mark with respect to a Product, provided that the Product has not been altered,
and provided further that MS is notified promptly in writing of such a claim
and has sole control over its defense or settlement, and CUSTOMER provides
reasonable assistance in the defense of the same.
7. DELAY IN PERFORMANCE
Neither party shall be liable for failure or delay in the performance of any of
its obligations under this Agreement, except obligations for the payment of
money, if such delay or failure is caused by circumstances beyond the control
of the party affected. Strikes or other labor difficulties which are not
capable of being terminated on terms acceptable to the party affected shall not
be considered circumstances within the control of such party. In the event of
Product shortages, MS shall have the right to allocate available supplies of
the Product in its sole discretion.
8. NO WAIVER
None of the provisions of this Agreement shall be deemed to have been waived by
any act or acquiescence on the part of MS, CUSTOMER or their respective agents
or employees, but may be waived only by an instrument in writing signed by an
authorized officer of the waiving party. No waiver of any provision of this
Agreement shall constitute a waiver of any other provision or of the same
provision on another occasion.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 3
<PAGE> 4
9. NO PARTNERSHIP OR AGENCY
Nothing in this Agreement shall be deemed to create or constitute a
partnership, joint venture, franchise, agency, or contract of employment
between MS and CUSTOMER
10. ATTORNEY'S FEES; GOVERNING LAW
In the event an action is commenced to enforce a party's rights under this
Agreement, the prevailing party in such action shall be entitled to recover its
costs and attorneys' fees. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Washington. CUSTOMER consents to
non~exclusive jurisdiction and venue in King County, Washington.
11. ENTIRE AGREEMENT
This Agreement and all attached Amendments, Addenda and Schedules constitute
the entire agreement between MS and CUSTOMER, and supersedes and terminates any
and all prior agreements or contracts, written or oral, entered into between
the parties relating to the subject matter hereof. Any representations,
promises, or conditions in connection therewith not in writing signed by both
parties shall not be binding upon either party. This Agreement shall control
any provisions in purchase orders which are inconsistent with this Agreement.
12. U.S. GOVERNMENT RESTRICTED RIGHTS
Any Product which CUSTOMER distributes or licenses to or on behalf of the
United States of America, its agencies and/or instrumentalities (the
"Government"), are provided to CUSTOMER with RESTRICTED RIGHTS. Use,
duplication or disclosure by the Government is subject to restriction as set
forth in subparagraph (c)(1)(ii) of the rights in Technical Data and Computer
Software clause at DFAR 252.227-7013, or as set forth in the particular
department or agency regulations or rules which provide MS protection
equivalent to or greater than the above-cited clause. CUSTOMER shall comply
with any requirements of the Government to obtain such RESTRICTED RIGHTS
protection, including without limitation, the placement of any restrictive
legends on the Product software, Product documentation, and any license
agreement used in connection with the distribution of the Product. Manufacturer
is Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052-6399.
Under no circumstances shall MS be obligated to comply with any Governmental
requirements regarding the submission of or the request for exemption from
submission of cost or pricing data or cost accounting requirements. For any
distribution or license of the Product that would require compliance by MS with
Governmental requirements relating to cost or pricing data or cost accounting
requirements, CUSTOMER must obtain an appropriate waiver or exemption from such
requirements for the benefit of MS from the appropriate Governmental authority
before the distribution and/or license of the Product to the Government.
13. CONFIDENTIALITY
CUSTOMER expressly undertakes to retain in confidence the terms and conditions
of this Agreement, and all information and know-how transmitted to it by MS and
make no use of such information and know-how except under the terms and during
the existence of this Agreement. CUSTOMER shall guarantee and ensure its
employees' compliance with this paragraph. CUSTOMER's obligations under this
paragraph shall survive any termination of this Agreement and shall extend to
the earlier of such time as the information is public domain or five (5) years
following the termination of this Agreement.
14. NO ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, provided that CUSTOMER may
not assign its rights or obligations under this Agreement in any way without
the prior written consent of MS.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 4
<PAGE> 5
15. NOTICES
All notices sent by MS or CUSTOMER alleging, regarding, responding to, or in
any way connected with any claim of breach of this Agreement or any other legal
obligation related hereto, shall be sent via U.S. certified mail (return
receipt requested), or via overnight courier (e.g., Federal Express, or DHL),
and addressed as follows:
If to MS: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attn: Sr. Vice President, Microsoft North
America
With cc to: Law and Corporate Affairs
If to CUSTOMER:
Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas 75041
Attn: Vice President of Operations
16. SURVIVAL
Sections 2.2, 3.2, 3.3, 3.4, 3.5, 3.6, 4.2, 4.3, 5.1, 5.2(c), 11, 12, 13, 14
and 16 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement on the dates
indicated below. This Agreement is not binding until executed by MS.
MICROSOFT CORPORATION ("MS") SOFTWARE SPECTRUM, INC.
("CUSTOMER")
By: /s/ JOHN LIEDGREN By: /s/ KEITH R. COOGAN
--------------------------- ----------------------------
John Liedgren Keith R. Coogan
- - ------------------------------ -------------------------------
Name (please print) Name (please print)
Director, Channel Policies Vice President of Operations
- - ------------------------------ -------------------------------
Title Title
6/27/95 June 19, 1995
- - ------------------------------ -------------------------------
Date Date
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 5
<PAGE> 6
SCHEDULE A
DEFINED TERMS
"DISTRIBUTOR" is defined as any MS customer which purchases MS
Product directly from MS, and distributes said Product to Resellers.
"END USER" is defined as the ultimate consumer of Product.
"FINANCIAL STATEMENT" is defined as a Balance Sheet as of the
last day of the calendar quarter, and an Income Statement and Statement of Cash
Flows for the quarter and year-to-date, prepared in accordance with Generally
Accepted Accounting Principles ("GAAP"). Any deviation from GAAP in the
quarterly statements shall be clearly noted. These statements must be signed
by an officer of CUSTOMER as being representative of the books and accounts of
CUSTOMER.
"PRODUCT" is defined as any MS Stock Keeping Unit ("SKU") listed
on CUSTOMER's then current Price List.
"PURCHASE CREDIT" is defined as a dollar amount credited to
CUSTOMER's account with MS, which amount may only be used by CUSTOMER in the
manner set forth in this Agreement.
"RESELLER" is defined as any software retailer which purchases
Product from MS or a MS authorized Distributor.
"SEMESTER" is defined as a six month period. There are two (2)
Semesters during the term of this Agreement, January 1 through June 30, and
July 1 through December 31.
"TERRITORY" is defined as the geographic boundaries of the United
States of America, excluding all United States territories, possessions, or
protectorates.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page A1
<PAGE> 7
ADDENDUM TO THE
MICROSOFT 1995/1996
CHANNEL AGREEMENT
(APPOINTMENT AS A DIRECT RESELLER)
This Addendum ("Addendum") entered into as of the 1st day of July, 1995,
modifies that certain Microsoft 1995/1996 Channel Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") having its principal place of business at
One Microsoft Way Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER")
having its principal place of business at 2140 Merritt Drive, Garland, TX
75041. The Agreement is supplemented as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which MS appoints
CUSTOMER as a non-exclusive Direct Reseller in the United States of America for
the MS Product listed on the CUSTOMER Price List attached hereto as Schedule B.
For purposes of this Addendum, capitalized terms not otherwise defined herein,
shall have the same definition as set forth in the Agreement.
2. DEFINITIONS
For purposes of this Addendum, capitalized terms are as defined in Schedule A
attached hereto.
3. CUSTOMER OBLIGATIONS
3.1 DISTRIBUTION TO END USERS ONLY
Product distributed pursuant to this Addendum shall be distributed solely to
End Users located in the Territory, and not to Resellers of any kind.
3.2 LICENSING PROVISIONS
CUSTOMER acknowledges that the Product are distributed to End Users subject to
the terms of the applicable Microsoft End User License Agreement. CUSTOMER
shall make commercially reasonable efforts to prevent distribution of Product
to End Users who intend to copy or reproduce the Product in violation of the
Microsoft End User License Agreement.
3.3 PRODUCT PURCHASES
Product acquired by CUSTOMER shall be purchased only from MS or MS authorized
Distributors.
3.4 PAYMENT TERMS
Payment terms are net thirty (30) days from the date of MS' invoice, subject to
approval of open terms by MS. All invoices outstanding over thirty (30) days
may be assessed a finance charge of the then current prime rate plus two
percent (2%) per month of the legal maximum, whichever is less. Failure by
CUSTOMER to meet payment terms may result in a hold by MS of all pending
CUSTOMER orders.
Microsoft Confidential - Disclosure Prohibited
<PAGE> 8
All payments to MS by CUSTOMER pursuant to this Addendum shall be in the form of
a bank wire transfer, sent to the following:
First Interstate Bank of Washington
Seattle Main Branch
ABA: #125 000 286
Beneficiary: Microsoft Corporation
Account No. 001 025865
3.5 SHIPMENT SHORTAGE CLAIMS
CUSTOMER shall submit all claims for shortages and/or variances in shipments to
MS in writing within fifteen (15) days of CUSTOMER's receipt of the shipment.
All such claims not submitted in writing to MS within the fifteen (15) day
period shall be deemed waived by CUSTOMER. CUSTOMER shall be responsible for
all such claims made with respect to freight collect shipments, and shall not
withhold payment to MS a result of such claims.
3.6 PRODUCT FORECASTING
From time to time, MS may require Product forecasting for CUSTOMER. CUSTOMER
shall comply with all Product forecasting requirements designated by MS from
time to time.
4. MS OBLIGATIONS
4.1 NEW PRODUCTS; PROMOTIONAL PRODUCTS
MS may elect at any time during the term of this Addendum to announce new or
Promotional Product to which the terms and conditions of this Addendum do not
apply. In the event MS elects to announce Promotional Product, MS shall provide
CUSTOMER with thirty (30) days prior written notice of such announcement.
4.2 INVENTORY PRICE PROTECTION
During the term of this Addendum, MS shall grant CUSTOMER a price adjustment
against Product price reductions made by MS, which price reductions are made on
an indefinite basis, on all CUSTOMER's inventory which CUSTOMER reports as in
its inventory as of the day of the reduction. Such price adjustment shall be in
the form of a Purchase Credit equal to the difference between the lowest price
paid by CUSTOMER during the six (6) months prior to the price reduction and the
reduced price, and shall be paid no later than thirty (30) days after CUSTOMER
provides proof of inventory. Special temporary prices and promotional
offerings, which may include price reductions or free goods, shall not be
considered a price reduction to which this Section applies.
5. CUSTOMER AND MS OBLIGATIONS
5.1 PRICE SCHEDULE
CUSTOMER prices are set forth on the CUSTOMER Price List attached hereto as
Schedule B. MS may modify the CUSTOMER Price List at any time upon thirty (30)
days written notice to CUSTOMER. MS may offer, without prior notice, temporary
"special" prices on any or all Product.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 2
Direct Purchasing Reseller Addendum
<PAGE> 9
5.2 DELIVERY AND PRODUCT DISTRIBUTION
Product shall be invoiced and shipped Free On Board ("FOB") Bothell, Washington,
and CUSTOMER shall be responsible for freight charges. Should CUSTOMER desire to
specify its own carrier, delivery shall then be "freight collect."
In any month CUSTOMER participates in the MS Rate Based Distribution Program,
for all CUSTOMER warehouses that receive a minimum of $200,000 of Product in MS
Master Carton quantities calculated on the basis of CUSTOMER's net prices from
MS, and MS chooses the carrier, the freight costs of delivery of Product to
those CUSTOMER warehouses for that month will be paid by MS.
In any month CUSTOMER's Rate Based Distribution Program participation exceeds *
of eligible product shipments, CUSTOMER will be allowed to adjust CUSTOMER's
forecast of two (2) MS Product SKU's. Such adjustments to the forecast shall
not exceed * upward or * downward from the final forecast, four weeks prior to
the first ship date.
5.3 ORDER PROCESSING
CUSTOMER shall order Product from MS by written or electronically transmitted
purchase order. All orders by CUSTOMER shall be in Master Pack quantities only.
MS shall have ten (10) days from receipt to reject any purchase order. MS shall
fulfill unconditional written or electronic purchase orders from CUSTOMER
subject to CUSTOMER's credit limits, current payment status, and approved
Average Payment Days ("APD") guidelines as determined by MS.
Except as provided herein, CUSTOMER shall have the right to change or cancel
any purchase order, provided that CUSTOMER notifies MS of the change or
cancellation no later than twenty-four (24) hours prior to the order shipment
to CUSTOMER by MS. Should CUSTOMER choose to change any purchase order line
item, CUSTOMER shall be required to submit a new purchase order to MS, clearly
indicating which line item(s) are changed. Line item changes shall not affect
the remaining items on CUSTOMER's purchase order. Should CUSTOMER choose to
cancel a purchase order, CUSTOMER must provide MS with a written cancellation
request.
MS may elect, during the term of this Agreement, to require CUSTOMER to
implement order management via EDI. Should MS require such order management
change, MS shall provide CUSTOMER with no less than one hundred twenty (120)
days prior written notice.
Notwithstanding the foregoing, MS reserves the right to limit order quantities.
5.4 DEFECTIVE PRODUCT CREDIT
At MS' sole discretion, MS may determine that a Product or Product shipment is
Defective. Should MS determine that a Product or Product shipment is Defective,
MS shall provide CUSTOMER with a replacement for all Defective Product
destroyed at CUSTOMER's location. MS shall pay freight costs for shipment of
replacement Product from MS to CUSTOMER.
5.5 INVENTORY BALANCING
To reduce its inventory risk CUSTOMER shall be entitled to balance its Product
inventory in accordance with the following:
(a) Product inventory may be balanced only during the
Months of March, July, and November, and within thirty (30) days of the date of
issue of the Return Authorization;
(b) Product may be balanced only if, at the time of
balancing, it is listed on the then current MS Price List;
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 3
Direct Purchasing Reseller Addendum
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
<PAGE> 10
(c) Product may be balanced only if CUSTOMER's Product
return is accompanied by a new Product order in an aggregate dollar amount equal
to or greater than the aggregate dollar amount of the Product return;
(d) The aggregate quantity of Product that may be returned
shall be limited to; (i) in the case of Product classified by MS as "Consumer
Product" (excluding, however, the Microsoft Mouse Product), ten percent (10%) of
net dollar shipment of such Consumer Product for the four full Months
immediately preceding the inventory balancing request, (ii) in the case of
Microsoft(R) Windows(R) 95, two and five tenths percent (2.5%) of net dollar
shipments of Microsoft(R) Windows(R) 95, (iii) in the case of Microsoft(R)
Office for Windows(R) 95, two and five tenths percent (2.5%) of Microsoft(R)
Office for Windows(R) 95, and (iv) in the case of all Product other than that
referred to in clauses (i) through (iv) above, to two and five tenths percent
(2.5%) of net dollar shipments of all other Product for the four full Months
immediately preceding the inventory balancing request, where net shipments shall
not include any Microsoft Variable Licenses, Microsoft Enterprise Licenses, or
Microsoft Maintenance;
(e) Promotional Product may not be balanced;
(f) Product to be balanced may only include Product
purchase by CUSTOMER from MS;
(g) Unresaleable Product may not be balanced; and
(h) Product is subject to inspection by MS or an MS
authorized agent prior to return by CUSTOMER to MS pursuant to the terms of MS'
then current Return Processing Guidelines.
CUSTOMER must submit a written or electronic MS Return Authorization to return
Product for the purpose of inventory balancing, summarizing the quantities of
each Product to be returned. Upon verification that CUSTOMER has met its
inventory balancing terms, MS shall issue a Return Authorization Number, which
shall expire thirty (30) days from the date of issue.
If the foregoing conditions have been met, CUSTOMER shall return Product to MS
freight prepaid in cartons clearly marked with the Return Authorization Number
and a packing slip attached to the outside. Any Product returned to MS which
does not comply with the provisions of this Section may, at MS' sole discretion,
be returned by MS to CUSTOMER subject to a five percent (5%) inspection fee and
the freight costs incurred by MS in returning such Product, which shall be paid
immediately by CUSTOMER to MS upon receipt of an invoice therefor.
Upon receipt of Product which complies with the conditions set forth in this
Section, MS shall issue a Purchase Credit for the returned Product in an amount
equal to the lowest price CUSTOMER paid for the Product in the six (6) Months
prior to the return. In no event will cash refunds be given for exchanges,
replacements, or returned merchandise hereunder. CUSTOMER shall pay all freight
and other costs of replacement Product in the same manner and on the dame terms
as new Product purchased by CUSTOMER under this Addendum.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 4
Direct Purchasing Reseller Addendum
<PAGE> 11
5.6 PRIOR VERSION CREDIT
When MS ships a new version of a Product or a Discontinued Product to CUSTOMER,
CUSTOMER shall receive a Purchase Credit for prior version of the Product,
provided CUSTOMER complies with all of the following:
(a) Product shall be destroyed at CUSTOMER's location
once every other Month;
(b) Product for which CUSTOMER receives a Purchase Credit
must be offset by a new Product order in an aggregate dollar amount equal to or
greater than the aggregate dollar amount of the Purchase Credit, and is solely
for the new version of the Product for which CUSTOMER has received such
Purchase Credit;
(c) CUSTOMER shall be eligible to receive a Purchase
Credit for up to one hundred eighty (180) days from the date the new version of
such Product first ships from MS to CUSTOMER;
(d) Promotional Product is not eligible for credit
pursuant to this Section;
(e) Product must only include Product purchased by
CUSTOMER from MS;
(f) Unresaleable Product is not eligible for credit
pursuant to this Section; and
(g) Product shall be limited to the version number
immediately prior to the new Product version.
MS shall use its best efforts to notify CUSTOMER within thirty (30) days prior
to the shipment of any new Product version, or the existence of a Discontinued
Product which would be subject to this Section.
It the foregoing conditions have been met, Product shall be destroyed at
CUSTOMER's locations pursuant to the terms of MS' then current Return
Processing Guidelines.
5.7 UNRESALEABLE PRODUCT ALLOWANCE
CUSTOMER shall be eligible to receive a Purchase Credit of up to one percent
(1%) of CUSTOMER's net purchases, excluding Microsoft Variable Licenses,
Microsoft Enterprise Licenses, and Microsoft Maintenance, for the previous two
(2) Months. Such Purchase Credit shall be to compensate CUSTOMER for Product
held in CUSTOMER's inventory which is no longer resaleable, provided that
CUSTOMER agrees to destroy or recycle all such Product, and provide MS with a
full report of all Unresaleable Product. Unresaleable Product may not be resold
or donated.
5.8 PRODUCT AUTHORIZATION CATEGORY PROCEDURES
From time to time, MS may classify certain of its Product by Product
Authorization Category, which Product may only be obtained and distributed by
CUSTOMER upon written authorization from MS. Such written authorization from MS
may be specific to the particular CUSTOMER outlet location. CUSTOMER may apply
for such authorization by completing the applicable Reseller Authorization
Application and/or Agreement process required by MS. MS may by prior written
notification terminate CUSTOMER's authorization to obtain and distribute
Product Authorization Category Product with respect to one or more CUSTOMER
outlets. For each Product Authorization Category Product distributed, CUSTOMER
shall complete and return to MS all requested customer registration documents.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 5
Direct Purchasing Reseller Addendum
<PAGE> 12
6.0 SURVIVAL
Sections 3.1, 3.2, and 3.4 shall survive any termination of this Addendum.
IN WITNESS WHEREOF, the parties have signed this Addendum on the dates
indicated below. All terms and conditions of the Agreement not amended herein
shall remain in full force and effect. This Addendum is not binding until
executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS") SOFTWARE SPECTRUM, INC.
("CUSTOMER")
By: /s/ JOHAN LIEDGREN By: /s/ KEITH R. COOGAN
---------------------------- ----------------------------
Johan Liedgren Keith R. Coogan
- - ------------------------------- -------------------------------
Name (please print) Name (please print)
Director, Channel Policies Vice President of Operations
- - ------------------------------- -------------------------------
Title Title
6/27/95 June 19, 1995
- - ------------------------------- -------------------------------
Date Date
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 6
Direct Purchasing Reseller Addendum
<PAGE> 13
SCHEDULE A
DEFINITIONS
"DEFECTIVE PRODUCT" is defined as a manufacturer's defect in materials
or media.
"DISCONTINUED PRODUCT" is defined as Product that MS has stopped
manufacturing and discontinued from the CUSTOMER Price List.
"INVENTORY BALANCING" is defined as the return of eligible MS Product
for the purpose of reducing CUSTOMER's stock of such Product.
"MONTH" is defined as a MS fiscal month as outlined in the calendar
attached hereto as Schedule C.
"PROMOTIONAL PRODUCT" is defined as a special Product SKU which is
available to CUSTOMER for resale for a limited time. Free Product promotions
are not considered Promotional Product.
"RETURN AUTHORIZATION NUMBER" is defined as the unique number assigned
to CUSTOMER by MS for the purpose of Product returns for CUSTOMER to MS.
"UNRESALEABLE PRODUCT" is defined as any Product held in CUSTOMER's
inventory, including damaged Product and Product returned by CUSTOMER's
customers. which is no longer fit for resale, and is ineligible for return to
MS. for purposes of this Addendum, UnresaIeable Product shall not include that
Product which has sustained solely shrink wrap damage.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page A1
Direct Purchasing Reseller Addendum
<PAGE> 14
ADDENDUM TO THE MICROSOFT
1995/1996 CHANNEL AGREEMENT
(APPOINTMENT AS A LARGE ACCOUNT RESELLER)
This Addendum ("Addendum") entered into this 1st day of July, 1995, supplements
that certain 1995/1996 Channel Agreement ("Agreement") between MICROSOFT
CORPORATION ("MS") having its principal place of business at One Microsoft Way,
Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER") having its principal
place of business at 2140 Merritt Drive, Garland, TX 75041. The Agreement is
hereby supplemented as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which MS appoints
CUSTOMER as a non-exclusive Large Account Reseller in the Territory and Canada
with the right to acquire Microsoft Select Software Products from MS and to
distribute such Select Software Products and their associated license rights to
Select Customers which have designated CUSTOMER in their Enrollment Form as
their Large Account Reseller.
2. DEFINITIONS
For purposes of this Addendum, capitalized terms are as defined in Schedule A
attached hereto.
3. CUSTOMER OBLIGATIONS
3.1 DISTRIBUTION OF SELECT SOFTWARE PRODUCTS
CUSTOMER may only distribute Select Software Products to Select Customers
located in the Territory and Canada, and at the direction of its Select
Customer's, outside of the Territory and Canada. Select Customers are entitled
to distribute the rights associated with their Select Software Products outside
of the Territory if they so elect, in accordance with the Master Agreement and
all applicable laws. However, in the event a Select Customer wants to initiate
an Enrollment Form in a country outside of the Territory, the Select Customer
is required by the terms of the Microsoft Select Program to locate a Large
Account Reseller in the desired country and acquire Select Software Products
from that Large Account Reseller.
3.2 DOCUMENTATION
CUSTOMER shall be authorized to purchase documentation SKUs from Microsoft Easy
Fulfillment (MEF) and to resell these documentation SKUs directly to CUSTOMER's
Select Customers.
3.3 DISTRIBUTION RESTRICTIONS
MS's authorization of the Large Account Reseller to acquire and distribute
Select Software Products as set forth herein shall not include the
authorization for the Large Account Reseller to use Select Software Products
internally or to distribute or otherwise transfer Select Software Products to
any entity which owns, controls, is owned or controlled by, or under common
ownership or control with the Large Account Reseller ("Large Account Reseller
Affiliates") without the prior written consent of MS. For the purposes of this
Addendum, an entity is "controlled" by another if that other company or legal
entity, either directly or through its control of another company or legal
entity: (i) holds the majority of voting rights in it; (ii) is a member of it
and has the right to appoint or remove a majority of its board of directors; or
(iii) is a member of it and controls alone or under an agreement with other
shareholders or members, the majority of the voting rights in it.
Microsoft Confidential - Disclosure Prohibited
<PAGE> 15
3.4 CUSTOMER ACCEPTANCE OF ENROLLMENT FORMS
Upon execution by MS of a Select Customer's Enrollment Form naming CUSTOMER as
the Large Account Reseller, MS shall deliver to CUSTOMER's designated Select
Program Administrator a copy of such Enrollment Form. CUSTOMER shall have
fifteen (15) days from the date of receipt of the Enrollment Form to decline to
acquire and distribute Select Software Products associated with such Enrollment
Form by notifying MS in writing of such election. All other Enrollment Forms
delivered to CUSTOMER by MS shall be deemed as accepted by CUSTOMER fifteen
(15) days after receipt by CUSTOMER, and shall constitute CUSTOMER's agreement
to pay MS as set forth in Section 3.6 below for all copies of Select Software
Products made by the Select Customer pursuant to the Enrollment Form and its
associated Master Agreement.
3.5 CUSTOMER SELECT PRICE SCHEDULE
CUSTOMER's prices are set forth on the CUSTOMER Select Price Schedule attached
hereto as Schedule B. MS may modify the CUSTOMER Select Price Schedule at any
time by providing thirty (30) days written notice to CUSTOMER
3.6 CUSTOMER'S REPORTING AND/OR ORDERING AND PAYMENT TO MS
(a) MICROSOFT SELECT I.X AND 2.X ENROLLMENT AGREEMENT
REPORTING
For each executed Microsoft Select version 1.x or version 2.x Enrollment
Agreement, the Select Customer is obligated by the terms of the Microsoft
Select Program to deliver to MS within fifteen (15) days of the end of each
calendar quarter, a written verified report for each Select Software Product
acquired from CUSTOMER pursuant to the terms of this Agreement. Following
receipt of a report from a given Select Customer, MS shall invoice CUSTOMER and
CUSTOMER shall be obligated to pay MS the fees set forth on Schedule B for each
unit reported by the Select Customer.
Should the Select Customer elect to submit reports to MS in addition to the
Select Customer's regular quarterly report, MS shall invoice CUSTOMER
immediately following receipt of such report, and CUSTOMER shall be obligated
to pay MS pursuant to the terms of this Section 3.6.
In the event CUSTOMER wants to receive copies of its Select Customers'
quarterly reports, CUSTOMER shall negotiate with its Select Customers for the
right to receive such copies.
(b) MICROSOFT SELECT 3.0 ENROLLMENT FORM ORDERING
For each of its executed Microsoft Select version 3.0 Enrollment Forms,
CUSTOMER shall deliver to MS via Electronic Data Interchange ("EDI") no later
than the fifteenth (15th) day of each calendar month, a purchase order for each
Select Software Product ordered and acquired from CUSTOMER by the Select
Customer or Enrollment site pursuant to the terms of this Agreement during the
previous month. Following receipt of such purchase order, MS shall invoice
CUSTOMER and CUSTOMER shall be obligated to pay MS the fees set forth on
Schedule B for each unit indicated on the purchase order, along with any
applicable quarterly Maintenance fees.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 2
Large Account Reseller Addendum
<PAGE> 16
(c) PAYMENT TERMS
All amounts are due and owing net thirty (30) days of date of invoice. All
payments not received by MS from CUSTOMER within the required time frame may be
assessed a finance charge of the then-current prime rate plus two percent (2%)
per month or the legal maximum, which ever is less. CUSTOMER shall be obligated
to pay MS regardless of whether CUSTOMER has received payment from the Select
Customer. All payments shall be in the form of bank wire transfer, sent to the
following:
First Interstate Bank of WA
Seattle Main Branch
ABA: #125-000-286
Beneficiary: Microsoft Corporation
Account No. 001-025865
3.7 TAXES
(a) SALES TAX
CUSTOMER shall either provide MS with a bona fide resale certificate for all
Select Software Products delivered to CUSTOMER by MS pursuant to the terms of
this Addendum, or shall pay to MS all applicable sales, use or other excise
taxes due on such Select Software Products.
(b) WITHHOLDING TAXES
In the event taxes are required to be withheld by any government on payments
required hereunder, CUSTOMER may deduct such taxes from the amount owed and pay
such taxes to the appropriate tax authority; provided, however, that CUSTOMER
shall promptly secure and deliver to MS an official receipt for any such taxes
withheld or other documents necessary to enable MS to claim a foreign tax
credit. CUSTOMER shall make certain that any taxes withheld are minimized to
the extent possible under the applicable law.
3.8 AGREEMENTS BETWEEN CUSTOMER AND ITS SELECT CUSTOMERS
With the exception of the terms contained in this Addendum and the terms
relating to the exercise of the intellectual property rights set forth in the
applicable Select Software Products, the applicable License Agreement for such
Select Software Products, Master Agreement and Enrollment Form, CUSTOMER shall
have complete discretion to establish with each Select Customer the pricing and
all other terms and conditions regarding CUSTOMER's provision of Select
Software Products and their associated license rights to CUSTOMER's Select
Customers. The negotiation of these terms between CUSTOMER and its Select
Customers shall not be subject to approval or review by MS in any way.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 3
Large Account Reseller Addendum
<PAGE> 17
3.9 ROLE OF THE SELECT PROGRAM ADMINISTRATOR
CUSTOMER agrees to appoint a representative to serve as CUSTOMER's Select
Program Administrator. CUSTOMER agrees to promptly make that individual, as
well as CUSTOMER's other sales employees, available for training on the
Microsoft Select Program and on the licensing policies related to such products
at such times and places as MS reasonably requests. The individual appointed by
CUSTOMER as its Select Program Administrator shall be an individual generally
knowledgeable on MS products and in regard to Microsoft's Select program. The
Select Program Administrator shall be responsible for administering all of
CUSTOMER's Select Customer billings, for general administration of CUSTOMER's
Select Customers and for working with the Microsoft Select Account Manager (or
local MS Contact) in regard to any problems relevant to a given Select
Customer. CUSTOMER's Select Program Administrator shall be:
Steve Lytle
2140 Merritt Drive
Garland, Texas 75041
214-840-6600
CUSTOMER shall provide MS with at least ten (10) days advance written notice of
any change in the individual serving as its Select Program Administrator.
3.10 ENROLLMENT OF NEW SELECT CUSTOMERS
CUSTOMER's solicitation of new customers shall be on such terms and conditions
as MS specifies from time to time. MS reserves the right to accept or reject in
its sole discretion any proposed customer.
3.11 CUSTOMER'S REPRESENTATIONS AND WARRANTIES
CUSTOMER hereby represents and warrants that:
(a) It will use its best efforts to service and support
its Select Customers and will promptly inform the appropriate Microsoft Select
contact of any difficulties it encounters in servicing its Select Customers;
(b) It will not alter in any way or form the Select
Software Products or theft packaging;
(c) It will only deliver the Select Software Products to
the Select Customer specified on the outside of the Select Software Product
packaging and will only deliver CD-ROMs and program materials and information
to the Select Customer named on each such CD-ROM or materials; and
(d) lt will promptly inform MS of any known or suspected
violations by a Select Customer of the terms and conditions of the Master
Agreement, Enrollment Form, its Select Software Products and/or the applicable
License Agreement.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 4
Large Account Reseller Addendum
<PAGE> 18
3.12 CONFIDENTIALITY
CUSTOMER expressly undertakes to retain in confidence the terms and conditions
of this Addendum, and the terms and conditions of all executed Select Master
Agreements and Select Enrollment Forms which are made available to CUSTOMER.
Should CUSTOMER disclose the terms and conditions of any executed Select Master
Agreement or Select Enrollment Form, this Addendum shall immediately terminate.
CUSTOMER shall guarantee and ensure its employees' compliance with this
paragraph. CUSTOMER's obligations under this paragraph shall survive any
termination of this Agreement and shall extend to the earlier of such time as
the information is in the public domain or five (5) years following the
termination of this Agreement.
4. CUSTOMER AND MS OBLIGATIONS
4.1 DELIVERY OF SELECT SOFTWARE PRODUCTS AND SELECT CD-ROMS
Within fifteen (15) days of MS's approval of a given Enrollment Form, MS agrees
to deliver to CUSTOMER the Select Software Products identified on the
Enrollment Form. Each Select Software Product delivered to CUSTOMER will be a
custom package specific to the named Select Customer and will set forth the
Customer's Select Agreement Number and any special conditions relevant to the
named Select Customer. Select Software Products are provided in order that
CUSTOMER may provide the Select Software Products and their associated license
rights to the named Select Customer on such pricing and payment terms and
conditions as CUSTOMER and the Select Customer agree. CUSTOMER agrees to pay MS
for Select Software Products as set forth in Section 3.6 above. From time to
time during the term of this Addendum, MS will provide CUSTOMER with CD-ROMs
containing upgraded copies of the Select Software Products covered by a Select
Customer's Select Agreement. CUSTOMER agrees to immediately deliver all CD-ROMs
and any additional MS supplied program information and materials to the named
Select Customer.
4.2 RESERVATION OF RIGHTS
MS expressly reserves the right at any time during the term of this Addendum to
terminate any Select Customer's status as a Select Customer in the event the
Select Customer fails to comply with the terms of either the Master Agreement,
the Enrollment Form or the applicable License Agreement. MS agrees to promptly
notify CUSTOMER of the termination of any Select Customer to whom CUSTOMER has
distributed Select Software Products. Following such a notice, CUSTOMER shall
thereafter not deliver to the terminated Select Customer any additional Select
Software Products, licenses, CD-ROMs or any additional program information and
materials. Termination shall not, however, affect the Select Customer's
obligation to file the next due order/report and MS's right to invoice CUSTOMER
in regard to such order. If MS terminates a given Select Customer, CUSTOMER
shall not have any claim against MS or the Select Customer for damages or lost
profits resulting from such termination. CUSTOMER shall, however, be entitled
to invoice the Select Customer for copies of Select Software Products
reproduced by the Select Customer as set forth in the Customer's final order,
such invoice to be on the terms and conditions previously agreed to between
CUSTOMER and the Select Customer.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 5
Large Account Reseller Addendum
<PAGE> 19
4.3 OBLIGATIONS ON TERMINATION
Promptly following termination of this Addendum, MS shall inform each of
CUSTOMER's Select Customers that CUSTOMER is no longer a Large Account Reseller
and shall request that each Select Customer appoint a new Large Account
Reseller. In the event this Addendum is terminated without cause or expires of
its own accord, each Select Customer shall be obligated to file its next due
order/report and to pay CUSTOMER any and all amounts due for such order as
agreed to between CUSTOMER and the Select Customer. CUSTOMER shall in turn be
obligated to pay to MS in accordance with the terms of this Addendum any and
all amounts due MS as a result of the Select Customer's above-referenced order.
Thereafter, any and all future payments by CUSTOMER's Select Customers shall be
made to each Select Customer's newly designated Large Account Reseller (if any)
or to MS as the case may be and CUSTOMER shall not be entitled to any portion
of, or any compensation for its Select Customers' future orders and payments.
In the event this Addendum is terminated for cause, MS shall be entitled to
direct all of CUSTOMER's Select Customers to report/order and pay to MS or to
the Select Customer's newly designated Select Large Account Reseller any and
all payments due after termination. In such an event, CUSTOMER shall not under
any circumstances be entitled to any portion of, or any compensation for, the
Select Customers' next orders and payments or any future orders and payments.
4.4 ESSENTIAL ELEMENT
Both CUSTOMER and MS acknowledge that this Addendum is essential to any
agreement it enters into with a Select Customer. Except as is specifically
provided in Section 4.3 related to CUSTOMER's right to collect any outstanding
payment following termination of this Addendum, CUSTOMER's rights to acquire
and/or distribute Select Software Products, Select CD-ROMs and/or any
additional program information and materials, and to collect payment from its
Select Customers are conditional upon this Addendum being in fill force and
effect. CUSTOMER acknowledges further that, if and when it is the subject of a
bankruptcy filing (under any Chapter of 11 United States Code Section 101 et
seq. including any future amendments), then assumption of any contract with a
Select Customer is conditional upon the assumption of this Addendum.
5. SURVIVAL
Sections 3.6, 3.7, 3.12, 4.3, and 4.4 shall survive any termination of this
Addendum.
IN WITNESS WHEREOF, the parties have signed this Addendum on the date indicated
below. This Addendum is hereby made part of the Agreement. All terms and
conditions of the Agreement not supplemented herein shall remain in fill force
and effect. This Addendum is not binding until executed by MS.
MICROSOFT CORPORATION ("MS") SOFTWARE SPECTRUM, INC.
("CUSTOMER")
By: /s/ JOHAN LIEDGREN By: /s/ KEITH R. COOGAN
- - ----------------------------------- -----------------------------------
Johan Liedgren Keith R. Coogan
- - ----------------------------------- -----------------------------------
Name (please print) Name (please print)
Director, Channel Policies Vice President of Operations
- - ----------------------------------- -----------------------------------
Title Title
6/27/95 June 19, 1995
- - ----------------------------------- -----------------------------------
Date Date
Microsoft 1995/1996 Channel Agreement Software Spectrum Page 6
Large Account Reseller Addendum
<PAGE> 20
SCHEDULE A
DEFINITIONS
"ENROLLMENT AGREEMENT" is defined as the Microsoft Select Enrollment
Agreement in the form provided by MS to be signed by each Select Customer and
CUSTOMER, and approved by MS.
"ENROLLMENT FORM" is defined as the Microsoft Select Enrollment Form
in the form provided by MS to be signed by each Select Customer and approved by
MS.
"LARGE ACCOUNT RESELLER" is defined as any reseller which MS has
authorized to distribute licenses to Select Customers.
"LEAD CUSTOMER" is defined as the company or entity signing a Master
Agreement.
"LEAD CUSTOMER AFFILIATE" is defined as a company or legal entity
which owns and controls, is owned or controlled by, or is under common
ownership and control with, the Lead Customer.
"LICENSE AGREEMENT(S)" is defined as the license agreement attached to
the Enrollment Form.
"MASTER AGREEMENT" is defined as the Microsoft Select Master Agreement
in the form provided by MS to be signed by a given Select Customer or an entity
acting on behalf of the Select Customer.
"MASTER AGREEMENT NUMBER" is defined as the number assigned by MS to a
given Master Agreement.
"SELECT CUSTOMER" is defined as the Lead Customer, any Lead Customer
Affiliate and/or identifiable division, business unit or office location of
the foregoing identified as the Select Customer on an Enrollment Form.
"SELECT PROGRAM ADMINISTRATOR" is defined as the individual appointed
by CUSTOMER to act as CUSTOMER's primary contact with respect to the Microsoft
Select Program.
"SELECT SOFTWARE PRODUCT" is defined as the MS software as designated
from time to time by Microsoft which may be reproduced pursuant to an
Enrollment Form.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page A1
Large Account Reseller Addendum
<PAGE> 1
EXHIBIT 10.3b
LARGE ACCOUNT RESELLER
REBATE ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
(JULY - DECEMBER, 1995)
This Addendum ("Addendum") entered into as of the 1st day of July, 1995,
supplements that certain Microsoft 1995/1996 Channel Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") having its principal place of business at
One Microsoft Way, Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER")
having its principal place of business at 2140 Merritt Drive, Garland, TX
7504l. The Agreement is hereby supplemented as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which CUSTOMER
may earn Rebates on Microsoft Select sales.
2. TERM AND TERMINATION
This Addendum shall be effective as of the date indicated above, and shall
expire December 31, 1995. Either party may terminate this Addendum, with or
without cause, upon thirty (30) days prior written notice. This Addendum is not
valid unless both MS and CUSTOMER have executed a Microsoft 1995/1996 Channel
Agreement and the Addendum to the Microsoft 1995/1996 Channel Agreement
(Appointment As A Large Account Reseller).
3. DEFINITIONS
For purposes of this Addendum, capitalized terms not otherwise defined herein,
shall have the same definitions as set forth in the Agreement. Additional
capitalized terms included in this Addendum are as defined in Schedule A
attached hereto.
4. REBATES
CUSTOMER is eligible to receive up to a * Rebate on its Qualified Select Sales
made during the Rebate Period. The Rebate shall be paid provided CUSTOMER
complies with the Select Rebate Program Guidelines outlined in Schedule B.
Notwithstanding such Rebate Program Guidelines, MS may, at its sole discretion,
pay all or any portion of the Rebate prior to the end of the Rebate Period. The
Rebate so paid may be adjusted subsequently based upon compliance with the
Rebate Program Guidelines.
IN WITNESS WHEREOF, the parties have signed this Addendum on the date indicated
below. This Addendum is hereby made part of the Agreement. All terms and
conditions of the Agreement not supplemented herein shall remain in full force
and effect. This Addendum is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICRO CORPORATION ("MS") SOFTWARE SPECTRUM, INC.
("CUSTOMER")
By: /s/ ILLEGIBLE By: /s/ Keith R. Coogan
--------------------------------- ---------------------------------
/s/ ILLEGIBLE Keith R. Coogan
- - ------------------------------------ ------------------------------------
Name (please print) Name (please print)
/s/ ILLEGIBLE Vice President of Operations
- - ------------------------------------ ------------------------------------
Title Title
06/27/95 June 19, 1995
- - ------------------------------------ ------------------------------------
Date Date
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
<PAGE> 2
SCHEDULE A
DEFINITIONS
"ELECTRONIC DATA INTERCHANGE" or "EDI" is defined as the ANSl-ASCII
X.l2 standard, adopted by CompTlA, by which CUSTOMER shall order and report
to MS.
"QUALIFIED SELECT SALES" is defined as net Select sales excluding the
Select Maintenance revenue of all Enrollment Agreements signed prior to July l,
l995, and all revenue from Enrollment Agreements signed prior to July I, l994,
made during the Rebate Period, to CUSTOMER's End User customers as reported to
MS in CUSTOMER's normal sales reporting.
"REBATE" is defined as the dollar amount paid to CUSTOMER by MS in the
form of a purchase credit for achieving specific rebate goals as set forth
herein.
"REBATE PERIOD" is defined as the six (6) calendar months, July l,
l995 - December 3l, l995, during which CUSTOMER shall be eligible to earn
Rebates.
"STREET DATE" is defined as the date prior to which new Product or new
versions of existing Product shall not be available for End User purchase.
<PAGE> 3
SCHEDULE B
REBATE PROGRAM GUIDELINES
- - -------------------------------------------------------------------------------
SELECT REBATE PROGRAM OVERVIEW
- - -------------------------------------------------------------------------------
PROGRAMS: Microsoft offers four Select rebate programs for the July - December,
1995 Rebate period. Rebate percentages available are listed in the table below.
Details on each program are also included in this document.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
REBATE INCENTIVE MAXIMUM PERCENTAGE OUTLINED ON PAGE(S)
AVAILABLE
- - -------------------------------------------------------------------------------
<S> <C> <C>
Compliance Program B1-B2
Business Systems Program B2-B4
Maintenance Program * B4-B5
Enterprise (MELP) Program B5-B6
Total
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft purchase credit forty-five (45) days after the end of each quarterly
rebate period (i.e. November 15th for the July - September, 1995 quarter).
Rebates are calculated by multiplying the achieved rebate percentage by the
total Qualified Select Sales for the rebate period. All Microsoft Select
revenue will be included in calculating CUSTOMER's performance against the
Select Rebate goals. Revenue generated from Microsoft Select Enrollment Forms
executed by MS prior to July 1, 1994, shall be included in calculating
CUSTOMER's achievement toward the Select Rebate goals, but shall not be
included in CUSTOMER's final total Qualified Select Sales for purposes of the
Rebate payment. Only revenue generated from Microsoft Select Enrollment Forms
executed by MS on or after July 1, 1994 (excluding any Microsoft Select
Maintenance) will be included in CUSTOMER's final total Qualified Select Sales
for purposes of the Rebate payment.
ANY ISSUES SURROUNDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
REBATE SPECIALIST, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute rebate payment.
- - -------------------------------------------------------------------------------
COMPLIANCE REBATE PROGRAM
- - -------------------------------------------------------------------------------
PROGRAM OBJECTIVES: The objective of the Compliance Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual
requirements for payments, Street Dates, and EDI ordering for Select 3.0.
NON-COMPLIANCE: During any given month, failure to comply with any or all of
the current compliance criteria will result in the forfeiture of the entire
compliance rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS:
Microsoft requires it's customers to pay it's invoices within terms. In order
to maintain compliance, * of the gross invoice value for Select must be
current as of Microsoft's fiscal month-end. Unapplied credits will be excluded
from the calculation.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement
Large Account Reseller Rebate Addendum
July-December, 1995 Page A2
<PAGE> 4
2. MICROSOFT STREET DATE REQUIREMENTS:
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to
comply with the Street Date requirements, CUSTOMER shall not:
o Ship or deliver the product to any end-user customer prior to
the Street Date.
o Accept any end user payment for the product prior to the
Street Date. Checks and/or credit card numbers may be accepted
by CUSTOMER, but can only be processed when product is
delivered to the end user on or after the Street Date.
o Advertise, merchandise, or promote the product to end user
customers until it is officially announced by Microsoft.
Usually, the product announcement is on the Street Date. If
the product announcement is earlier than the Street Date,
Microsoft will clearly communicate the announce date to the
channel. If product is announced by Microsoft before the
Street Date, the product can be advertised, merchandised
and/or promoted immediately after such announcement, provided
that all such promotions clearly state that the product is not
yet available for purchase.
o Allow it's distribution centers and/or warehouses to
distribute, for a period of up to twelve months, a Street Date
product to any individual sales office, retail store, or
outlet which Microsoft in its sole discretion has determined
to be in violation of the Street Date Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter (including, but not limited to
Microsoft(R) Windows(R) 95), CUSTOMER shall forfeit up to the entire Compliance
Rebate for the six month Rebate period in which the violation occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT REPORTING REQUIREMENTS
CUSTOMER must comply with the reporting requirements as outlined in the
1995/1996 Channel Agreement and/or the Senior Partner Marketing Fund and
Reporting Agreement, as applicable.
4. MICROSOFT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions include, but are not
limited to 850/855 EDI transactions and all other EDI reporting requirements
which may be required by MS and in the EDI Implementation Guide attached hereto
as Schedule C. CUSTOMER must place EDI transaction orders at a minimum of once
per month per Enrollment Site if product is purchased during said month.
COMPLIANCE REBATE CALCULATION: The Microsoft Compliance Rebate will be
calculated on a monthly basis. If CUSTOMER has met all of the Compliance Rebate
criteria in a given month, CUSTOMER will be entitled to a Rebate payment equal
to (* ) of that month's total Qualified Select Sales. The rebate payment
will be made forty-five (45) days after the end of each quarterly rebate period.
- - -------------------------------------------------------------------------------
BUSINESS SYSTEMS REBATE PROGRAM
- - -------------------------------------------------------------------------------
PROGRAM OBJECTIVE: The objective of the Microsoft Business Systems Rebate
Program is to increase the Microsoft Business Systems revenue as well as to
increase the ratio of Microsoft Windows NT Client licenses to Server license
sales. The Microsoft Business Systems products consist of any license type of
the following products: MICROSOFT(R) BACKOFFICE, MICROSOFT(R) MAIL,
MICROSOFT(R) EXCHANGE, MICROSOFT(R) SNA SERVER, MICROSOFT(R) SQL SERVER(TM),
MICROSOFT(R) SYSTEMS MANAGEMENT SERVER, MICROSOFT(R) WINDOWS NT(TM) SERVER, and
MICROSOFT(R) WINDOWS NT(TM) WORKSTATION.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement
Large Account Reseller Rebate Addendum
July-December, 1996 Page A3
<PAGE> 5
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Business Systems Rebate Program is * of Qualified Select Sales for the
July - December, 1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
o Existing Microsoft Business Systems revenue.
o Microsoft's Business Systems revenue goals.
o Microsoft's Windows NT Client to Server Ratio goals.
REBATE GOALS: CUSTOMER must meet a minimum Windows NT Client to Server Ratio of
* in order to receive any portion of the Business Systems rebate. Performance
against the Client to Server goal will be measured against all license types of
Microsoft Windows NT including full packaged product, MLPs, MOLP, and Select
license types. Provided that CUSTOMER meets the * Client to Server Ratio,
CUSTOMER's achievement against the Business Systems goal will be based on
CUSTOMER's performance against the Business Systems revenue goal. CUSTOMER's
performance against the revenue goal will also be based on all license types.
CUSTOMER has a first quarter rebate goal and a total semester rebate goal.
CUSTOMER's performance for the first three months of the July - December, 1995
semester will be measured against the first quarter rebate goal. At the end of
the first quarter, CUSTOMER will receive the percentage of the eligible rebate
earned based on performance against the first quarter goal. At the end of the
semester, CUSTOMER will be measured on their six-month performance against the
total semester goal. Even if CUSTOMER does not meet * of the first quarter
goal, CUSTOMER can still achieve * of the semester goal provided that the
semester goal is met at the end of the six-month period.
CUSTOMER's Business Systems Rebate Program goals are as follows:
o Minimum Windows NT Client to Server Ratio of *
o Quarter 1 Goal (July - September, 1995): *
o Semester Goal (July - December, 1995): *
PAYMENT: As stated earlier, CUSTOMER must attain a * Client to Server ratio of
Microsoft Windows NT in order to receive any portion of the Business Systems
Rebate. Provided CUSTOMER meets the Client to Server Ratio requirement,
CUSTOMER will be paid a Business Systems rebate based on performance against
the semester goal at the end of the semester. If CUSTOMER achieves greater than
* ) of the semester Business Systems revenue goal, and attains a minimum of *
Windows NT Client to Server ratio CUSTOMER will receive the exact achieved
percentage of the eligible Business Systems rebate up to * . If CUSTOMER
achieves less * ) of the Business Systems revenue goal, CUSTOMER will not
receive any portion of the Business Systems rebate. The purpose of this scale
is to offer an incentive for accounts to meet a portion of their goal in the
event they cannot achieve the full Microsoft Business Systems goal.
Although Microsoft pays the rebate ultimately based on performance against the
semester goal, Microsoft also pays a rebate at the end of the first quarter
based on performance against the first quarter goal. Microsoft pays a portion
of the rebate after the first quarter as an incentive for CUSTOMER to focus on
the Business Systems rebate program throughout the entire semester. The scale
for the first quarter payment is the same as the scale for the semester
payment. The first quarter payment amount will be subtracted from the final
semester payment for the rebate. Should CUSTOMER fail to meet the minimum
attainment for the final semester goal, MS will not seek reimbursement for
Rebate paid. Please note: Although performance against the Business Systems
Rebate is based on all Select, and non-Select Business Systems revenue, payment
will be based on Select revenue only.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
<PAGE> 6
Example:
Goals:
o Quarterly Business Systems revenue goal of *
o Semester Business Systems revenue goal of *
o Minimum Windows NT Client to Server Ratio of *
Performance:
o Windows NT Client to Server Ratio of *
o Actual Quarter Business Systems revenue is *
o Actual Semester Business Systems revenue is *
Because CUSTOMER attained the minimum Windows Mr Client to Server Ratio of *
CUSTOMER's Business Systems Rebate payment would be as follow:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
PERIOD GOAL SELL THROUGH PAYMENT
ACHIEVED
=======================================================================================================
<S> <C> <C> <C>
First Quarter * * * eligible rebate = * July - September
Select Sales.
- - -------------------------------------------------------------------------------------------------------
Semester * * * eligible rebate = * of July - December
Select Sales less first quarter payment. The maximum
allowable Business Systems rebate is *
</TABLE>
MAINTENANCE REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Microsoft Maintenance Rebate Program is
to increase the Microsoft Maintenance revenue percentage of total Select
revenue.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Maintenance Rebate Program is * of Qualified Select Sales for the July -
December, 1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
o Existing Maintenance revenue percentage of total Select revenue.
o Microsoft's Maintenance revenue goals.
REBATE GOALS: CUSTOMER's achievement against the Maintenance goal will be based
on CUSTOMER's Select Maintenance revenue percentage of CUSTOMER's total Select
revenue.
CUSTOMER has a first quarter rebate goal and a total semester rebate goal.
CUSTOMER's performance for the first three months of the July - December, 1995
semester will be measured against the first quarter rebate goal. At the end of
the first quarter, CUSTOMER will receive the percentage of the eligible rebate
earned based on performance against the first quarter goal. At the end of the
semester, CUSTOMER will be measured on their six-month performance against the
total semester goal. Even if CUSTOMER does not meet * of the first quarter
goal, CUSTOMER can still achieve * of the semester goal provided that the
semester goal is met at the end of the six-month period.
CUSTOMER's Maintenance Rebate Program goals are as follows:
o Quarter 1 Goal (July - September, 1995): *
o Semester Goal (July - December, 1995): *
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
<PAGE> 7
PAYMENT: CUSTOMER will be paid a Maintenance rebate based on performance
against the semester goal at the end of the semester. If CUSTOMER achieves
greater than * of the semester Maintenance rebate goal, CUSTOMER will receive
the exact achieved percentage of the eligible Maintenance rebate up to *
If CUSTOMER achieves less than * of the Maintenance rebate goal, CUSTOMER will
not receive any portion of the Maintenance rebate. The purpose of this scale is
to offer an incentive for accounts to meet a portion of their goal in the event
they cannot achieve the full Microsoft Maintenance goal.
Although Microsoft pays the rebate ultimately based on performance against the
semester goal, Microsoft also pays a rebate at the end of the first quarter
based on performance against the first quarter goal. Microsoft pays a portion
of the rebate after the first quarter as an incentive for CUSTOMER to focus on
the Maintenance rebate program throughout the entire semester. The scale for
the first quarter payment is the same as the scale for the semester payment.
The first quarter payment amount will be subtracted from the final semester
rebate payment. However, if CUSTOMER does not meet the minimum attainment for
the semester goal, Microsoft will not seek reimbursement of the first quarter
rebate payment.
Example:
Goals:
o Quarterly Maintenance goal of * total Select revenue
o Semester Maintenance goal of * total Select revenue
Performance:
o Actual Maintenance revenue is * of total Select
revenue at the end of the quarter
o Actual Maintenance revenue is * of Select revenue
at the end of the semester
CUSTOMER's Maintenance Rebate payment would be as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
PERIOD GOAL PERCENTAGE PAYMENT
ACHIEVED
=========================================================================================================================
<S> <C> <C> <C> <C>
First Quarter * * * eligible rebate = * of July - September Select
Sales.
- - -------------------------------------------------------------------------------------------------------------------------
Semester * * * Eligible rebate = * of July - December Select
Sales less first quarter payment. The maximum allowable
Maintenance rebate is *
</TABLE>
ENTERPRISE REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Microsoft Enterprise Rebate Program is
to increase the Microsoft Enterprise revenue percentage of total Select
revenue.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Enterprise Rebate Program is of Qualified Select Sales for the July - December,
1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
o Existing Enterprise revenue percentage of total Select
revenue.
o Microsoft's Enterprise revenue goals.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
<PAGE> 8
REBATE GOALS: CUSTOMER's achievement against the Enterprise goal will be based
on CUSTOMER's Enterprise revenue percentage of CUSTOMER's total Select revenue.
CUSTOMER has a first quarter rebate goal and a total semester rebate goal.
CUSTOMER's performance for the first three months of the July - December, 1995
semester will be measured against the first quarter rebate goal. At the end of
the first quarter, CUSTOMER will receive the percentage of the eligible rebate
earned based on performance against the first quarter goal. At the end of the
semester, CUSTOMER will be measured on their six-month performance against the
total semester goal. Even if CUSTOMER does not meet * of the first quarter
goal, CUSTOMER can still achieve * of the semester goal provided that the
semester goal is met at the end of the six-month period.
CUSTOMER's Enterprise Rebate Program goals are as follows:
o Quarter 1 Goal (July - September, 1995): *
o Semester Goal (July - December, 1995): *
PAYMENT: CUSTOMER will be paid a Enterprise rebate based on performance against
the semester goal at the end of the semester. If CUSTOMER achieves greater than
* ) of the semester Enterprise rebate goal, CUSTOMER will receive the
exact achieved percentage of the eligible Enterprise rebate up to * if
CUSTOMER achieves less than * ) of the Enterprise rebate goal,
CUSTOMER will not receive any portion of the Enterprise rebate. The purpose of
this scale is to offer an incentive for accounts to meet a portion of their
goal in the event they cannot achieve the full Microsoft Enterprise goal.
Although Microsoft pays the rebate ultimately based on performance against the
semester goal, Microsoft also pays a rebate at the end of the first quarter
based on performance against the first quarter goal. Microsoft pays a portion
of the rebate after the first quarter as an incentive for CUSTOMER to focus on
the Enterprise rebate program throughout the entire semester. The scale for the
first quarter payment is the same as the scale for the semester payment. The
first quarter payment amount will be subtracted from the final semester rebate
payment. However, if CUSTOMER does not meet the minimum attainment for the
semester goal, Microsoft will not seek reimbursement of the first quarter
rebate payment.
Example:
Goals:
o Quarterly Enterprise goal of * of total Select revenue
o Semester Enterprise goal of * of total Select revenue Performance:
o Actual Enterprise revenue is * of total Select revenue at the end of
the quarter
o Actual Enterprise revenue is * of Select revenue at the end of the
semester
CUSTOMER's Enterprise Rebate payment would be as follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
PERIOD GOAL PERCENTAGE PAYMENT
ACHIEVED
=======================================================================================================================
<S> <C> <C> <C>
First Quarter * * * eligible rebate = * of July -
September Select Sales.
- - -----------------------------------------------------------------------------------------------------------------------
Semester * * * of * eligible rebate does not qualify
for any portion of the Business Systems rebate.
However the first quarter payment will not be
affected and Microsoft willnot ask for
reimbursement.
</TABLE>
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
<PAGE> 9
AMENDMENT NO. 1 TO THE
LARGE ACCOUNT RESELLER ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
This Amendment No. 1 ("Amendment"), dated this first day of January, 1996,
amends that certain Large Account Reseller Addendum to The Microsoft 1995/1996
Channel Agreement ("Addendum") dated July 1, 1995, between MICROSOFT
CORPORATION ("MS") having its principal place of business at One Microsoft Way,
Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER") having its
principal place of business at 2140 Merritt Drive, Garland, TX 75041. The
Addendum is hereby amended as follows:
2. TERM AND TERMINATION
The first sentence of the section is replaced with the following:
"This Addendum shall be effective as of the date indicated above, and shall
expire June 30, 1996."
SCHEDULE B
Schedule B is replaced in its entirety with the attached Schedule C.
IN WITNESS WHEREOF, the parties have signed this Amendment on the date
indicated below. This Amendment is hereby made part of the Addendum. All terms
and conditions of the Addendum not amended herein shall remain in full force
and effect. This Amendment is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS") SOFTWARE SPECTRUM, INC.
("CUSTOMER")
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------------- ---------------------------------
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- - ------------------------------ ------------------------------------
Name (please print) Name (please print)
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- - ------------------------------ ------------------------------------
Title Title
1/3/96 December 20, 1995
- - ------------------------------ ------------------------------------
Date Date
<PAGE> 10
SCHEDULE C
JANUARY-JUNE, 1996
REBATE GUIDELINES
- - -------------------------------------------------------------------------------
SELECT REBATE PROGRAM OVERVIEW
- - -------------------------------------------------------------------------------
PROGRAMS: Microsoft offers four Select rebate programs for
the January - June, 1996 Rebate period:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
REBATE INCENTIVE MAXIMUM PERCENTAGE AVAILABLE
==============================================================================
<S> <C>
Compliance Program
Maintenance Sales-out Program *
Enterprise Sales-out Program
Business Systems Sales-out Program
Total
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft purchase credit forty-five (45) days after the end of each quarterly
rebate period (i.e. May 15th for the January - March, 1996 quarter). Rebates
are calculated by multiplying the achieved rebate percentage by the total
Qualified Select Sales for the rebate period. All Microsoft Select revenue will
be included in calculating CUSTOMER's performance against the Select Rebate
goals. Revenue generated from Microsoft Select Enrollment Forms executed by MS
prior to July 1, 1994, shall be included in calculating CUSTOMER's achievement
toward the Select Rebate goals, but shall not be included in CUSTOMER's final
total Qualified Select Sales for purposes of the Rebate payment. Only revenue
generated from Microsoft Select Enrollment Forms executed by MS on or after
July 1, 1994 (excluding any Microsoft Select Maintenance) will be included in
CUSTOMER's final total Qualified Select Sales for purposes of the Rebate
payment.
ANY ISSUES SURROUNDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
MARKETING MANAGER, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute rebate payment
COMPLIANCE REBATE PROGRAM
PROGRAM OBJECTIVES: The objective of the Compliance Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual
requirements for payments, Street Dates, and EDI ordering for Select 3.0.
NON-COMPLIANCE: During any given month, failure to comply with any or all of
the current compliance criteria will result in the forfeiture of the entire
compliance rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS
Microsoft requires its customers to pay its invoices within terms. In order to
maintain compliance, * of the gross invoice value for Select must be current as
of Microsoft's fiscal month-end. Unapplied credits will be excluded from the
calculation.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Large Account Page C2
Reseller Rebate Addendum to The Microsoft
1995/1996 Channel Agreement
<PAGE> 11
2. Microsoft Street Date Requirements
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to
comply with the Street Date requirements, CUSTOMER shall not:
o Ship or deliver the product to any end-user customer prior to the
Street Date.
o Accept any end user payment for the product prior to the Street
Date. Checks and/or credit card numbers may be accepted by
CUSTOMER, but can only be processed when product is delivered to
the end user on or after the Street Date.
o Advertise, merchandise, or promote the product to end user
customers until it is officially announced by Microsoft. Usually,
the product announcement is on the Street Date. If the product
announcement is earlier than the Street Date, Microsoft will
clearly communicate the announce date to the channel. If product is
announced by Microsoft before the Street Date, the product can be
advertised, merchandised and/or promoted immediately after such
announcement, provided that all such promotions clearly state that
the product is not yet available for purchase.
o Allow it's distribution centers and/or warehouses to distribute,
for a period of up to twelve months, a Street Date product to any
individual sales office, retail store, or outlet which Microsoft in
its sole discretion has determined to be in violation of
the Street Date Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter, CUSTOMER shall forfeit up to the
entire Compliance Rebate for the six month Rebate period in which the violation
occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to Street Date Violations at Microsoft at (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. Microsoft Reporting Requirements
CUSTOMER must comply with the reporting requirements as outlined in CUSTOMER's
then current 1995/1996 Channel Agreement and/or Senior Partner Marketing Fund
and Reporting Agreement, as applicable.
4. Microsoft Transaction Requirements
Electronic Data Interchange format ("EDI") transactions include, but are not
limited to 850/855 EDI transactions and all other EDI reporting requirements
which may be required by MS and in the EDI Implementation Guide provided by MS
from time to time. CUSTOMER must place EDI transaction orders at a minimum of
once per month per Enrollment Site if product is purchased during said month.
5. Select Certification Program
CUSTOMER shall participate in and obtain certification in the Microsoft Select
Certification Program for no less than two (2) CUSTOMER Select administration
contacts by June 30, 1996.
Compliance Rebate Calculation: The Microsoft Compliance Rebate will be
calculated on a monthly basis. If CUSTOMER has met all of the Compliance Rebate
criteria in a given month, CUSTOMER will be entitled to a Rebate payment equal
to * of that month's total Qualified Select Sales. The
rebate payment will be made forty-five (45) days after the end of each
quarterly rebate period.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Large Account Page C3
Reseller Rebate Addendum to The Microsoft
1995/1996 Channel Agreement
<PAGE> 12
- - -------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAMS
- - -------------------------------------------------------------------------------
REBATE GOALS: CUSTOMER has first quarter sales-out goals and total semester
sales-out goals. CUSTOMER's performance for the first three months of the
January - June, 1996, semester will be measured against the first quarter
sales-out goals. At the end of the first quarter, CUSTOMER will receive the
percentage of the eligible rebates earned based on performance against the first
quarter goals. At the end of the semester, CUSTOMER will be measured on their
six-month performance against the total semester goals. Even if CUSTOMER does
not meet * of the first quarter goals, CUSTOMER can still achieve * of the
semester goals provided that the semester goals are met at the end of the
six-month period.
SALES-OUT DEFINITIONS/MEASUREMENT: MS Product Sales-out is defined as those MS
net product units sold through CUSTOMER's outlet locations. For the Business
Systems sales-out goal, CUSTOMER's full packaged product, Microsoft Open
License, and upgrade sales-out units will be measured from the sales-out
reported by CUSTOMER to MS. For the Maintenance and Enterprises sales-out goals,
only the appropriate Select license will be measured. Licensing sales (Select,
Microsoft Maintenance) are captured and generated by MS' financial systems and
included in total sales-out used to measure product sales-out rebate
performance.
Any Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is
granted as MS recognizes the revenue. This occurs when MS has received the
customer's license reporting. Following receipt of reporting, MS bills the
customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the semester, CUSTOMER will be paid sales-out rebates
based on performance against the semester goals. If CUSTOMER achieves greater
than * of each semester sales-out goal, CUSTOMER will receive the exact
achieved percentage of the eligible sales-out rebate up to * CUSTOMER achieves
less than * of any sales-out rebate goal, CUSTOMER will not receive any
portion of that sales-out rebate.
Although MS pays the sales-out rebate ultimately based on performance against
the semester sales-out goal, MS also pays a sales-out rebate at the end of the
first quarter based on performance against the first quarter goal. MS pays a
portion of the rebate after the first quarter to provide incentive for CUSTOMER
to focus on sales-out throughout the entire semester. The scale for the first
quarter payment is the same as the scale for the semester payment. The first
quarter payment amount will be subtracted from the final semester payment for
the sales-out rebate.
Example: If CUSTOMER has a quarterly Business Systems sales out goal of *
and a total semester Business Systems goal * and CUSTOMER sells *
over the first quarter period and over the entire semester period, CUSTOMER will
receive the following rebate payments:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
PERIOD GOAL SELL-THROUGH PAYMENT
ACHIEVED
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter * eligible rebate = * of January -
* * June sales.
- - ----------------------------------------------------------------------------------------------------------------------------------
Semester * eligible rebate = * of January -
* * June sales less first quarter payment. The
maximum allowable rebate is *
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Large Account Page C4
Reseller Rebate Addendum to The Microsoft
1995/1996 Channel Agreement
<PAGE> 13
- - -------------------------------------------------------------------------------
SELECT MAINTENANCE SALES-OUT REBATE PROGRAM
- - -------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Maintenance Sales-out Rebate Program is * of Qualified Sales for the
January - June, 1996 semester.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (January - March, 1996): *
o Semester Goal (January - June, 1996): *
- - -------------------------------------------------------------------------------
ENTERPRISE SALES-OUT REBATE PROGRAM
- - -------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Enterprise Sales-out Rebate Program is * of Qualified Sales for the
January - June, 1996 semester.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (January - March, 1996): *
o Semester Goal (January - June, 1996): *
- - -------------------------------------------------------------------------------
BUSINESS SYSTEMS SALES-OUT REBATE PROGRAM
- - -------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Business Systems Sales-out Rebate Program is * of Qualified Sales for the
January - June, 1996 semester.
REBATE GOALS: CUSTOMER must meet a minimum Microsoft(R) BackOffice client
license unit sales goal in order to receive any portion of the Business Systems
rebate. Provided that CUSTOMER meets the client license unit sales goal,
CUSTOMER's achievement against the Business Systems goal will be based on
CUSTOMER's performance against the Business Systems revenue goal.
CUSTOMER's Microsoft(R) BackOffice unit sales goals are as follows:
o Quarter 1 Goal (January - March, 1996): *
o Semester Goal (January - June, 1996): *
CUSTOMER's Business Systems Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (January - March, 1996): *
o Semester Goal (January - June, 1996): *
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Large Account Page C5
Reseller Rebate Addendum to The Microsoft
1995/1996 Channel Agreement
<PAGE> 1
EXHIBIT 10.3 C
MICROSOFT GOVERNMENT SELECT
GOVERNMENT CONTRACTOR ADDENDUM TO
THE 1995/1996 CHANNEL AGREEMENT
(APPOINTMENT AS A LARGE ACCOUNT RESELLER)
This Microsoft Government Select Government Contractor Addendum ("Addendum")
entered into as of the first day of July, 1995, mollifies the 1995/1996 Channel
Agreement (Appointment As A Large Account Reseller) ("Agreement") between
MICROSOFT CORPORATION ("MS") having its principal place of business at One
Microsoft Way, Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER" having
its principal place of business at 2140 Merritt Drive, Garland, TX 75041. The
Agreement is amended as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which MS
authorizes CUSTOMER in a non-exclusive capacity to enter into contracts with
Government Account Contractor(s) to provide the Microsoft(R) Government Select
program to U.S. Government agencies and State and Local Governments.
2. DEFINITIONS
The following defined terms shall apply in this Addendum:
2.1 "GOVERNMENT ACCOUNT CONTRACTOR" shall have the same meaning as
provided for in the Microsoft Government Select Master Agreement for Government
Account Contractors.
2.2 "MICROSOFT GOVERNMENT SELECT PROGRAM" shall mean the set of
terms and conditions as set forth in various Microsoft documents that govern
the acquisition of Microsoft products and services by a Microsoft Select
Customer.
2.3 "U.S. GOVERNMENT" shall mean an executive department, a
military department, or any independent establishment within the meaning of 4
U.S.C.101, 102, and 104(1), respectively, and any wholly owned Government
corporation within the meaning of 31 U.S.C. 9101.
2.4 "STATE AND LOCAL GOVERNMENT" shall mean an agency,
instrumentality, division, unit, or other office which is supervised by or is
part of a State or Local government; together with, as mandated by law, any
county, borough, commonwealth, city, municipality, township, special purpose
district, or other similar type of government instrumentality located within
the boundaries of the applicable state or locality.
3. AUTHORIZATION
MS hereby authorizes CUSTOMER to enter into contracts with Government Account
Contractor(s) approved by Microsoft to provide the Microsoft Government Select
Program to the U.S. Government and State and Local Governments.
4. CUSTOMER OBLIGATIONS
In order to enter into a contract with a Government Account Contractor to
provide the Microsoft Government Select Program to the U.S. Government and
State and Local Governments, CUSTOMER shall:
(a) Ensure that the Microsoft Government Select Master Agreement
for Government Account Contractors and all applicable addenda; and the
Microsoft Government Select Enrollment Agreement for Government Account
Contractors and all applicable addenda, are completed by all parties in the
exact form and without modification as provided by MS;
Microsoft Confidential - Disclosure Prohibited
<PAGE> 2
(b) Ensure that all of the terms and conditions as set forth in
Microsoft Government Select Program Agreements are complied with by the U.S.
Government, State and Local Governments and Government Account Contractor, as
applicable. This shall include but not be limited to ensuring that all required
reports are accurately and timely submitted to MS and all required payments are
accurately and timely received by MS;
(c) Ensure that any changes or amendments to the U.S. Government
or State and Local Government contract via which the Government Account
Contractor provides Select Software Product(s) to the U.S. Government or State
and Local Governments that affects in any way the acquisition of Select
Software Product(s) are submitted to Microsoft for Microsoft approval.
(d) Ensure that the level of service provided by the Government
Account Contractor to the U.S. Government or State and Local Government is the
same level of service provided by CUSTOMER to its Microsoft Select Customers.
IN WITNESS WHEREOF, the pates have signed the Addendum on the dates indicated
below. All terms and conditions of the 1995/1996 Channel Agreement at its
related addenda shall remain in fill force and effect. This Addendum is not
binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS") SOFTWARE SPECTRUM, INC. ("CUSTOMER")
By: By: /s/ KEITH R. COOGAN
--------------------------- ----------------------------------
Keith R. Coogan
- - ------------------------------ ------------------------------------
Name (please print) Name (please print)
Vice President of Operations
- - ------------------------------ ------------------------------------
Title Title
December 15, 1995
- - ------------------------------ ------------------------------------
Date Date
Government Contractor Addendum to Software Spectrum Page 2
The 1995/1996 Channel Agreement
<PAGE> 1
EXHIBIT 10.3(d)
REBATE AND MARKETING FUND
ADDENDUM TO THE 1995/1996 MICROSOFT
CHANNEL AGREEMENT
(JULY-DECEMBER, 1995)
This Addendum ("Addendum") entered into as of the 1st day of July, 1995,
supplements that certain Microsoft 1995/1996 Channel Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") having its principal place of business at
One Microsoft Way Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER")
having its principal place of business at 2140 Merritt Drive, Garland, TX
75041. The Agreement is hereby supplemented as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which CUSTOMER
may earn Rebates and Marketing Funds.
2. TERM AND TERMINATION
This Addendum shall be effective as of the date indicated above, and shall
expire on December 31, 1995. Either party may terminate this Addendum, with or
without cause, upon thirty (30) days prior written notice. This Addendum is not
valid unless both MS and CUSTOMER have executed a Microsoft 1995/1996 Channel
Agreement, and the Addendum to The Microsoft 1995/1996 Channel Agreement
(Appointment As a Direct Reseller).
3. DEFINITIONS
For purposes of this Addendum, capitalized terms not otherwise defined herein,
shall have the same definitions as set forth in the Agreement. Additional
capitalized terms included in this Addendum are as defined in Schedule A
attached hereto.
4. REBATES
CUSTOMER is eligible to receive up to a * Rebate on its Qualified
Sales made during the Rebate and Marketing Fund Period. The Rebate shall be
paid provided CUSTOMER complies with the Rebate Program Guidelines outlined in
Schedule B. Notwithstanding such Rebate Program Guidelines, MS may, at its sole
discretion, pay all or any portion of the Rebate prior to the end of the Rebate
and Marketing Fund Period. The Rebate so paid may be adjusted subsequently
based upon compliance with the Rebate Program Guidelines.
5. MARKETING FUNDS
5.1 BASE LEVEL FUNDS
MS hereby grants to CUSTOMER the use of Marketing Funds calculated monthly by
the total number of each Product CUSTOMER purchased from MS multiplied by each
Product's respective Marketing Fund Accrual rate as outlined in Schedule C
attached hereto. MS reserves the right to modify Schedule C at anytime without
notice. Marketing Funds accrue monthly and shall expire on February 29, 1996.
Marketing Funds shall not begin accruing until both CUSTOMER and MS have
executed this Addendum. Should CUSTOMER fail to execute, or should MS be unable
to execute this Addendum by July l, 1995, for each full month after July 1,
1995, in which this Addendum is not executed, CUSTOMER shall not receive such
month's Marketing Fund accrual.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft Confidential - Disclosure Prohibited
<PAGE> 2
5.2 OPPORTUNITY FUNDS
Periodically, MS may allow CUSTOMER to participate in other MS programs in
which CUSTOMER shall receive additional Marketing Funds.
5.3 GUIDELINES FOR MARKETING FUND USE
MS shall provide CUSTOMER with a guideline of activities which MS sees as a
priority for spending the funds. The Microsoft Reseller Marketing Fund
Guidelines is attached hereto as Schedule D.
5.4 MARKETING FUND AUDIT
During the term of this Agreement and for a period of two (2) years following
its termination, MS may audit the applicable records and operations of CUSTOMER
as is reasonable to verity CUSTOMER'S use of Base Level Marketing Funds and
Opportunity Funds. Any audit will be conducted during CUSTOMER's normal
business hours in such a manner as not to unreasonably interfere with
CUSTOMER'S normal business activities. Should such audit disclose material
discrepancies, audit expenses shall be paid by CUSTOMER. For purposes of this
Addendum, "material discrepancies" shall mean * U.S. dollars * or
more.
If the results of such audit show that CUSTOMER used Marketing Funds in any
manner other than is authorized under this Addendum, MS shall be entitled to
recover from CUSTOMER any and all Marketing Funds so used, in additional to any
other remedies available to MS under law or equity plus injunctive relief
and/or any other damages as may be permitted by law.
5.5 MARKETING FUND REIMBURSEMENT POLICY FOR MICROSOFT(R) WINDOWS(R) 95
CUSTOMER agrees to abide by the Marketing Fund Reimbursement Guidelines,
attached hereto as Schedule G, and as revised from time to time by MS.
6. REPORTING REQUIREMENTS
CUSTOMER shall submit reports to MS as outlined in CUSTOMER'S Rebate Program
Guidelines, and in Schedule F attached hereto in accordance with the EDI
Implementation Guide attached hereto as Schedule E. Failure by CUSTOMER to
comply with the terms of the Guidelines shall result in CUSTOMER's loss of its
monthly Compliance Rebate total for each month reporting is non-compliant.
IN WITNESS WHEREOF, the parties have signed this Addendum on the date indicated
below. This Addendum is hereby made part of the Agreement. All terms and
conditions of the Agreement not supplemented herein shall remain in full force
and effect. This Addendum is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS"): SOFTWARE SPECTRUM, INC.
("CUSTOMER"):
By /s/ JOHAN LIEDGREN By /s/ KEITH R. COOGAN
--------------------------- ------------------------------
Johan Liedgren Keith R. Coogan
- - ------------------------------ --------------------------------
Name (please print) Name (please print)
Director, Channel Policies Vice President of Operations
- - ------------------------------ --------------------------------
Title Title
6/27/95 June 19, 1995
- - ------------------------------ --------------------------------
Date Date
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page 2
July - December, 1995, Rebate and
Marketing Fund Addendum
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARTELY WITH THE SEC.
<PAGE> 3
SCHEDULE A
DEFINITIONS
"AMS REPORTING" (ACCOUNT MANAGEMENT SYSTEMS REPORTING) is defined as a
monthly report of CUSTOMER's monthly Sell To sales of all MS Product, reported
in the format Attached hereto as Schedule F.
"ELECTRONIC DATA INTERCHANGE" OR "EDI" is defined as the ANSI-ASCII
X.12 standard, adopted by CompTIA, by which CUSTOMER shall submit sales
reporting to MS.
"INVENTORY REPORTING" is defined as the reporting of Product specific
month end inventory. If CUSTOMER has multiple locations, inventory reporting
shall be by location, and shall include the name, street address, city, state
and zip code for each location.
"MARKETING FUNDS" is defined as the purchase credit amount accrued by
CUSTOMER as a percentage of Qualified Purchases, and used to find CUSTOMER's
pre-approved MS marketing activities.
"MARKETING FUND ACCRUAL" is defined as the dollar amount MS grants
CUSTOMER for each Product purchased from MS.
"MICROSOFT MARKETING FUNDS GUIDELINES" is defined as MS' then current
terms and conditions attached hereto as Attachment D, available from the
Microsoft Reseller Account Representative, for the use of Marketing Funds.
"QUALIFIED SALES" is defined as net sales, made during the Rebate and
Marketing Fund Period, to CUSTOMER's End User customers as reported to MS in
CUSTOMER's normal sales reporting.
"QUALIFIED PURCHASES" is defined as net purchases made during the
Rebate and Marketing Fund Period; provided, however, that Qualified Purchases
shall include only those purchases which are shipped to CUSTOMER during the
Rebate and Marketing Fund Period, less returns, and credits for which payment
in full has been received by MS from CUSTOMER within thirty (30) days after the
end of the Rebate and Marketing Fund Period, and shall not include Microsoft
Select.
"REBATE" is defined as the dollar amount paid to CUSTOMER by MS in the
form of a purchase credit for achieving of specific rebate program goals and
reporting requirements as set forth herein.
"REBATE AND MARKETING FUND PERIOD" is defined as the six (6) calendar
months, from July 1, 1995 through December 31, 1995, during which CUSTOMER
shall earn Rebates and Marketing Funds.
"SALESOUT" OR "SELL THROUGH REPORTING" is defined as the reporting of
the number of Product units that CUSTOMER location distributes to its
customers.
"SELL TO" is defined as Product specific (per MS SKU) sales to all End
Users.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page A1
July - December, 1955, Rebate and
Marketing Fund Addendum
<PAGE> 4
SCHEDULE B
REBATE PROGRAM GUIDELINES
- - --------------------------------------------------------------------------------
REBATE PROGRAM OVERVIEW
- - --------------------------------------------------------------------------------
PROGRAMS: Microsoft offers four rebate programs for the July - December,
1995 Rebate period. Rebate percentages available are listed in the table below.
Details on each program are also included in this document.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
MAXIMUM PERCENTAGE OUTLINED ON
REBATE INCENTIVE AVAILABLE PAGE(S)
===============================================================================================
<S> <C> <C>
Compliance Program B2-B4
- - -----------------------------------------------------------------------------------------------
Total Sales-out Program B4-B5
- - -----------------------------------------------------------------------------------------------
Business Systems Program * B5-B6
- - -----------------------------------------------------------------------------------------------
Win Office and Mac Office Sales-out Program B7-B8
- - -----------------------------------------------------------------------------------------------
TOTAL
- - -----------------------------------------------------------------------------------------------
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft purchase credit forty-five (45) days after the end of each quarterly
rebate period (i.e. November 15th for July - September, 1995 quarter). Rebates
are calculated by multiplying the achieved rebate percentage by the total
Qualified Sales for the rebate period. Revenue generated from Microsoft Select
Enrollment Forms executed by MS on or after July 1, 1994, shall be included in
calculating CUSTOMER's achievement toward the Sales-out goal, but shall not be
included in CUSTOMER's final total Qualified Sales for purposes of Rebate
payment. Revenue generated from Microsoft Select Enrollment Forms executed by
MS prior to July 1, 1994 will be included in calculating CUSTOMER's achievement
towards the sales-out goal and will also be eligible for a Grandfathered rebate.
Rebate payment for such Select Enrollment Forms shall be in the form of a
purchase credit forty-five (45) days after the end of each quarterly rebate
period.
PURCHASES THROUGH DISTRIBUTION: CUSTOMER's purchases through distribution will
be subtracted from CUSTOMER's Qualified Sales for purposes of Rebate payment.
PRODUCT AVAILABILITY: If Microsoft is unable to ship a CURRENT VERSION of a
product for any ten (10) consecutive business days, CUSTOMER's purchases
through distribution of those SKUs will count toward CUSTOMER's Qualified Sales
for purchases of Rebate payment.
All copies of eligible purchase orders placed through distribution along with a
copy of the Microsoft Stock Out Report must be sent to Microsoft no later than
fifteen (15) days following the semester end. Please send purchase order copies
and the Microsoft Stock Out Report to the following address:
MICROSOFT CORPORATION
ONE MICROSOFT WAY
BLDG. 22/4051
REDMOND, WA 98052
ATTN: KRISTIN WEEBER, REBATE SPECIALIST
COMPLIANCE REBATE PAYMENT: The Microsoft Compliance Rebate will be calculated
on a monthly basis. If CUSTOMER has met all of the Compliance Rebate criteria
in a given month, CUSTOMER will be entitled to * of that month's
total Qualified Sales. The rebate payment will be made forty-five (45) days
after the end of each quarterly rebate period.
ANY ISSUES REGARDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
REBATE SPECIALIST, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute rebate payment.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page B1
July - December, 1955, Rebate and
Marketing Fund Addendum
<PAGE> 5
- - --------------------------------------------------------------------------------
COMPLIANCE REBATE PROGRAM
- - --------------------------------------------------------------------------------
PROGRAM OBJECTIVES: The objective of the Compliance Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual
requirements for payments, Street Dates, reporting, and EDI ordering for Select
3.0.
NON-COMPLIANCE: During any given month, failure to comply with any or all of
the current compliance criteria will result in the forfeiture of the entire
compliance rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS:
Microsoft requires its customers to pay its invoices within terms. In order
to maintain compliance, * of the gross invoice value for non-Select and
* of the gross invoice value for Select must be current as of Microsoft's
fiscal month-end. Unapplied credits will be excluded from the calculation.
Failure to comply with this section will result in the loss of CUSTOMER's
Select Compliance Rebate.
2. MICROSOFT STREET DATE REQUIREMENTS:
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to
comply with the Street Date requirements, CUSTOMER shall not:
o Ship or deliver the product to any end-user customer
prior to the Street Date.
o Accept any end user payment for the product prior to
the Street Date. Checks and/or credit card numbers
may be accepted by CUSTOMER, but can only be
processed when product is delivered to the end user
on or after the Street Date.
o Advertise, merchandise, or promote the product to end
user customers until it is officially announced by
Microsoft. Usually, the product announcement is on
the Street Date. If the product announcement is
earlier than the Street Date, Microsoft will clearly
communicate the announce date to the channel. If
product is announced by Microsoft before the Street
Date, the product can be advertised, merchandised
and/or promoted immediately after such announcement,
provided that all such promotions clearly state that
the product is not yet available for purchase.
o Allow its distribution centers and/or warehouses to
distribute, for a period of up to twelve months, a
Street Date product to any individual sales office,
retail store, or outlet which Microsoft in its sole
discretion has determined to be in violation of the
Street Date Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter (including, but not limited to
Microsoft(R) Windows(R) 95), CUSTOMER shall forfeit up to the entire Compliance
Rebate for the six month Rebate period in which the violation occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions are defined as 850/855
EDI transactions. CUSTOMER must place EDI transaction orders at a minimum of
once per month per Enrollment Site if product is purchased during said month.
4. MICROSOFT REPORTING REQUIREMENTS
ALL REPORTS OUTLINED BELOW MUST BE TIMELY, ACCURATE, AND COMPLETE. FOR PURPOSES
OF THE MICROSOFT CHANNEL AGREEMENT, "TIMELY" IS DEFINED AS MS RECEIPT OF
REPORTING BY THE DUE DATE AND TIME INDICATED, "ACCURATE" IS DEFINED AS THE
CORRECT POPULATION OF ALL REPORTING FIELDS, AND "COMPLETE" IS DEFINED AS THE
POPULATION OF ALL REQUIRED REPORTING FIELDS.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page B2
July - December, 1955, Rebate and
Marketing Fund Addendum
<PAGE> 6
FAST TRACK REPORTING
Fast Track Reporting is defined as a weekly report sent to Microsoft via
Electronic Data Interchange format ("EDI") of weekly Sales, Inventory, and
Internal Market Share. CUSTOMER must make the EDI reports available to MS' EDI
mailbox each Monday by 12:00 noon (Pacific time). These reports shall cover the
seven-day period ending the prior Friday night. Please refer to the EDI
Reporting Guidelines for details on reporting requirements.
Microsoft reserves the right to conduct audits on CUSTOMER's market share data
at any time. If the results of the audit show that CUSTOMER is reporting one or
more market share categories incorrectly, CUSTOMER must correct the specified
categories and provide the corrected back data through the beginning of July,
1994 before CUSTOMER is eligible to receive a compliance rebate.
REPORTING REQUIREMENTS
o Each unit of single license Full Package Product should be reported as
one unit. This applies for both Microsoft products and for competitive
products.
o Any single Microsoft product that includes multiple licenses should be
reported as one unit. Microsoft will then convert the quantity of
multiple license units sold to the number of licenses they represent.
Examples of these products include MMLP 20 Pack, MMLP 100 Pack, and AE
l0 Pack.
o All volume licensing agreements (such as MOLP, Variable Licenses, and
Enterprise Licenses) should be reported as one unit for each license
sold.
MARKET SHARE REPORTING
The following table outlines the Market Share product categories for EDI
reporting. The table also specifies the top competitive products that must be
included in the aggregated market share reporting for the Fast Track Rebate
Program. All competitive products within a given category must be reported.
The products listed below are just examples, not a comprehensive list.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Category Microsoft product Competitive products
=====================================================================================================
<S> <C> <C>
Windows word processors Microsoft(R) Word for WordPerfect(R) for Windows(R)
Windows(R) Ami Pro(R) for Windows(R)
- - -----------------------------------------------------------------------------------------------------
Windows spreadsheets Microsoft(R) Excel for 1-2-3(R) for Windows(R)
Windows(R) Quattro Pro(R) for Windows(R)
- - -----------------------------------------------------------------------------------------------------
Windows bundles Microsoft(R) Office for Lotus(R) Smartsuite
Windows(R) WordPerfect(R)/Borland(R) Office
Novell(R) Perfect Office
- - -----------------------------------------------------------------------------------------------------
Windows Databases Microsoft Access(R) for Paradox(TM) for Windows(R)
Windows(R) dBase(R) for Windows(R)
FoxPro(R) for Windows(R) Approach
Superbase(R)
- - -----------------------------------------------------------------------------------------------------
Mail Servers Microsoft(R) Mail Lotus(R) cc:Mail(TM)
Lotus Notes(R)
WordPerfect(R) Office
- - -----------------------------------------------------------------------------------------------------
Network Operating Microsoft(R) Windows Novell(R) Netware(R) 4.x, 3.x, 2.x
Systems NT(TM) Server Novell(R) UnixWare
OS/Lan Server
Banyan(R)
SCO(R) Unix
- - -----------------------------------------------------------------------------------------------------
</TABLE>
Accounts are required to report sell-through units and inventory units for each
Microsoft SKU, but are required only to report the total license count for
competitive product sell-through for each category. All SKUs for these titles
should be counted, including full packaged product, upgrades, Microsoft license
packs, education, and government SKUs. Please refer to the EDI Reporting
Guidelines for details on reporting requirements.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page B3
July - December, 1955, Rebate and
Marketing Fund Addendum
<PAGE> 7
EXAMPLE: If CUSTOMER sold-through fifty (5O) units of Lotus(R) 1-2-3(R) for
Windows(R) and a 20 user MMLP of Quattro Pro(R) for Windows(R) in one week, then
CUSTOMER would report a total of seventy (70) licenses for sell-through of
competitor's products in the Windows Spreadsheet category.
MBS REPORTING
CUSTOMER must submit MBS reporting by the 10th of each month for the prior
month in the format outlined in Schedule D. Reporting shall be transmitted in
electronic format and sent via modem to 1-800-831-6316, or on tape or diskette
to MS at the following address:
MICROSOFT CORPORATION
RESELLER REPORTING GROUP
BLDG. 8N/2
ONE MICROSOFT WAY
REDMOND, WA 98052
Should CUSTOMER provide both monthly MBS reporting and weekly Fast Track
reporting on a compliant basis for three (3) consecutive months, MS may at its
sole discretion grant a written waiver of CUSTOMER monthly MBS reporting
requirements.
- - --------------------------------------------------------------------------------
TOTAL SALES-OUT REBATE PROGRAM
- - --------------------------------------------------------------------------------
PROGRAM OBJECTIVE: The objective of the Total Sales-out Rebate Program is to
increase the sales of Microsoft products. All license types (Select, Microsoft
Open License, Full Package Product, (MLPs) are included in measuring
performance against this goal.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Total Sales-out Rebate Program is * of Qualified Sales for the July -
December, 1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
o CUSTOMER's historical sales-out of Microsoft products by
Microsoft product division.
o Microsoft's United States total sales-out goals.
o CUSTOMER's contribution to Microsoft's historical sales.
REBATE GOALS: CUSTOMER has a first quarter sales-out goal and a total semester
sales-out goal. CUSTOMER's performance for the first three months of the July -
December, 1995 semester will be measured against the first quarter sales-out
goal At the end of the first quarter, CUSTOMER will receive the percentage of
the eligible rebate earned based on performance against the first quarter goal.
At the end of the semester, CUSTOMER will be measured on their six-month
performance against the total semester goal. Even if CUSTOMER does not meet
* of the first quarter goal, CUSTOMER can still achieve * of the
semester goal provided that the semester goal is met at the end of the
six-month period.
CUSTOMER'S Total Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (July - September, 1995): *
o Semester Goal (July - December, 1995): *
SALES-OUT DEFINITIONS/MEASUREMENT: Microsoft Product Sales-out is defined as
those Microsoft net product units sold through CUSTOMER's outlet locations.
CUSTOMER's full packaged product, Microsoft Open License, and upgrade sales-out
units will be measured from the sales-out reported by CUSTOMER to Microsoft.
Licensing sales (Select, Microsoft Maintenance) are captured and generated by
Microsoft's financial systems and included in total sales-out used to measure
product sales-out rebate performance.
Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is
granted as Microsoft recognizes the revenue. This occurs when Microsoft has
received the customer's license reporting. Following receipt of reporting,
Microsoft bills the customer/reseller and simultaneously recognizes the
revenue.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page B4
July - December, 1955, Rebate and
Marketing Fund Addendum
<PAGE> 8
PAYMENT: At the end of the semester, CUSTOMER will be paid a sales-out rebate
based on performance against the semester goal. If CUSTOMER achieves greater
than * of the semester sales-out goal, CUSTOMER will receive the exact
achieved percentage of the eligible sales-out rebate up to * . If CUSTOMER
achieves less than * of the sales-out rebate goal, CUSTOMER will not have
any portion of the sales-out rebate. The purpose of this scale is to offer an
incentive for accounts to meet portion of their goal in the event they cannot
achieve the full Microsoft sales-out goal.
Although Microsoft pays the sales-out rebate ultimately based on performance
against the semester sales-out goal, Microsoft also pays a sales-out rebate at
the end of the first quarter based on performance against the first quarter
goal. Microsoft pays a portion of the rebate after the first quarter to provide
incentive for CUSTOMER to focus on sales-out throughout the entire semester.
The scale for the first quarter payment is the same as the scale for the
semester payment. The first quarter payment amount will be subtracted from the
final semester payment for the sales-out rebate.
Example: If CUSTOMER has a quarterly sales-out goal of * and a total
semester goal * and CUSTOMER sells * over the first quarter period
and * over the entire semester period, CUSTOMER will receive the
following rebate payments:
<TABLE>
<CAPTION>
===========================================================================================================================
PERIOD GOAL SELL-THROUGH PAYMENT
ACHIEVED
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter * eligible rebate = * of July - September Qualified Sales.
*
- - ---------------------------------------------------------------------------------------------------------------------------
Semester * eligible rebate = * of July-December Qualified Sales
less first quarter payment. The maximum allowable rebate is *
===========================================================================================================================
</TABLE>
- - --------------------------------------------------------------------------------
BUSINESS SYSTEMS REBATE PROGRAM
- - --------------------------------------------------------------------------------
PROGRAM OBJECTIVE: The objective of the Microsoft Business Systems Rebate
Program is to increase the Microsoft Business Systems revenue as well as to
increase the ratio of Microsoft Windows NT Client to Server sales. The
Microsoft Business Systems products consist of any license type of the
following products: MICROSOFT(R) BACKOFFICE, MICROSOFT(R) EXCHANGE,
MICROSOFT(R) MAIL, MICROSOFT(R) SNA SERVER, MICROSOFT(R) SQL SERVER(R),
MICROSOFT(R) SYSTEMS MANAGEMENT SERVER, MICROSOFT(R) WINDOWS NT(TM) SERVER, AND
MICROSOFT(R) WINDOWS NT(TM) WORKSTATION.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Business Systems Rebate Program is * of Qualified Sales for the July -
December, 1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
o Existing Microsoft Business Systems revenue.
o Microsoft's Business Systems revenue goals.
o Microsoft's Windows NT Client to Server Ratio goals.
REBATE GOALS: CUSTOMER must meet a minimum Windows NT Client to Server Ratio of
* in order to receive any portion of the Business Systems rebate.
Performance against the Client to Server goal will be measured against all
license types of Microsoft Windows NT including full packaged product, MLPs,
MOLP, and Select license types. Provided that CUSTOMER meets the * Client
to Server Ratio, CUSTOMER's achievement against the Business Systems goal will
be based on CUSTOMER's performance against the Business Systems revenue goal.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page B5
July - December, 1955, Rebate and
Marketing Fund Addendum
<PAGE> 9
CUSTOMER has a first quarter rebate goal and a total semester rebate goal.
CUSTOMER's performance for the first three months of the July - December, 1995
semester will be measured against the first quarter rebate goal. At the end of
the first quarter, CUSTOMER will receive the percentage of the eligible rebate
earned based on performance against the first quarter goal. At the end of the
semester, CUSTOMER will be measured on their six-month performance against the
total semester goal. Even if CUSTOMER does not meet * of the first
quarter goal, CUSTOMER can still achieve * of the semester goal provided
that the semester goal is met at the end of the six-month period.
CUSTOMER's Business Systems Rebate Program goals are as follows:
o Minimum Windows NT Client to Server Ratio of *
o Quarter l Goal (July - September, 1995): *
o Semester Goal (July - December, 1995: *
PAYMENT: As stated earlier, CUSTOMER must attain a * Client to Server
ratio of Microsoft Windows NT in order to receive any portion of the Business
Systems Rebate. Provided CUSTOMER meets the Client to Server Ratio requirement,
CUSTOMER will be paid a Business Systems rebate based on performance against the
semester goal at the end of the semester. If CUSTOMER achieves greater than *
of the semester Business Systems revenue goal and attains a minimum of 10:1
Windows NT Client to Server ratio, CUSTOMER will receive the exact achieved
percentage of the eligible Business Systems rebate up to * If CUSTOMER
achieves less than * of the Business Systems revenue goal, CUSTOMER will
not receive any portion of the Business Systems rebate. The purpose of this
scale is to offer an incentive for accounts to meet a portion of their goal in
the event they cannot achieve the full Microsoft Business Systems goal.
Although Microsoft pays the rebate ultimately based on performance against the
semester goal, Microsoft also pays a rebate at the end of the first quarter
based on performance against the first quarter goal. Microsoft pays a portion
of the rebate after the first quarter to provide incentive for CUSTOMER to
focus on the Business Systems rebate program throughout the entire semester.
The scale for the first quarter payment is the same as the scale for the
semester payment. The first quarter payment amount will be subtracted from the
final semester payment for the rebate.
Example:
Goals:
o Quarterly Business Systems revenue goal of *
o Semester Business Systems revenue goal of *
o Minimum Windows NT Client to Server Ratio of *
Performance:
o Windows NT Client to Server Ratio of *
o Actual Quarter Business Systems revenue is *
o Actual Semester Business Systems revenue is *
Because CUSTOMER attained the minimum Windows NT Client to Sever Ratio of * .
CUSTOMER's Business Systems Rebate payment would be as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
PERIOD GOAL SELL THROUGH PAYMENT
ACHIEVED
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter * eligible rebate = * of July - September Qualified Sales.
- - -------------------------------------------------------------------------------------------------------------------------------
*
Semester * eligible rebate = * of July - December Qualified Sales
less first quarter payment. The maximum allowable Business
Systems rebate is *
===============================================================================================================================
</TABLE>
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page B6
July - December, 1955, Rebate and
Marketing Fund Addendum
<PAGE> 10
- - --------------------------------------------------------------------------------
OFFICE SALES-OUT REBATE PROGRAM
- - --------------------------------------------------------------------------------
PROGRAM OBJECTIVE: The objective of the Microsoft Office Sales-out Rebate
Program is to increase sales and support the efforts of Microsoft Office for
Windows Standard and Professional products and Microsoft Office for the
Macintosh products. All Microsoft Office license types (Select, Microsoft Open
License, Full Package Product, (MLPs) are included in measuring performance
against this goal.
REBATE PERCENTAGES: The total possible rebate percentage achievable for Office
Sales-out Rebate Program is * of net qualified purchases for July -
December, 1995.
GOAL DEFINITIONS: The program goals are based upon the following:
o CUSTOMER's historical Sales-out of Office.
o Microsoft's North America Office Sales-out goals.
o CUSTOMER's contribution to Microsoft's historical
Office sales.
REBATE GOALS: CUSTOMER has a first quarter sales-out goal and a total semester
sales-out goal. CUSTOMER's performance for the first three months of the July -
December, 1995 semester will be measured against the first quarter sales-out
goal. At the end of the first quarter, CUSTOMER will receive the percentage of
the eligible rebate earned based on performance against the first quarter goal.
At the end of the semester, CUSTOMER will be measured on their six-month
performance against the total semester goal. Even if CUSTOMER does not meet
* of the first quarter goal, CUSTOMER can still achieve * of the
semester goal provided that the semester goal is met at the end of the
six-month period.
CUSTOMER's Office Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (July - September, 1995): *
o Semester Goal (July - December, 1995): *
SALES-OUT DEFINITIONS/MEASUREMENT: Microsoft Office Product Sales-out is defined
as those Office net product units sold through reseller outlet locations.
CUSTOMER's full packaged product and upgrade sales-out units will measured from
the sales-out reported by CUSTOMER to Microsoft, which includes MOLP sales.
Licensing sales (Select, and Microsoft Maintenance) are captured and generated
by Microsoft's financial systems and included in total Sales-out used to
measure Office product sales-out rebate performance.
Microsoft Select 2.x and I.x and Microsoft Maintenance revenue credit is
granted as Microsoft recognizes the revenue. This occurs when Microsoft has
received the customer's license reporting. Following receipt of reporting,
Microsoft bills the customer/reseller and simultaneously recognizes the
revenue.
PAYMENT: At the end of the semester, CUSTOMER will be paid a sales-out rebate
based on performance against the semester goal. If CUSTOMER achieves greater
than * of the semester sales-out goal, CUSTOMER will receive the exact
achieved percentage of the eligible sales-out rebate up to * CUSTOMER
achieves less than * of the sales-out rebate goal, CUSTOMER will not
receive any portion of the sales-out rebate. The purpose of this scale is to
offer an incentive for accounts to meet a portion of their goal in the event
they cannot achieve the full Microsoft sales-out goal.
Although Microsoft pays the sales-out rebate ultimately based on performance
against the semester sales-out goal, Microsoft also pays a sales-out rebate at
the end of the first quarter based on performance against the first quarter
goal. The scale for the first quarter payment is the same as the scale for the
semester payment. The first quarter payment amount will be subtracted from the
final semester payment for the sales-out rebate.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page B7
July - December, 1955, Rebate and
Marketing Fund Addendum
<PAGE> 11
Example: If CUSTOMER has a quarterly sales-out goal of * and a total
semester goal * and CUSTOMER sells * over the first period and *
over the entire semester period, CUSTOMER will receive the following rebate
payments:
--------------------------------------------------------------------------
PERIOD GOAL SELL-THROUGH PAYMENT
ACHIEVED
First * eligible rebate = * of July -
Quarter September Qualified Purchases.
--------- * --------------------------------------
Semester * eligible rebate = * of July -
December Qualified Purchases less first
quarter payment. The maximum allowable
rebate is *.
--------------------------------------------------------------------------
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page B8
July-December, 1995, Rebate and
Marketing Fund Addendum
<PAGE> 12
SCHDULE F
SALES REPORTING FORMATS
SALESOUT, SELL-THROUGH AND INVENTORY REPORT FORMAT
==========================================================================
FIELD FIELD DESCRIPTION MAX SIZE
- - --------------------------------------------------------------------------
1 Distributor's Customer or Outlet Number X(20)
- - --------------------------------------------------------------------------
2 Customer or Outlet Name X(40)
- - --------------------------------------------------------------------------
3 Customer or Outlet Address 1 X(40)
- - --------------------------------------------------------------------------
4 Customer or Outlet Address 2 X(40)
- - --------------------------------------------------------------------------
5 Customer or Outlet City X(40)
- - --------------------------------------------------------------------------
6 Customer or Outlet State X(02)
- - --------------------------------------------------------------------------
7 Customer or Outlet Zip X(10)
- - --------------------------------------------------------------------------
8 Customer or Outlet Phone X(14)
- - --------------------------------------------------------------------------
9 Distributor Part Number X(20)
- - --------------------------------------------------------------------------
10 Part Description X(50)
- - --------------------------------------------------------------------------
11 Sell-Through Quantity 9(11)
- - --------------------------------------------------------------------------
12 Sell-To Quantity 9(11)
- - --------------------------------------------------------------------------
13 Ending Inventory Quantity 9(11)
- - --------------------------------------------------------------------------
14 Unit Price 9(11).99
- - --------------------------------------------------------------------------
15 Calendar Year Shipped X(02)
- - --------------------------------------------------------------------------
16 Calendar Month Shipped X(02)
- - --------------------------------------------------------------------------
Microsoft 1995/1996 Channel Agreement Software Specrum, Inc. Page F1
July-December, 1995, Rebate and
Marketing Fund Addendum
<PAGE> 13
SCHDULE E
SALES REPORTING FORMATS
AMS REPORT FORMAT
<TABLE>
<CAPTION>
=================================================================================================
FIELD FIELD NAME COMMENTS OPTIONAL?
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Reseller Outlet ID
- - -------------------------------------------------------------------------------------------------
2 Outlet Name
- - -------------------------------------------------------------------------------------------------
3 Outlet Address 1
- - -------------------------------------------------------------------------------------------------
4 Outlet Address 2
- - -------------------------------------------------------------------------------------------------
5 Outlet Phone Yes
- - -------------------------------------------------------------------------------------------------
6 Outlet Fax Yes
- - -------------------------------------------------------------------------------------------------
7 Outlet City
- - -------------------------------------------------------------------------------------------------
8 Outlet State
- - -------------------------------------------------------------------------------------------------
9 Outlet Zip Yes, if end user
- - -------------------------------------------------------------------------------------------------
10 Bill-to Customer ID Yes, if end user
- - -------------------------------------------------------------------------------------------------
11 Bill-to Name Yes, if end user
- - -------------------------------------------------------------------------------------------------
12 Bill-to State Yes, if end user
- - -------------------------------------------------------------------------------------------------
13 Bill-to Zip Yes, if end user
- - -------------------------------------------------------------------------------------------------
14 Ship-to Customer ID Yes, if end user
- - -------------------------------------------------------------------------------------------------
15 Ship-to Name Yes, if end user
- - -------------------------------------------------------------------------------------------------
16 Ship-to State Yes, if end user
- - -------------------------------------------------------------------------------------------------
17 Ship-to Zip If Null and end user, Outlet Zip will be used Yes, if end user
- - -------------------------------------------------------------------------------------------------
18 Invoice Number Yes, if end user
- - -------------------------------------------------------------------------------------------------
19 Invoice Date Yes, if end user
- - -------------------------------------------------------------------------------------------------
20 Vendor Part Number One of Microsoft, Merisel, Ingram, Tech Data,
Handleman, NACSCORP, Microage, or Intelligent
Electronics
- - -------------------------------------------------------------------------------------------------
21 Reseller Part Number
- - -------------------------------------------------------------------------------------------------
22 Part Description
- - -------------------------------------------------------------------------------------------------
23 Quantity Sold
- - -------------------------------------------------------------------------------------------------
24 Agreement Number Number assigned to Agreement sales have been
made under
- - -------------------------------------------------------------------------------------------------
25 Agreement Type "1" = MSM; "2" = Select; "3' = Express "4"
= Special Agreement; "5" = MOLP; "6" =
GSA; "7" = GSA Select; "8" = Desktop4
- - -------------------------------------------------------------------------------------------------
26 Sales Type "E" for End User, "A" for Academic, "G" for
Government, "C" for Corporate Account.
- - -------------------------------------------------------------------------------------------------
</TABLE>
Microsoft 1995/1996 Channel Agreement Software Specrum, Inc. Page F2
July-December, 1995, Rebate and
Marketing Fund Addendum
<PAGE> 14
SCHEDULE G
MARKETING FUND REIMBURSEMENT POLICY
FOR MICROSOFT(R) WINDOWS(R) 95 UPGRADE
OVERVIEW
For the period beginning July 1, 1995 and ended December 31, 1995, CUSTOMER
must comply with MS' Marketing Fund Reimbursement Policy for Microsoft(R)
Windows(R) 95 Upgrade in order to receive Marketin Funds from MS.
RULES
1. Program Scope. This Program affects only CUSTOMER's eligibility for MS
Marketing Funds, and CUSTOMER is always free to advertise and price all MS
products however CUSTOMER chooses.
2. Marketing Funds and Price Advertising. In order for CUSTOMER to be eligile
for Base Level Funds and Opportunity Funds, all advertisements of the
Windows 95 Upgrade made by CUSTOMER or on CUSTOMER's behalf must state
prices at or above the following net before tax price:
Alternatively, CUSTOMER's advertisements may state no price whatsoever.
The folloiwng specific requirement apply to advertisements in which
CUSTOMER is offering other services or priducts together with the Windows
95 Upgrade:
o CUSTOMER may advertise "free" end-user training or support in
connection with the Windows 95 upgrade.
o CUSTOMER may advertise a package of products offered for a single
price including the Windows 95 Upgrade, but only if the net package
price is at or above . Alternatively, CUSTOMER's
advertisements may state no price whatsoever.
o MS reserves the right to change the price upon notice to
CUSTOMER.
3. Loss of Marketing Funds. If CUSTOMER fails to comply with the rules of
this Program, then notwithstanding any other provisions of the Addendum to
which this Schedule is attached, CUSTOMER will be ineligible to receive
both Base Level Funds and Opportunity Funds for a period of six(6) months.
Marketing Funds ineligibility shall begin with the entire month in which
the failure to comply first occured and shall continue for six(6) months
which may include CUSTOMER's ineligibility for Base Level Funds and
Opportunity FUnds in a subseequent Rebate and Marketing Fund Period. MS'
sole judgment is final in determining CUSTOMER compliance with this
Program.
4. Products Covered. The "Windows 95 Upgrade" as covered by this Program
means:
Windows(R) 95 Upgrade (SKU: 050-042-950)
Windows (R) 95 Upgrade on CE-ROM (SKU; 050-052-950)
5. Advertisements. The term "advertisement" means any printed broadcast,
direct mail or transmitted advertisements for the Window 95 Upgrade,
including without limitation, all newspaper, television, radio and internet
or on-line advertisements.
Microsoft 1995/1996 Channel Agreement Software Spectrum Page G1
July-December, 1995, Rebate and
Marketing Fund Addendum
<PAGE> 15
6. December 31, 1995.
7. Questions and Inquiries. If CUSTOMER has questions about whether
CUSTOMER's advertisements comply with this Program or if CUSTOMER has other
inquiries, CUSTOMER must direct these questions and inquiries to the
following MS contact:
Arlene Yanow
One Microsoft Way
Redmond, WA 98052
(206)882-8080
The above contact is CUSTOMER's ONLY authorized source of information at
MS about this Program, and CUSTOMER may not rely on any other source of
information, including other MS employees. No MS employee, including the
above contact, is authorized to communicate with CUSTOMER about any alleged
infractions of any other reseller.
8. Program Modifications/Termination: MS reserves the right to modify or
terminate this program at any time, in its sole discretion.
Microsoft 1995/1996 Channel Agreement Software Spectrum, Inc. Page G2
July-December, 1995, Rebate and
Marketing Fund Addendum
<PAGE> 16
AMENDMENT NO.1 TO THE
REBATE AND MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
This Amendment No. 1 ("Amendment"), dated the first day of January, 1996, amends
that certain Rebate and Marketing Fund Addendum to The Microsoft 1995/1996
Channel Agreement ("Addendum"), dated July 1, 1995, between MICROSOFT
CORPORATION ("MS") having its principal place of business at One Microsoft Way,
Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER") having its
principal place of business at 2140 Merritt Drive, Garland, TX 75041. The
Addendum is hereby amended as follows:
2. TERM AND TERMINATION
The first sentence of the section is replaced with the following:
"This Addendum shall be effective as of the date indicated above, and shall
expire on June 30, 1996."
4. REBATES
The section is replaced in its entirety with:
"4.1 PACKAGED PRODUCT REBATE
CUSTOMER is eligible to receive up to a * ) Rebate on its Qualified
Sales, excluding Open License sales, made during the Rebate and Marketing Fund
Period. The Rebate shall be paid provided CUSTOMER complies with the Rebate
Program Guidelines outlined in Schedule B.
4.2 OPEN LICENSE REBATE
CUSTOMER is eligible to receive up to a * Rebate on its Open License
sales made during the Rebate and Marketing Fund Period. The Rebate shall be
paid provided CUSTOMER complies with the those portions of the Packaged Product
Rebate Guidelines outlined in Schedule J.
4.3 PROVISION FOR EARLY PAYMENT OF REBATES
Notwithstanding such Rebate Program Guidelines, MS may, at its sole discretion,
pay all or any portion of the Rebate prior to the end of the Rebate and
Marketing Fund Period. The Rebate so paid may be adjusted subsequently based
upon compliance with the Rebate Program Guidelines."
5. MARKETING FUNDS
The section is replaced in its entirety with:
"5.1 OPPORTUNITY FUNDS
Periodically, MS at its discretion may allow CUSTOMER to participate in MS
programs which provide the opportunity to earn Opportunity Marketing Funds.
Customer's participation in such programs shall be governed by this Addendum.
Grant of Opportunity Marketing Funds is subject to prior approval by MS.
5.2 USE OF MARKETING FUNDS
Acquisition, use of, and proof of expenditures of Opportunity Marketing Funds
shall be in accordance with this Addendum, and the terms of each Opportunity
Fund Proposal approved by CUSTOMER'S MS Account Manager. Without limiting the
foregoing, CUSTOMER shall abide by the Spending Period dates as outlined in the
then-current Microsoft Marketing Fund Guidelines. Marketing Fund Claims
exceeding the then-current balance in CUSTOMER'S Marketing Fund account at MS'
Marketing Fund vendor, currently Pinpoint Marketing, Inc. ("PMI") or submitted
in excess of the pre-approved dollar amount shall not be granted to CUSTOMER.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft Confidential - Disclosure Prohibited
<PAGE> 17
CUSTOMER must obtain MS approval from a MS representative prior to claiming
Marketing Funds. CUSTOMER agrees to report to PMI any suspected error or
discrepancy in the amount of Marketing Funds received by CUSTOMER within thirty
(30) days of receipt thereof. Failure to provide such notice within the
specified period shall mean that CUSTOMER forfeits the opportunity to request a
re-audit. MS reserves the right at any time to adjust CUSTOMER's Marketing Fund
balance should MS discover that an error or discrepancy has occurred.
5.3 MARKETING FUND AND REBATE AUDIT
During the term of this Addendum and for a period of two (2) years following
its termination, MS may audit the applicable records and operations of CUSTOMER
as is reasonable to verity CUSTOMER's compliance with the terms of this
Addendum. Additionally, MS may audit specific Opportunity Marketing Fund claims
submitted by CUSTOMER as outlined in CUSTOMER's then current Marketing Fund
Guidelines. Any audit shall be conducted during CUSTOMER'S normal business
hours in such a manner as not to unreasonably interfere with CUSTOMER's normal
business activities. Audit expenses shall be paid by MS unless material
discrepancies are disclosed by such audit, in which case audit expenses shall
be paid by CUSTOMER. For purposes of this Section, "material discrepancies"
shall mean * U.S. dollars ( * or more.
If the results of any audit show that CUSTOMER used Marketing Funds in any
manner other than as authorized under this Addendum, MS shall be entitled to
recover from CUSTOMER any and all Marketing Funds so used, in addition to any
other remedies available to MS under law or equity plus injunctive relief
and/or any other damages as may be permitted by law. Further, if any such
audits shows that CUSTOMER has submitted incorrect sales reporting, and such
reporting was the basis of any rebate payment, MS shall have the right to
recover any and all rebate paid."
5.4 MARKETING FUND REIMBURSEMENT POLICY
CUSTOMER agrees to abide by the Marketing Fund Reimbursement Guidelines,
attached hereto as Schedule G, and as revised from time to time by MS."
6. REPORTING REQUIREMENTS
The first sentence of the section is replaced with the following:
CUSTOMER shall submit reports to MS as outlined in CUSTOMER's Rebate Program
Guidelines in accordance with the then current EDI Implementation Guide
provided by MS.
SCHEDULE B
The Schedule is replaced in its entirety with the attached Schedule H.
SCHEDULE G
The Schedule is replaced in its entirety with the attached Schedule I.
IN WITNESS WHEREOF, the parties have signed this Amendment on the date
indicated below. This Amendment is hereby made part of the Addendum. All terms
and conditions of the Addendum not amended herein shall remain in full force
and effect. This Amendment is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS"): SOFTWARE SPECTRUM, INC.
("CUSTOMER"):
By /s/ JOHAN LIEDGREN By /s/ KEITH R. COOGAN
---------------------------- ---------------------------------
Johan Liedgren Keith R. Coogan
- - ------------------------------ -----------------------------------
Name (please print) Name (please print)
Director, Channel Policies Vice President of Operations
- - ------------------------------ -----------------------------------
Title Title
1/3/96 December 20, 1995
- - ------------------------------ -----------------------------------
Date Date
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Rebate and Page 2
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 18
SCHEDULE H
JANUARY-JUNE, 1996
REBATE GUIDELINES
PROGRAMS: Microsoft offers four rebate programs for the January - June, 1996
Rebate period. The total available Rebate is divided as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
MAXIMUM PERCENTAGE
REBATE INCENTIVE AVAILABLE
===================================================================================================
<S> <C>
Compliance Program
- - ---------------------------------------------------------------------------------------------------
Total Sales-out Program
- - ---------------------------------------------------------------------------------------------------
Business Systems Program *
- - ---------------------------------------------------------------------------------------------------
Office Sales-out Program
- - ---------------------------------------------------------------------------------------------------
TOTAL
- - ---------------------------------------------------------------------------------------------------
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft purchase credit forty-five (45) days after the end of each quarterly
rebate period (i.e. May 15th for January - March, 1996 quarter). Rebates are
calculated by multiplying the achieved rebate percentage by the total Qualified
Sales for the rebate period. Revenue generated from Microsoft Select Enrollment
Forms executed by MS on or after July 1, 1994, shall be included in calculating
CUSTOMER's achievement toward the Sales-out goal, but shall not be included in
CUSTOMER's final total Qualified Sales for purposes of Rebate payment. Revenue
generated from Microsoft Select Enrollment Forms executed by MS prior to July
1, 1994 will be included in calculating CUSTOMER's achievement towards the
sales-out goal and will also be eligible for a Grandfathered rebate. Rebate
payment for such Select Enrollment Forms shall be in the form of a purchase
credit forty-five (45) days after the end of each quarterly rebate period.
PURCHASES THROUGH DISTRIBUTION: CUSTOMER's full packaged product and MLP
purchases through distribution will be subtracted from CUSTOMER's Qualified
Sales for purposes of Rebate payment.
PRODUCT AVAILABILITY: If Microsoft is unable to ship a CURRENT VERSION of a
product for any ten (10) consecutive business days, CUSTOMER's purchases
through distribution of those SKUs will count toward CUSTOMER's Qualified Sales
for purchases of Rebate payment.
All copies of eligible purchase orders placed through distribution along with a
copy of the Microsoft Stock Out Report must be sent to Microsoft no later than
fifteen (15) days following the quarter end. Please send purchase order copies
and the Microsoft Stock Out Report to the following address:
MICROSOFT CORPORATION
ONE MICROSOFT WAY
BLDG. 22/4054
REDMOND, WA 98052
ATTN: KRISTIN WEEBER, MARKETING MANAGER
COMPLIANCE REBATE PAYMENT: The Microsoft Compliance Rebate will be calculated
on a monthly basis. If CUSTOMER has met all of the Compliance Rebate criteria
in a given month, CUSTOMER will be entitled to * of that month's total
Qualified Sales. The rebate payment will be made forty-five (45) days after the
end of each quarterly rebate period.
ANY ISSUES REGARDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
MARKETING MANAGER, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute rebate payment.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Rebate and Page H1
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 19
- - --------------------------------------------------------------------------------
COMPLIANCE REBATE PROGRAM
- - --------------------------------------------------------------------------------
PROGRAM OBJECTIVES: The objective of the Compliance Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual
requirements for payments, Street Dates, reporting, and EDI ordering for Select
3.0.
NON-COMPLIANCE: During any given month, failure to comply with any or all of
the current compliance criteria will result in the forfeiture of the entire
compliance rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS
Microsoft requires its customers to pay its invoices within terms. In order to
maintain compliance, * of the gross invoice value for non-Select and * of the
gross invoice value for Select must be current as of Microsoft's fiscal month-
end. Unapplied credits will be excluded from the calculation. Failure to comply
with this section will also result in the loss of CUSTOMER's Select Compliance
Rebate.
2. MICROSOFT STREET DATE REQUIREMENTS
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to
comply with the Street Date requirements, CUSTOMER shall not:
o Ship or deliver the product to any end-user customer prior to
the Street Date.
o Accept any end user payment for the product prior to the
Street Date. Checks and/or credit card numbers may be accepted
by CUSTOMER, but can only be processed when product is
delivered to the end user on or after the Street Date.
o Advertise, merchandise, or promote the product to end user
customers until it is officially announced by Microsoft.
Usually, the product announcement is on the Street Date. If
the product announcement is earlier than the Street Date,
Microsoft will clearly communicate the announce date to the
channel. If product is announced by Microsoft before the
Street Date, the product can be advertised, merchandised
and/or promoted immediately after such announcement, provided
that all such promotions clearly state that the product is not
yet available for purchase.
o Allow it's distribution centers and/or warehouses to
distribute, for a period of up to twelve months, a Street Date
product to any individual sales office, retail store, or
outlet which Microsoft in its sole discretion has determined
to be in violation of the Street Date Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter, CUSTOMER shall forfeit up to the
entire Compliance Rebate for the six month Rebate period in which the violation
occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions are defined as 850/855
EDI transactions. CUSTOMER must place EDI transaction orders at a minimum of
once per month per Enrollment Site if product is purchased during said month.
4. MICROSOFT REPORTING REQUIREMENTS
ALL REPORTS OUTLINED BELOW MUST BE TIMELY, ACCURATE, AND COMPETE. FOR PURPOSES
OF THIS AGREEMENT, "TIMELY" IS DEFINED AS MS RECEIPT OF REPORTING BY THE DUE
DATE AND TIME INDICATED, "ACCURATE" IS DEFINED AS THE CORRECT POPULATION OF ALL
REPORTING FIELDS, AND "COMPLETE" IS DEFINED AS THE POPULATION OF ALL REQUIRED
REPORTING FIELDS.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Rebate and Page H2
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 20
Reporting is defined as a weekly report sent to Microsoft via Electronic Data
Interchange format ("EDP") of weekly Sales, Inventory, and Internal Market
Share. CUSTOMER must make the EDI reports available to MS' EDI mailbox each
Monday by 12:00 noon (Pacific time). These reports shall cover the seven-day
period ending the prior Sunday night. Please refer to the EDI Reporting
Guidelines for details on reporting requirements.
REPORTING REQUIREMENTS
o Each unit of single license Full Package Product should be reported as
one unit. This applies for both MS products and for competitive
products.
o Any single Microsoft product that includes multiple licenses should be
reported as one unit. MS will then convert the quantity of multiple
license units sold to the number of licenses they represent. Examples
of these products include MMLP 20 Pack, MMLP 100 Pack, and AE 10 Pack.
o All volume licensing agreements (such as MOLP, Variable Licenses, and
Enterprise Licenses) should be reported as one unit for each license
sold.
o Each competitive multiple license product should be reported as the
number of licenses represented.
Accounts are required to report sell-through units and inventory units for each
MS SKU, but are required only to report the total license count for competitive
product sell-through for each category. All SKUs for these titles should be
counted, including full packaged product, upgrades, license packs, education,
and government SKUs. Please refer to the EDI Reporting Guidelines for details
on reporting requirements.
MARKET SHARE REPORTING
The following table outlines the Market Share product categories for EDI
reporting. The table also specifies the top competitive products that must be
included in the aggregated market share reporting. All competitive products
within a given category must be reported. The products listed below are just
examples, not a comprehensive list.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
CATEGORY MICROSOFT PRODUCT COMPETITIVE PRODUCTS
================================================================================================================
<S> <C> <C>
Windows word processors Microsoft(R) Word for WordPerfect(R) for Windows(R)
Windows(R) Lotus(R) WordPro(R) for Windows(R)
- - ----------------------------------------------------------------------------------------------------------------
Windows spreadsheets Microsoft(R) Excel for 1-2-3(R) for Windows(R)
Windows(R) Quattro Pro(R) for Windows(R)
- - ----------------------------------------------------------------------------------------------------------------
Windows bundles Microsoft(R) Office for Lotus(R) Smartsuite
Windows(R) WordPerfect(R)/Borland(R) Office
Novell(R) Perfect Office
- - ----------------------------------------------------------------------------------------------------------------
Windows Databases Microsoft Access(R) for Paradox(TM) for Windows(R)
Windows(R) dBase(R) for Windows(R)
FoxPro(R) for Window(R) Approach
Superbase(R)
- - ----------------------------------------------------------------------------------------------------------------
Mail Servers Microsoft(R) Mail Lotus(R) cc:Mail(TM)
Lotus Notes(R)
WordPerfect(R) Office
- - ----------------------------------------------------------------------------------------------------------------
Network Operating Microsoft(R) Windows Novell(R) Netware(R) 4.x, 3.x, 2.x
Systems NT(TM) Server Novell(R) UnixWare
OS/Lan Server
Banyan(R)
SCO(R) Unix
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Example: If CUSTOMER sold-through fifty (50) units of Lotus(R) 1-2-3(R) for
Windows(R) and a 20 user MMLP of Quattro Pro(R) for Windows(R) in one week, then
CUSTOMER would report a total of seventy (70) licenses for sell-through of
competitor's products in the Windows Spreadsheet category.
Amendment No. 1 to The Rebate and Page H3
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 21
- - --------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAMS
- - --------------------------------------------------------------------------------
PROGRAM OBJECTIVE: The objective of all Sales-out Rebate Programs is to
increase the sales of Microsoft products. All license types (Select, Microsoft
Open License, Full Package Product, MLPs) are included in measuring performance
against this goal, however, the Rebate is paid on full packaged product and
MOLP sales only.
REBATE GOALS: CUSTOMER has first quarter sales-out goals and total semester
sales-out goals. CUSTOMER's performance for the first three months of the
January - June, 1996, semester will be measured against the first quarter
sales-out goals. At the end of the first quarter, CUSTOMER will receive the
percentage of the eligible rebates earned based on performance against the
first quarter goals. At the end of the semester, CUSTOMER will be measured on
their six-month performance against the total semester goals. Even if CUSTOMER
does not meet * the first quarter goals, CUSTOMER can still achieve *
of the semester goals provided that the semester goals are met at the end of
the six-month period.
SALES-OUT DEFINITIONS/MEASUREMENT: MS Product Sales-out is defined as those MS
net product units sold through CUSTOMER's outlet locations. CUSTOMER's full
packaged product, Microsoft Open License, and upgrade sales-out units will be
measured from the sales-out reported by CUSTOMER to MS. Licensing sales
(Select, Microsoft Maintenance) are captured and generated by MS' financial
systems and included in total sales-out used to measure product sales-out
rebate performance.
Any Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is
granted as MS recognizes the revenue. This occurs when MS has received the
customer's license reporting. Following receipt of reporting, MS bills the
customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the semester, CUSTOMER will be paid sales-out rebates
based on performance against the semester goals. If CUSTOMER achieves greater
than * of each semester sales-out goal, CUSTOMER will receive the exact
achieved percentage of the eligible sales-out rebate up to * . If
CUSTOMER achieves less than * of any sales-out rebate goal,
CUSTOMER will not receive any portion of that sales-out rebate.
Although MS pays the sales-out rebate ultimately based on performance against
the semester sales-out goal, Microsoft also pays a sales-out rebate at the end
of the first quarter based on performance against the first quarter goal.
Microsoft pays a portion of the rebate after the first quarter to provide
incentive for CUSTOMER to focus on sales-out throughout the entire semester.
The scale for the first quarter payment is the same as the scale for the
semester payment. The first quarter payment amount will be subtracted from the
final semester payment for the sales-out rebate.
Example: If CUSTOMER has a quarterly total sales out goal of * and a
semester total sales out goal * and CUSTOMER sells * over the first
quarter period and * over the entire semester period, CUSTOMER will
receive the following rebate payments:
<TABLE>
<CAPTION>
================================================================================================================
PERIOD GOAL SELL-THROUGH PAYMENT
ACHIEVED
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter * eligible rebate = * of January - March sales.
- - ------------------- -----------------------------------------------------------------
*
Semester * eligible rebate = * of January - June sales less
first quarter payment. The maximum allowable total sales out
rebate is * .
================================================================================================================
</TABLE>
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Rebate and Page H4
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 22
- - --------------------------------------------------------------------------------
TOTAL SALES-OUT REBATE PROGRAM
- - --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Total Sales-out Rebate Program is * of Qualified Sales for the January -
June, 1996 semester.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (January - March, 1996): *
o Semester Goal (January - June, 1996): *
- - --------------------------------------------------------------------------------
OFFICE SALES-OUT REBATE PROGRAM
- - --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Office Sales-out Rebate Program is * of Qualified Sales for the January -
June, 1996 semester.
CUSTOMER's Office Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (January - March, 1996): *
o Semester Goal (January - June, 1996): *
- - --------------------------------------------------------------------------------
BUSINESS SYSTEMS SALES-OUT REBATE PROGRAM
- - --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Business Systems Sales-out Rebate Program is * of Qualified Sales for the
January - June, 1996 semester.
REBATE GOALS: CUSTOMER must sell a minimum number Microsoft(R) BackOffice client
licenses in order to receive any portion of the Business Systems rebate.
Provided that CUSTOMER sells the minimum number of BackOffice client licenses,
CUSTOMER's achievement against the Business Systems goal will be based on
CUSTOMER's performance against the Business Systems revenue goal. -
CUSTOMER's BackOffice client license unit goals are as follows:
o Quarter 1 Goal (January - March, 1996) *
o Semester Goal (January - June, 1996) *
CUSTOMER's Business Systems Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (January - March, 1996): *
o Semester Goal (January - June, 1996): *
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Rebate and Page H5
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 23
SCHEDULE I
MARKETING FUND REIMBURSEMENT POLICY
OVERVIEW
As designated from time to time by MS, CUSTOMER must comply with MS' Marketing
Fund Reimbursement Policy in order to receive Marketing Funds from MS.
RULES
1. Program Scope. This Program affects only CUSTOMER's eligibility for MS
Marketing Funds, and CUSTOMER is always free to advertise and price
all MS products however CUSTOMER chooses.
Marketing Funds and Price Advertising. In order for CUSTOMER to be
eligible for Marketing Funds, all advertisements of such product made
by CUSTOMER or on CUSTOMER's behalf must state no less than the price
designated by MS exclusive of sales tax.
Alternatively, CUSTOMER's advertisements may state no price
whatsoever. The following specific requirements apply to
advertisements in which CUSTOMER is offering other services or
products together with the product:
o CUSTOMER may advertise "free" end-user training or
support in connection with the product.
o CUSTOMER may advertise a package of products offered
for a single price including the product, but only if
the net package price is at or above the price
designated by MS. Alternatively, CUSTOMER's
advertisements may state no price whatsoever.
o MS reserves the right to change the designated price
upon notice to CUSTOMER.
3. Loss of Marketing Funds. If CUSTOMER fails to comply with the rules of
this Program, then notwithstanding any other provisions of the
Addendum to which this Schedule is attached, CUSTOMER will be
ineligible to receive Opportunity Funds for a period of six (6)
months. Marketing Funds ineligibility shall begin with the entire
month in which the failure to comply first occurred and shall continue
for six (6) months which may include CUSTOMER's ineligibility for
Opportunity Funds in a subsequent Rebate and Marketing Fund Period.
MS' sole judgment is final in determining CUSTOMER compliance with
this Program.
4. Advertisements. The term "advertisement" means any printed, broadcast,
direct mail or transmitted advertisements for the product, including
without limitation, all newspaper, television, radio, and Internet or
on-line advertisements.
5. Questions and Inquiries. If CUSTOMER has questions about whether
CUSTOMER's advertisements comply with this Program or if CUSTOMER has
other inquiries, CUSTOMER must direct these questions and inquires to
the following MS contact:
Arlene Yanow
One Microsoft Way
Redmond, WA 98052
(206) 882-8080
The above contact is CUSTOMER's only authorized source of information
at MS about this Program, and CUSTOMER may not rely on any other
source of information, including other MS employees. No MS employee,
including the above contact, is authorized to communicate with
CUSTOMER about any alleged infractions of any other reseller.
8. Program Modifications/Termination: MS reserves the right to modify or
terminate this program at any time, in its sole discretion.
Amendment No. 1 to The Rebate and Page I1
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 24
SCHEDULE J
JANUARY - JUNE, 1996
OPEN LICENSE
REBATE PROGRAMS
PROGRAMS: Microsoft offers three Open License rebate programs for the January -
June, 1996 Rebate period. The total available Rebate is divided as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------
MAXIMUM PERCENTAGE
REBATE INCENTIVE AVAILABLE
==========================================================================
<S> <C>
Compliance Program
- - --------------------------------------------------------------------------
Total Sales-out Program
- - --------------------------------------------------------------------------
Business Systems Program *
- - --------------------------------------------------------------------------
Total
- - --------------------------------------------------------------------------
</TABLE>
All guidelines, including actual Rebate goals, shall be as outlined for the
Packaged Product Rebate.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 1 to The Rebate and Page I1
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 1
EXHIBIT 10.4
MICROSOFT CORPORATION
1995/1996 AUTHORIZED GOVERNMENT
LARGE ACCOUNT RESELLER AGREEMENT
This Microsoft 1995/1996 Authorized Government Large Account Reseller Agreement
("Agreement") is entered into as of this 1st day of April, 1995, between
MICROSOFT CORPORATION ("MS") having its principal place of business at One
Microsoft Way, Redmond, WA 98052 and Software Spectrnm, Inc. ("CUSTOMER")
having its principal place of business at 2140 Merritt Drive, Garland, TX
75041.
1. PURPOSE
The purpose of this Agreement is to appoint CUSTOMER as an "Authorized
Government Large Account Reseller" for sales to the United States Government
and to set forth the framework under which CUSTOMER may solicit Master
Agreements with the United States Government and may acquire Microsoft Select
License Pak(s) and their associated rights from MS for distribution to the
United States Government as a Select Customer in the defined Territory.
2. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
2.1 "ENROLLMENT AGREEMENT" shall mean the Federal Select
Enrollment Agreement in the form provided by MS and completed by each Federal
Select Customer and accepted by CUSTOMER.
2.2 "SELECT AGREEMENT NUMBER" shall mean the number assigned by MS
to a given Master Agreement.
2.3 "SELECT CUSTOMER" shall mean the Lead Customer and/or any Lead
Customer Affiliate that has executed an Enrollment Agreement. Subject to the
terms of the applicable Master Agreement and Enrollment Agreement, a Select
Customer may purchase one or more Federal Select License Pak(s), become the
licensee of the Select Software Product(s) covered by the Select License Pak(s)
and, accordingly is responsible for complying with the reporting and payment
requirements of each such Select License Pak(s).
2.4 "SELECT LICENSE PAK(S)" shall mean the Microsoft License
Pak(s) and similar products which MS designates from time to time as available
through the Microsoft Select Program. The Select License Pak(s) available to a
given Select Customer are set forth in the applicable Master Agreement.
2.5 "SELECT PROGRAM ADMINISTRATOR" shall mean the individual
appointed by CUSTOMER to act as CUSTOMER's primary contact with respect to the
Microsoft Select Program.
2.6 "SELECT SOFTWARE PRODUCT" shall mean the software portion of a
MS product which may be made available under a Select License Pak as designated
from time to time by MS.
2.7 "LEAD CUSTOMER" shall mean the United States Government entity
which has executed a given Master Agreement.
2.8 "LEAD CUSTOMER AFFILIATE" shall mean an agency,
instrumentality, division, unit or other office which is supervised by or is
part of the Lead Customer.
Microsoft Confidential - Disclosure Prohibited
<PAGE> 2
2.9 "MASTER AGREEMENT" shall mean the Federal Select Master
Agreement, in the form provided by MS, entered into by and between CUSTOMER and
a given Lead Customer. The Master Agreement sets forth the terms and conditions
pursuant to which the lead Customer and its affiliates can become Select
Customers and thereby have the right to acquire Microsoft Select License Pak(s)
from CUSTOMERS
2.10 "MICROSOFT SELECT ACCOUNT MANAGER" shall mean the individual
appointed by MS to act as the primary MS contact for a given Select Customer
with respect to the Microsoft Select Program.
2.11 "TERRITORY" shall mean the geographic area consisting of the
United States.
3. TERM AND TERMINATION
3.1 TERM
This Agreement shall be effective as of the date indicated above, and shall
continue until March 31, 1996.
3.2 TERMINATION
Either MS or CUSTOMER may terminate this Agreement and/or any amendment hereto
at any time, with or without cause, upon thirty (30) days prior written notice.
Neither party shall be responsible to the other for any costs or damages
resulting from the termination of this Agreement. Rights to payment of money
which have accrued prior to termination shall survive termination.
3.3 OBLIGATIONS ON TERMINATION OR EXPIRATION
Promptly following termination or expiration of this Agreement, MS shall inform
each of CUSTOMER's Select Customers that CUSTOMER is no longer an Authorized
Government Large Account Reseller and while any existing Master Agreement(s)
and Enrollment Agreement(s) shall remain in full force and effect for the
remainder of their terms, CUSTOMER shall not have the authority to enter into
any new Master Agreement(s) or Enrollment Agreement(s) or to extend any such
existing agreements. During the remaining term of the existing Master
Agreement(s), each Select Customer shall be obligated to file its reports, as
required by the applicable Select License Pak and to pay CUSTOMER any and all
amounts due for such reports as agreed to between CUSTOMER and the Select
Customer. CUSTOMER shall in turn be obligated to pay to MS in accordance with
the terms of Section 4 below any and all amounts due MS as a result of the
Select Customer's above-referenced reports. Upon termination or expiration, MS
shall have the right, but not the obligation, to repurchase from CUSTOMER all
or part of CUSTOMER's inventory of documentation SKU's at the prices paid by
CUSTOMER. MS shall exercise the foregoing right by giving CUSTOMER written
notice of its intent to repurchase such documentation SKU inventory, such
notice being given within thirty (30) days of termination or expiration.
Microsoft 1995/1996 Authorized Software Spectrum, Inc. Page 2
Government Large Account
Reseller Agreement
<PAGE> 3
4. APPOINTMENT AS A U.S. GOVERNMENT LARGE ACCOUNT RESELLER/SOLICITATION
OF MASTER AGREEMENTS/ACCEPTANCE OF ENROLLMENT AGREEMENTS
4.1 APPOINTMENT
MS hereby appoints CUSTOMER as a non-exclusive Authorized Government Large
Account Reseller in the Territory with the right to acquire Select License
Pak(s) from MS and to resell those Select License Pak(s) and their associated
license rights to Select Customers. CUSTOMER may only sell Select License
Pak(s) to Select Customers acquiring the Select License Pak(s) in the
Territory, when the entire Federal Government is treated as a single customer
by the acquiring agency (i.e. the acquiring agency signs a Master Agreement
under which all federal buying offices may place orders and there is a single
volume commitment for all federal agencies). Select Customers are entitled to
distribute the rights associated with their Select License Pak(s) outside of
the Territory if they so elect. Notwithstanding the foregoing, in the event a
Select Customer wants to acquire a Select License Pak(s) in a country outside
of the Territory, CUSTOMER may distribute the Select License Pak(s) to those
U.S. Government customers properly authorized to purchase off of the Select
contract
4.2 LIMITATION ON AUTHORIZATION.
MS' authorization of the Authorized Government Large Account Reseller to resell
or otherwise transfer Select Products as set forth herein shall not include the
authorization for the Authorized Government Large Account Reseller to use
Select Products internally or to resell or otherwise transfer Select Products
to any entity which owns, controls, is owned or controlled by, or under common
ownership or control with the Authorized Government Large Account Reseller
("Authorized Government Large Account Reseller Affiliates"). The foregoing
limitation shall not, however, prevent the use of Select Products by employees
of the Authorized Government Large Account Reseller or Authorized Government
Large Account Reseller Affiliates who are directly or indirectly involved with
the sale or marketing of software or other information technology related
products or services to companies other than the Authorized Government Large
Account Reseller or Authorized Government Large Account Reseller Affiliates
subject to the terms of properly executed Select Master Agreement and
Enrollment Agreement(s), or other written authorization by MS or MS affiliate.
For the purposes of this Agreement, an entity is "controlled" by another if
that other company or legal entity, either directly or through its control of
another company or legal entity: (i) holds the majority of voting rights in it;
(ii) is a member of it and has the right to appoint or remove a majority of its
board of directors; or (iii) is a member of it and controls alone, under an
agreement with other shareholders or members, the majority of the voting rights
in it.
4.3 SOLICITATION OF MASTER AGREEMENTS
CUSTOMER is hereby authorized on a nonexclusive basis to solicit a Master
Agreement from any qualifying United States Government agency, division, unit
or other office, provided any such Master Agreement is in the form pre-approved
by MS. CUSTOMER shall inform its customers that the product is a license only,
and does not include any disks or documentation. In the event any changes are
made to the pre-approved form Master Agreement, CUSTOMER shall provide MS with
a red-lined copy of such amended agreement prior to execution of such Master
Agreement. CUSTOMER agrees that it shall not execute any such amended Master
Agreement until it has received MS's prior written approval of such amendments.
CUSTOMER agrees to deliver to MS a copy of each Master Agreement no later than
ten (10) days following CUSTOMER's execution of the same.
Microsoft 1995/1996 Authorized Software Spectrum, Inc. Page 3
Government Large Account
Reseller Agreement
<PAGE> 4
4.4 ACCEPTANCE OF ENROLLMENT AGREEMENTS
In order to be entitled to purchase Select License Pak(s) from MS for resale to
a given Select Customer and to sell documentation SKUs to that Select Customer,
an authorized representative of CUSTOMER must have signed the Federal Select
Customer's Enrollment Agreement. Such Enrollment Agreement must be in the form
pre-approved by MS. In the event any changes are made to the pre-approved form
Enrollment Agreement, CUSTOMER shall provide MS with a red-lined copy of such
amended agreement prior to execution of such Enrollment Agreement. CUSTOMER
agrees that it shall not execute any such amended Enrollment Agreement until it
has received MS's prior written approval of such amendments. CUSTOMER's
signature on the approved Enrollment Agreement shall constitute CUSTOMER's
order for the Federal Select License Pak(s) listed in the Enrollment Agreement
and shall further constitute CUSTOMER's agreement to pay MS as set forth in
Section 4 for all copies of Federal Select Software Products made by the
Federal Select Customer pursuant to the Federal Select License Pak(s).
5. DELIVERY OF AND PAYMENT FOR SELECT LICENSE PAK(S)
5.1 DELIVERY OF SELECT LICENSE PAK(S) AND SELECT CD-ROMS
Within fifteen (15) days of MS's receipt of a fully executed Enrollment
Agreement (for which an underlying Master Agreement has been received by MS),
MS agrees to deliver to CUSTOMER the Federal Select License Pak(s) identified
on the Enrollment Agreement. Each Federal Select License Pak delivered to
CUSTOMER will be a custom package specific to the named Federal Select Customer
and will set forth the Customer's Federal Select Agreement Number and any
special conditions relevant to the named Federal Select Customer. Federal
Select License Pak(s) are provided in order that CUSTOMER may provide the
Federal Select License Pak(s) and their associated license rights to the named
Federal Select Customer on such pricing and payment terms and conditions as
CUSTOMER and the Federal Select Customer agree. CUSTOMER agrees to pay MS for
Federal Select License Pak(s) as set forth in paragraph 5.2 below. From time to
time during the term of this Agreement, MS will provide CUSTOMER, free of
charge, with CD-ROMs containing upgraded copies of the Federal Select Software
Products covered by an Federal Select Customer's Federal Select License Pak(s).
CUSTOMER agrees to promptly deliver the Federal Select CD-ROM and any
additional MS supplied program information and materials to the named Federal
Select Customer.
In addition to the delivery of the Select License Pak(s) to CUSTOMER's Select
Customers, CUSTOMER farther agrees to distribute a Notice of Software Purchase
in a format substantially similar to the attached Schedule B. Any amendments or
changes to such format must receive MS' prior written approval.
5.2 CUSTOMER'S PAYMENTS TO MS
(a) PAYMENTS
Each Federal Select Customer is obligated by the terms of the Microsoft Federal
Select Program to deliver to CUSTOMER within fifteen (15) days of the end of
each calendar quarter, a written verified report for each Federal Select
License Pak received from CUSTOMER pursuant to the terms of this Agreement.
Immediately following receipt of a report from a given Federal Select Customer,
CUSTOMER shall provide MS a copy of such report. MS shall invoice CUSTOMER, and
CUSTOMER shall be obligated to pay MS the fees set forth on Attachment A for
each unit (e.g. copy of software, copy of upgrade, or personal computer as the
case may be) reported by the Federal Select Customer. All amounts are due and
owing net thirty (30) days of date of invoice. All payments not received by MS
from CUSTOMER within the required time frame may be assessed a finance charge
of the then-current prime rate plus two percent (2%) per month or the legal
maximum, whichever is less. CUSTOMER shall be obligated to pay MS regardless of
whether CUSTOMER has received payment from the Federal Select Customer. All
payments and reports shall be forwarded to:
Microsoft 1995/1996 Authorized Software Spectrum, Inc. Page 4
Government Large Account
Reseller Agreement
<PAGE> 5
Microsoft Corporation
P.O. Box 84808
Seattle, Washington 98124-6108
(b) FAILURE TO RECEIVE FEDERAL SELECT CUSTOMER'S REPORT
In the event MS fails to receive a copy of a given Federal Select Customer's
report within 20 days of the end of a given calendar quarter, then MS shall be
entitled to invoice CUSTOMER based upon a prorata share of the number of
Federal Select Software Products forecasted to be acquired by the given Federal
Select Customer. Such prorata share shall be determined by dividing the given
Federal Select Customer's total forecast(s) by the number of calendar quarters
originally encompassed under its Master Agreement, and shall be the minimum
amount for which CUSTOMER shall be obligated to pay MS. CUSTOMER shall be
obligated to pay such invoice regardless of whether CUSTOMER receives payment
or a report for the same quarter from its Federal Select Customer. If a report
is subsequently received from the Federal Select Customer in question and such
report indicates a number different than the prorata amount described above,
then MS and CUSTOMER shall reconcile such difference and CUSTOMER shall timely
pay the difference to MS if an additional amount is owed or shall offset such
reconciled amount against the amount(s) next owed by CUSTOMER to MS under this
Agreement.
(c) CONSEQUENCES OF FAILURE OF FEDERAL SELECT CUSTOMER TO MEET
FORECASTS
If at the end of the second (2nd) full calendar quarter of a Select Customer's
Master Agreement, the Select Customer has failed to acquire at least * of the
minimum level of Select Software Products forecasted to be acquired under that
Select Customer's Master Agreement (i.e., level A, B or C as the case may be),
then CUSTOMER's purchase price for all further acquisitions related to that
given Select Customer shall be adjusted accordingly to be calculated based upon
a lower level consistent with the given Select Customer's consumption rate to
the end of the second full calendar quarter (e.g. from level "B" to level "A").
In no case shall the Select Customer's commitment level be less than level A.
5.3 TAXES
(a) SALES TAX
CUSTOMER shall either provide MS with a bona fide resale certificate for all
Federal Select License Pak(s) delivered to CUSTOMER by MS pursuant to the terms
of this Agreement, or shall pay to MS all applicable sales, use or other excise
taxes due on such Federal Select License Pak(s).
(b) WITHHOLDING TAXES
In the event taxes are required to be withheld by any government on payments
required hereunder, CUSTOMER may deduct such taxes from the amount owed and pay
such taxes to the appropriate tax authority; provided, however, that CUSTOMER
shall promptly secure and deliver to MS an official receipt for any such taxes
withheld or other documents necessary to enable MS to claim a foreign tax
credit. CUSTOMER shall make certain that any taxes withheld are minimized to
the extent possible under the applicable law.
(c) EXPORT TAXES
CUSTOMER shall be liable for all taxes of any nature whatsoever associated with
the distribution of the Federal Select License Pak(s) outside of the Territory
and shall indemnity and hold MS harmless from any such taxes.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft 1995/1996 Authorized Software Spectrum, Inc. Page 5
Government Large Account
Reseller Agreement
<PAGE> 6
5.4 CUSTOMER'S REPORTING REQUIREMENTS
CUSTOMER shall electronically report to MS as part of CUSTOMER's standard
Electronic Data Interchange ("EDI") Reporting, all sales of copies of Federal
Select Software Products to CUSTOMER's Federal Select Customers. In addition,
Field 25 of the CUSTOMER's AMS Reporting must be populated with the number "7"
for all sales of Federal Select reported. Sales of copies of Federal Select
Software Products shall be reported for the month in which payment is
collected.
6. AGREEMENTS BETWEEN CUSTOMER AND ITS FEDERAL SELECT CUSTOMERS
With the exception of the terms contained in this Agreement, the Master
Agreement, the Enrollment Agreement and the terms relating to the exercise of
the intellectual property rights set forth in the applicable Federal Select
License Pak(s) and Master Agreement, CUSTOMER shall have complete discretion to
establish with each Federal Select Customer the pricing and all other terms and
conditions regarding CUSTOMER's provision of Federal Select License Pak(s) and
their associated license rights to CUSTOMER's Federal Select Customers. The
negotiation of these terms between CUSTOMER and its Federal Select Customers
shall not be subject to approval or review by MS in any way.
7. RESERVATION OF RIGHTS
In the event the Federal Select Customer fails to comply with the terms of
either the Master Agreement, the Enrollment Agreement or the Federal Select
License Pak(s), CUSTOMER agrees, at the request of MS, to use CUSTOMER's best
efforts, including without limitation undertaking any necessary litigation, to
enforce the Master Agreement or the Enrollment Agreement in order to compel the
Select Customer to comply with such Agreements. If MS requests CUSTOMER to
enforce its rights against a given Federal Select Customer, CUSTOMER shall not
have any claim against MS or the Federal Select Customer for damages or lost
profits resulting from such enforcement action.
8. ROLE OF THE FEDERAL SELECT PROGRAM ADMINISTRATOR
CUSTOMER agrees to notify MS in writing within ten (10) days of the date first
set forth above, of the name, address and telephone number of the individual
assigned to serve as CUSTOMER's Federal Select Program Administrator. CUSTOMER
agrees to promptly make that individual as well as CUSTOMER's other sales
employees available for training on the Federal Select License Pak(s) and on
the licensing policies related to such products at such times and places as MS
reasonably requests. The individual appointed by CUSTOMER as its Federal Select
Program Administrator shall be an individual generally knowledgeable on MS
products and in regard to Microsoft's Federal Select Program. The Federal
Select Program Administrator shall be responsible for administering all of
CUSTOMER's Federal Select Customer billings, for general administration of
CUSTOMER's Federal Select Customers and for working with the Microsoft Federal
Select Account Manager (or local MS contact) in regard to any problems relevant
to a given Federal Select Customer. CUSTOMER shall provide MS with at least ten
(10) days advance written notice of any change in the individual serving as its
Federal Select Program Administrator.
9. CUSTOMER'S REPRESENTATIONS AND WARRANTIES
CUSTOMER hereby represents and warrants that:
9.1 It will use its best effort to service and support its Federal
Select Customers and will promptly inform the appropriate Microsoft Federal
Select contact of any difficulties it encounters in servicing its Federal
Select Customers:
9.2 It will not alter in any way or form the Federal Select
License Pak(s) or their packaging;
Microsoft 1995/1996 Authorized Software Spectrum, Inc. Page 6
Government Large Account
Reseller Agreement
<PAGE> 7
9.3 It will only deliver the Federal Select License Pak(s) to the
Federal Select Customer specified on the outside of the Federal Select Product
packaging and will only deliver Federal Select CD-ROMs and program materials and
information to the Federal Select Customer named on each such CD-ROM or
materials;
9.4 It will promptly inform MS of any known or suspected
violations by a Federal Select Customer of the terms and conditions of the
Master Agreement, Enrollment Agreement and/or its Federal Select License
Pak(s); and
9.5 It will have an internal technical staff which will provide
primary telephone support to its Federal Select Customers in regard to the use
and support of MS software products.
10. AUDIT RIGHTS
CUSTOMER shall keep all usual and proper records and books of account relating
to its performance of this Agreement, including complete records pertaining to
Federal Select End User information. MS reserves the right to audit CUSTOMER's
books and records of account during the term of this Agreement and for a period
of two (2) years thereafter, provided that such audit(s) shall be conducted
during normal business hours in such a manner as not to unreasonably interfere
with the operations of CUSTOMER. MS' right to audit pursuant to this Agreement
shall be strictly limited to those records and books resulting from this
Agreement.
11. MISCELLANEOUS
11.1 LIMITATION OF LIABILITY
NEITHER MS NOR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE CREATION, PRODUCTION,
OR DELIVERY OF THE PRODUCTS WHICH ARE THE SUBJECT OF THIS AGREEMENT SHALL BE
LIABLE FOR ANY INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES (INCLUDING DAMAGES
FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE) ARISING OUT OF THE USE OR INABILITY TO USE THE
PRODUCTS EVEN IF MS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11.2 ENTIRE AGREEMENT
This Agreement, together with all attachments hereto, comprises the entire
agreement of the parties on the subject matter hereof. This Agreement shall not
be amended except in a written document signed by authorized representatives of
MS and CUSTOMER.
11.3 NO ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, provided that neither party
may not assign its rights or obligations under this Addendum in any way without
the prior written consent of the other party.
11.4 EXPORT RESTRICTIONS
CUSTOMER confirms that it will not export or re-export, directly or indirectly,
any of the Federal Select License Pak(s), Federal Select Software Products or
documentation SKUs to countries or companies which are subject to export
restrictions for sensitive product, provided for by applicable law and
regulations, without the prior written consent of the competent authorities
having jurisdiction to grant any required approval. CUSTOMER acknowledges that
the Federal Select Software Products and the documentation SKUs may include
technical data subject to export and re-export restrictions imposed by United
States law.
Microsoft 1995/1996 Authorized Software Spectrum, Inc. Page 7
Government Large Account
Reseller Agreement
<PAGE> 8
11.5 ESSENTIAL ELEMENT
CUSTOMER acknowledges that this Addendum is essential to any agreement it
enters into with a Federal Select Customer. Except as is specifically provided
in Section 3.3 related to CUSTOMER's right to collect any outstanding payment
following termination of this Agreement, CUSTOMER's rights to supply Federal
Select License Paks, Federal Select CD-ROMs and/or any additional program
information and materials, and to collect payment from its Federal Select
Customers are conditional upon this Addendum being in full force and effect.
CUSTOMER acknowledges further that, if and when it is the subject of a
bankruptcy filing (under any Chapter of 11 United States Code Section 101 et
seq. including any further amendments), then assumption of any contract with a
Federal Select Customer is conditional upon the assumption of this Agreement.
11.6 U.S. GOVERNMENT RESTRICTED RIGHTS
Any Product which CUSTOMER distributes or licenses to or on behalf of the United
States of America, its agencies and/or instrumentalities (the "Government"), are
provided to CUSTOMER with RESTRICTED RIGHTS. Use, duplication or disclosure by
the Government is subject to restriction as set forth in subparagraph (c)(1)(ii)
of the rights in Technical Data and Computer Software clause at DFAR
252.227-7013, or as set forth in the particular department or agency regulations
or rules which provide MS protection equivalent to or greater than the
above-cited clause. CUSTOMER shall comply with any requirements of the
Government to obtain such RESTRICTED RIGHTS protection, including without
limitation, the placement of any restrictive legends on the Product software,
Product documentation, and any license agreement used in connection with the
distribution of the Product. Manufacturer is Microsoft Corporation, One
Microsoft Way, Redmond, Washington 98052-6399. Under no circumstances shall MS
be obligated to comply with any Governmental requirements regarding the
submission of or the request for exemption from submission of cost or pricing
data or cost accounting requirements. For any distribution or license of the
Product that would require compliance by MS with Governmental requirements
relating to cost or pricing data or cost accounting requirements, CUSTOMER must
obtain an appropriate waiver or exemption from such requirements for the benefit
of MS from the appropriate Governmental authority before the distribution and/or
license of the Product to the Government.
11.7 CONFIDENTIALITY
CUSTOMER expressly undertakes to retain in confidence the terms and conditions
of this Agreement, and all information and know-how transmitted to it by MS and
make no use of such information and know-how except under the terms and during
the existence of this Agreement. CUSTOMER shall guarantee and ensure its
employees' compliance with this paragraph. CUSTOMER's obligations under this
paragraph shall survive any termination of this Agreement and shall extend to
the earlier of such time as the information is public domain or five (5) years
following the termination of this Agreement.
Microsoft 1995/1996 Authorized Software Spectrum, Inc. Page 8
Government Large Account
Reseller Agreement
<PAGE> 9
IN WITNESS WHEREOF, the parties have signed this Agreement on the date
indicated below. This Agreement is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS"): SOFTWARE SPECTRUM, INC.
("CUSTOMER")
/s/ JOHAN LIEDGREN /s/ KEITH R. COOGAN
- - -------------------------------- -----------------------------------
By By
Johan Liedgreen Keith R. Coogan
- - -------------------------------- -----------------------------------
Name Name
Director, Channel Policies Vice President of Operations
- - -------------------------------- -----------------------------------
Title Title
March 6, 1995 February 27, 1995
- - -------------------------------- -----------------------------------
Date Date
Microsoft 1995/1996 Authorized Software Spectrum, Inc. Page 9
Government Large Account
Reseller Agreement
<PAGE> 1
EXHIBIT 10.16
LEASE
1. This Lease made and entered into in the city of Louisville, Jefferson
County, Kentucky, on this 8th day of March, 1996, by and between RIVERPORT
COMMERCE CENTER, INC., P.O. Box 58098, Louisville, KY 40268, a Kentucky
Corporation, party of the first part, hereinafter designated as "Lessor," and
SOFTWARE SPECTRUM, INC., 2140 Merritt Drive, Garland, TX 75041 a Texas
corporation, party of the second part, hereinafter designated as "Lessee";
2. PREMISES: That for and in consideration of the rental, covenants, and
conditions hereinafter stipulated to be paid and performed by the Lessee,
Lessor does hereby accept and lease unto the Lessee and the Lessee does hereby
accept and lease from the Lessor real property, legally described as follows,
(hereinafter referred to as the "Premises"):
REVISED LOT 22 CREATED BY MINOR SUBDIVISION PLAT OF RECORD WHICH HAS BEEN
APPROVED BY THE LOUISVILLE AND JEFFERSON COUNTY PLANNING COMMISSION WHICH IS
ATTACHED TO DEED RECORDED IN DEED BOOK 6527, PAGE 60, IN THE OFFICE OF THE
CLERK OF JEFFERSON CoUNTY, KENTUCKY.
THE STREET ADDRESS FOR THE PREMISES IS 7101-C IntermodaI Drive, Louisville KY
40258. The portion of the premises subject to the terms and conditions of this
lease is detailed on "Exhibit A".
3. TERM: To have and to hold said Premises unto the Lessee for a term of
sixty one (61) months plus any partial month at the beginning of the term,
commencing on the Commencement Date as defined in Paragraph 24, unless extended
as herein provided.
4. RENT: Lessee covenants to pay to Lessor, or to such persons or
corporations as Lessor may from time to time designate in writing, rental as
follows:
Month One $ 0
Month two through twelve $ 15,094
Month thirteen through sixty one $ 17,969
monthly, in successive installments on the first day of each and every calendar
month during the term of this Lease, for the demised Premises, payable in
advance, without previous demand therefor, commencing on the Commencement Date.
The rent for any partial month at the beginning of the Lease term shall be
prorated for the number of days in such partial month.
<PAGE> 2
Rental payments shall be made to Riverport Commerce Center, P.O. Box 58098,
Louisville, Kentucky, 40268, until further notice to Lessee.
5. USE: The Premises shall be continuously used and occupied by Lessee
throughout the term hereof for the storage and distribution of computer
software, hardware and other legal uses incidental thereto.
Lessee will comply with all lawful requirements of City, County, State and
other public authorities affecting the use and occupancy of the Premises,
regardless of whether notice of violation of said requirements shall be served
on Lessor or Lessee; provided that Lessee, at its expense, shall make any
alterations or improvements to the Premises required by change in law
applicable to the Facility, including alterations or improvements required
solely by virtue of Lessee's specific activities conducted in the Premises,
which Lessee shall make at its expense. If Lessee fails to make such
alterations or improvements as and when required, then Lessor may at its sole
option, either (i) complete the alterations and improvements itself and add the
entire cost thereof as additional rent, or (ii) terminate this Lease upon 30
days prior written notice to Lessee, and without penalty, which termination
will then become effective on the date specified therein (which shall be at
least 30 days after the date of Lessor's notice) if prior thereto Lessee has
not made all of such alterations or improvements required to comply with
applicable laws or regulations.
6. SIGNS: All signs contemplated hereby shall be approved by the Lessor
prior to installation but such approval shall not be unreasonably withheld.
Lessee agrees to maintain such signs in a good state of repair and to save
Lessor harmless from any loss, cost or damage as a result of erection,
maintenance, existence and removal of same. Upon termination of this Lease,
Lessee agrees to remove all such signs at its expense, and to repair promptly
any damage to the Premises caused by such removal. Any sign shall be permitted
by any applicable governmental agency.
7. TAXES: All Taxes including Real Property, drainage and assessments are
to be paid by Lessor. Personal Property and inventory taxes, if applicable, are
to be paid by Lessee.
8. SUBORDINATION: At the Lessor's option, this Lease shall be
subordinated to any existing mortgages covering said Premises, and any
extension or renewal thereof, or to any new mortgages which may be placed
thereon from time to time, provided certain conditions set forth herein are
met. The subordination of this Lease to any mortgage is expressly conditioned
upon the holder thereof expressly agreeing in such mortgage or in a separate
instrument recorded on or after the date of recordation of the Mortgage, that,
<PAGE> 3
(a) enforcement of any mortgage shall not terminate this Lease
or disturb Lessee in the possession and use of the Premises (except in the case
where Lessee is in default beyond the period, if any, provided in this Lease to
remedy such default);
(b) any party succeeding to the interest of Lessor as a result
of the enforcement of any mortgage shall be bound to Lessee, and Lessee shall
be bound to it, under all the terms, covenants, and conditions of this Lease,
for the balance of the term of this Lease and any renewals or extensions
thereof.
(c) insurance proceeds and awards shall be first applied as
provided in this Lease; and
(d) wherever any provision of the mortgage purports to limit
the rights or increase the obligations of Lessee under this Lease, the
provisions of this Lease shall govern.
9. ESTOPPEL CERTIFICATE: Lessee shall, within twenty (20) days following
receipt of a written request from Lessor, execute, acknowledge, and deliver to
Lessor or to any prospective lender or purchaser designated by Lessor a written
statement certifying (i) that this lease is in full force and effect and
unmodified (or, if modified, stating the nature of such modification) (ii) the
date to which rent has been paid, and (iii) that there are not, to lessees
knowledge, any uncured defaults (or specifying such defaults, if any are
claimed). Lessee's failure to deliver such statement within such period shall
be conclusive upon lessee that this lease is in full force and effect and
unmodified, and that there are no presently existing defaults on the part of
Lessor hereunder.
10. CARE OF PREMISES: Lessee shall not perform any acts or carry on any
practices which may injure the Premises or commit waste to same. Lessee shall
not burn any trash or garbage in or about the Premises. Lessee agrees that it
will surrender and deliver up said Premises at the end of the term, in as good
order and condition as at the time of Lessee's occupancy of same, reasonable
use and ordinary wear and tear thereof and accidents by fire or other casualty
and damage not the result of Lessee's negligence excepted, and shall at such
time surrender all keys for the Premises to the Lessor at the place then fixed
for payment of rent, and shall remove its personal property and trade fixtures
and repair promptly any damage caused by such removal.
11. REPAIRS AND MAINTENANCE: Lessor shall keep the common areas,
foundations, floors, roof, gutters and down spouts, parking lots, sidewalks,
<PAGE> 4
landscaping and driveways, exterior walls, and utility systems embedded in the
foundations, floors, roof or exterior walls in good structural and operational
repair, except that Lessor shall not be required to make any repairs which
become necessary by reason of the negligence of Lessee, its employees, agents,
patrons, or suppliers' delivery trucks, unless the repairs are covered by
Lessor's required insurance. In all other respects the Premises and
appurtenances, including sanitary, heating and air conditioning systems and
equipment, water and electric shall at all times be kept in good order,
condition and repair, serviced and maintained by Lessee, except for ordinary
wear and tear, accidents by fire or other casualty, and damage not the result
of Lessee's negligence or failure to maintain as required hereby. Lessee
agrees to provide preventative maintenance of all equipment systems, and
facilities installed by Lessor in the Premises for Lessee's use; and shall make
such replacements as become necessary by reason of Lessee's failure to
maintain. Lessee shall, at its own cost, replace any broken glass, including
plate glass, in the Premises resulting from Lessee's negligence. If Lessee
fails to repair, service and maintain according to its obligation herein,
Lessor, after written notice to Lessee, may so repair, service and maintain for
Lessee and bill the cost for such repair to Lessee as additional rent on the
next date fixed for payment of rent. Within ninety (90) days from commencement
Lessee shall accept all equipment and systems within the premises or notify
Lessor of repairs necessary for Lessee to accept responsibility for continuing
maintenance of said equipment and systems.
12. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make any changes,
improvements, alterations, or additions to the Premises without the prior
written consent of the Lessor, and without Lessor's prior written approval of
detailed plans and specifications therefore, which consent shall not be
unreasonably withheld. Such changes, improvements, alterations and additions as
are approved will revert to the Lessor, at termination of this Lease. Lessee
agrees to indemnify the Lessor against mechanic's liens, costs, damages, or
expenses, including reasonable attorneys' fees that may arise from such
alterations, or order removal as provided above. This clause shall not limit
the installation or removal of Lessee's trade fixtures.
13. CONDUCT OF BUSINESS: Lessee shall not use any advertising medium that
shall be a nuisance to Lessor such as loud speakers, phonograph or radio, in a
manner to be heard outside of the Premises. Lessee shall not install any
exterior lighting, shades or awnings or any exterior television antennae, loud
speakers, sound amplifiers, or similar devices on the roof or exterior walls of
the building unless with the advance written consent of the Lessor.
14. INSURANCE: Lessor shall carry a policy or policies of fire and
extended coverage insurance insuring the Facility and Premises. Lessee shall
carry a
<PAGE> 5
policy or policies of insurance insuring Lessee's interest in its improvements
to the Premises and contents, owned or leased and contained therein and
business interruption. To the full extent permitted by law, Lessor and Lessee
each waives all right of recovery against the other, and agrees to release the
other from loss or damage to the extent such loss or damage is covered by valid
and collectible property insurance in effect at the time of such loss or
damage.
Prior to the date Lessee receives possession of the demised
Premises, Lessee shall deliver to Lessor a certificate or certificates of
insurance for public liability including Lessor as a named insured, with
minimum limits of $1,000,000 for Each Occurrence, $2,000,000 General Aggregate,
$2,000,000 Products/Completed Operations Aggregate and $1,000,000 Personal
Injury and Umbrella or Excess liability coverage with a minimum limit of
$5,000,000 each occurrence, $5,000,000 Aggregate to Lessor showing compliance
with the insurance requirements of this Lease. In the event Lessee should
change insurers, or effects a substantial modification of coverage, Lessee
shall cause the insurer to issue a new certificate of insurance and to supply
the same to Lessor.
Lessee shall hold Lessor harmless from liability to third
parties for personal injury, death or damage to tangible property resulting
directly from Lessee's gross negligent or intentional acts in or about the
demised Premises or Facility.
All insurance required of Lessee shall be written by companies
and in form approved by Lessor, which approval shall not be unreasonably
withheld.
15. LESSOR'S NON-LIABILITY: Lessor shall not be liable for damage to
property or injury or death to persons due to the conditions of the Leased
Premises, or due to the occurrence of any accident in or about the Leased
Premises, or due to any act or neglect of Lessee, or any person except to the
extent arising out of the negligence of Lessor.
16. ASSIGNMENT OR SUBLETTING: Lessee shall not sell, assign, mortgage,
pledge, sublease, or in any manner transfer this Lease or any estate or
interest therein, nor rent nor sublease the Leased Premises or any part or
parts thereof without the previous written consent of the Lessor in each
instance; provided, however, that Lessee may assign or sublease without
consent to a subsidiary or affiliated company of Lessee in which the Lessee
shall have a controlling interest. Consent by Lessor to one assignment of this
Lease or to one subletting shall not be a waiver of Lessor's rights under this
article as to subsequent assignment or subletting. Notwithstanding consent,
<PAGE> 6
such assignment or subletting shall not relieve Lessee of any obligation
imposed on it under the terms and conditions of the within Lease and Lessee
shall remain primarily liable for rent for the balance of the term. Lessor's
rights to sell, assign, or otherwise transfer its rights under this Lease are
and shall remain unqualified.
17. ACCESS TO PREMISES: Lessor reserves the right to enter upon the
Premises, with twenty four hours advance notice, during reasonable business
hours for the purpose of inspecting the same, or to exhibit the Premises to
prospective tenants during the last six (6) months of the term.
18. UTILITIES: Lessee shall pay all charges for heat, gas, if available,
electricity, and all other utilities used on or about the Premises, as
indicated by separate metering of utilities. Lessee shall at all times maintain
sufficient heat in the Premises to prevent freezing and bursting of plumbing,
water and sprinkler lines. Lessee shall pay for water and sewer and MSD
drainage fees.
19. EMINENT DOMAIN: If the Premises be subjected to any eminent domain
proceedings, the Lease shall terminate as of the date of the taking if all the
Premises are taken or if the portion taken is so extensive that in Lessee's
reasonable judgement the residue is wholly inadequate for Lessee's purposes. If
the taking be partial, and Lessee does not terminate, then Lessee's rentals
shall be reduced in the proportion which the space taken bears to the space
originally leased. It is agreed that all damages allocable to the Premises
shall in any event be payable to Lessor.
20. FIRE CLAUSE: In case of damage to the Premises by fire or other causes
insured against under Paragraph 14, Lessee shall repair such damages with
reasonable promptness and dispatch after receiving written notice of the damage
from Lessee. In case the said Premises shall be so damaged or injured by fire
or other causes as to rendered untenantable, and so that necessary repairs or
rebuilding cannot be made within one hundred twenty (120) days, Lessor or
Lessee may terminate this Lease and Lessee shall be allowed an abatement of
rent from the time the Premises were rendered untenantable. If the damage is
such that rebuilding can be completed within one hundred twenty (120) days, or
if Lessor or Lessee does not elect to terminate as herein above provided, the
Lessor agrees to make such repairs with reasonable promptness and dispatch, and
to allow Lessee an abatement in rent for such time as the building remains
untenantable and the Lessee covenants and agrees that the terms of this lease
shall not otherwise be affected.
<PAGE> 7
21. PROHIBITION OF INVOLUNTARY ASSIGNMENT; BANKRUPTCY OR INSOLVENCY:
(a) Except only as expressly permitted herein, neither this
Lease or the leasehold estate of Lessee nor any interest of Lessee hereunder in
the demised Premises or in the building or the improvements thereon shall be
subject to voluntary assignment, transfer or sale or to assignment, transfer or
sale by operation of law in any manner whatsoever (except through statutory
merger or consolidation) and any such attempt at involuntary assignment,
transfer or sale shall be void and of no effect.
(b) Without limiting the generality of paragraph (a), Lessee
agrees that in the event any proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary dissolution of
Lessee, or for its adjudication as a bankrupt or insolvent or for the
appointment of a receiver of the property of Lessee and said proceedings are
not dismissed and any receiver, trustee or liquidator appointed therein
discharged within sixty (60) days after the institution of said proceedings,
such action shall be deemed to constitute a breach of Lease by Lessee and
Lessor may at its election, without notice or entry or other action of Lessor,
terminate this Lease and also all rights of Lessee under this Lease in and to
the demised Premises and also all rights of any persons claiming under Lessee.
22. REMEDIES: In addition to all other remedies provided by law Lessor may
terminate the estate and term demised without further liability whatsoever on
its part by written notice to Lessee upon happening of any one of the following
events, and if the same are not remedied within thirty (30) days after notice
to Lessee or within a reasonable time thereafter, if the event cannot be
remedied in thirty (30) days:
(a) The making by Lessee of an assignment for the benefit of
its creditors;
(b) The levying of a writ of execution of attachment on or
against the property of the Lessee;
(c) The doing, or permitting to be done by Lessee of any act
which creates a mechanic's lien or claim therefor against the land or building
of which the Premises are a part which is not released in thirty (30) days;
(d) Except during the last six (6) months of the term, the
abandonment or vacation by Lessee of the Premises or any part thereof before
the end of the demised term.
<PAGE> 8
Upon termination of the estate as aforesaid, Lessor may
reenter the Premises with or without the process of law and thus repossess;
Lessor shall not be liable in damages or otherwise by reason of reentry or
termination of this Lease.
In the event of any other breach hereunder by Lessee, Lessor
may immediately, or at any time thereafter, after fifteen (15) days written
notice, cure such breach for the account and at the expense of Lessee. If
Lessor at any time, by reason of such breach, is compelled to pay or elects to
pay, any sum of money, or is compelled to incur any expense, in instituting or
prosecuting any action or proceeding to enforce Lessor's rights hereunder, the
sum or sums so paid by Lessor, with interest thereon at the rate of eleven
(11%) percent per annum from the date of payment thereof, shall be deemed to be
additional rent thereunder and shall be due from Lessee to Lessor on the first
day of the month following the payment of such respective sums or expenses. All
rights and remedies of Lessor herein enumerated shall be cumulative and shall
not exclude any other right or remedy allowed by law, and said rights and
remedies may be exercised and enforced concurrently and whenever and as often
as occasion therefor arise.
23. NOTICES: Any notice required or permitted under this Lease shall be
deemed sufficiently given or served to Lessee if sent by certified or
registered mail to:
SOFTWARE SPECTRUM INC.
2140 MERRITT DRIVE
GARLAND TX 75041
ATTENTION KEITH R. COOGAN
VICE PRESIDENT - OPERATIONS
and to the Lessor at the address then fixed for the payment of rent, and either
party may by like notice at any time and from time to time designate different
addresses to which notices shall be sent. Notices given in accordance with
these provisions shall be deemed received when mailed.
24. COMMENCEMENT DATE: Lease Commencement shall take place May 1, 1996
provided all specifications and requirements are provided to the Lessor on or
prior to March 11, 1996 and no substantial changes are made from March 11, 1996.
On or before April 17, 1996 if Lessor determines the premises will not be ready
for occupancy by May 1, 1996, lessor will notify Lessee and provide a "best
estimate" when the premises will be ready.
25. MODIFICATIONS: This Lease constitutes the whole agreement by and
between the parties hereto, and there are no terms, obligations, covenants,
<PAGE> 9
provisions or conditions other than those contained and set forth in this
Lease. No modifications or variations of this Lease and of the terms,
provisions, covenants and conditions hereof shall be deemed valid, unless
reduced to writing and attached hereto as part hereof, signed by both parties
hereto.
26. SUCCESSORS AND ASSIGNS: The terms, covenants, and conditions hereof
shall be binding upon and inure to the successors in the interest and assigns
of the parties hereto.
27. QUIET POSSESSION: If the Lessee shall discharge the obligations and
comply with each and all of the covenants, conditions, terms and provisions of
this Lease to be kept, done and performed by it, then it shall have and enjoy,
during the term of this Lease, the quiet possession of the demised Premises,
the building constructed thereon, as hereinafter provided, together with all
appurtenances thereto belonging, for the uses and purposes herein above
described.
28. GENERAL: Nothing contained in this Lease shall be deemed or construed
by the parties hereto or by any third party to create the relationship of
principal and agent or of partnership or of joint venture or of any association
between Lessor and Lessee, it being expressly understood and agreed that
neither the method of computation of rent nor any provisions contained in this
Lease, nor any acts of the parties hereto shall be deemed to create any
relationship between the Lessor and Lessee other than the relationship of
Lessor and Lessee. The laws of the State of Kentucky shall govern the validity,
performance and enforcement of this Lease. The submission of this Lease for
examination does not constitute a reservation of or option for the Premises.
This Lease shall become effective as a Lease only upon the execution and
delivery of this Lease by Lessor and by Lessee. The marginal headings of the
several articles contained herein are for convenience only and do not define,
limit or construe the contents of such articles. Time is of the essence of this
Lease, and each and every covenant, term, and condition and provisions hereof.
29. COUNTERPARTS: This Lease is executed in more than one counterpart.
Each counterpart, when signed by the parties hereto, shall be deemed an
original copy.
30. LEGAL FEES AND EXPENSES: Lessee agrees that if Lessor shall without
any fault on its part, be made party to any litigation commenced by or against
Lessee, then Lessee shall pay all costs and reasonable attorneys fees incurred
by or imposed on Lessor and any judgement or decree for the payment of money
obtained against Lessor in connection with such litigation. Lessee shall also
pay all costs and reasonable attorneys fees which
<PAGE> 10
may be incurred or paid Lessor in enforcing the covenants and agreements of
this lease. Lessor reserves the right in any such event to be represented by
attorneys of its choice.
31. MEMORANDUM OF LEASE (SHORT FORM LEASE): Neither Lessor or Lessee shall
record this lease. However, either party promptly on request of the other shall
execute, and the other may record, a memorandum of lease (short form of this
lease), in recordable form, sufficient to provide constructive notice of the
leasehold estate created hereby. Any short form of this lease which is so
recorded shall contain the following disclaimer with respect to the liability
of Lessor for any construction done on the premises by Lessee:
NOTICE IS HEREBY GIVEN TO ALL MECHANICS, MATERIALMEN, CREDITORS OF LESSEE AND
OTHER INTERESTED PARTIES THAT LESSEE IS NOT THE AGENT OF LESSOR FOR THE PURPOSE
OF ANY IMPROVEMENTS WHICH MAY BE CONSTRUCTED ON THE PREMISES BY, FOR, ON BEHALF
OF, OR PURSUANT TO ANY AGREEMENT WITH LESSEE, ITS AGENTS, AFFILIATES, OR
NOMINEES, AND THAT LESSOR SHALL NOT BE LIABLE FOR ANY AMOUNTS OWED FOR LABOR OR
MATERIALS OR OTHER SERVICES RENDERED OR GOODS USED IN CONNECTION WITH ANY SUCH
CONSTRUCTION.
32. PROHIBITED CONSTRUCTION MATERIALS; HAZARDOUS MATERIAL: Lessor
represents that lessor is unaware of any hazardous substance used, spilled, or
stored upon the Premises. Lessor and Lessee each covenant and agree that they
will not hereafter utilize or permit to be utilized in the construction of any
structure at any time erected on the Premises, or to be located upon the
Premises, any friable asbestos or asbestos contaminating material, any urea
formaldehyde foam insulation, or any transformers or other equipment
containing dielectric fluid in which shall be subsisting polychlorinated
biphenyl's in excess of ten (10) parts per million, and lessee further
covenants and agrees not to permit any "Hazardous Material" to be placed, held,
located or disposed of upon, or released upon, under, or at the Premises, or
any part thereof. For purposes of this lease, "Hazardous Material" means and
includes any hazardous, toxic or dangerous waste, substance or material defined
as such in, or for purposes of, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. 9601 et. seq.) any so called
"Superfund" or "Superlien" law, ordinance, code, rule, regulation, order or
decree regulating, or relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance, or material, as
now or at any time hereafter in effect. If Lessee has knowledge or has notice
of [a] the happening of any event involving the use, spill, discharge or
cleaning up of any Hazardous Material (a "Hazardous Discharge") or [b] any
complaint, order, citation or notice with regard to air emissions, water
discharges, noise emissions or
<PAGE> 11
other environmental, health or safety matter affecting Lessee, or the Premises
(an "environmental complaint") from any person or entity, including, without
limitation, the United States Environmental Protection Agency ("EPA"), Lessee
shall give immediate notice thereof to Lessor disclosing full details of same.
Lessee does and shall indemnify and hold Lessor harmless from all loss, cost,
claim, damage, and expense, including but not limited to reasonable attorneys'
fees, incurred by lessor as a result of any "Hazardous Discharge" on the
Premises during the term of this Lease which is caused by Lessee, its
employees, agents, patrons, or suppliers' delivery trucks, and the indemnity of
Lessee in favor of Lessor contained in this paragraph shall survive the
expiration or termination of this lease.
33. HOLDING OVER: In the event Lessee holds over and remains in possession
of the Premises without permission of Lessor after the expiration or earlier
termination of this lease, Lessee shall be deemed to hold the premises as a
tenant from month to month, and all of the terms, conditions and covenants of
this lease shall be applicable during the holdover period, except that the rent
for each month or fraction thereof during the period of such holdover shall be
an amount equal to one and one half times (150%) the monthly installment of
rent payable at the time of such expiration or earlier termination.
Notwithstanding the foregoing, no holding over by Lessee shall operate to
extend this lease. Lessee shall be liable for all damages to Lessor both
direct and consequential attributable to such holding over, and Lessee shall
vacate and surrender the Premises upon being given thirty (30) days prior
written notice from Lessor to vacate.
36. PAYMENT OF AND INDEMNIFICATION FOR LEASING COMMISSIONS: The parties
hereby acknowledge, represent, and warrant that Charles M. Casper, Commercial
Kentucky, INC. is the only real estate broker involved in the negotiation and
execution of this lease and that Lessor is obligated to pay any leasing
commission to said broker. No other broker or person is entitled to any leasing
commission or compensation as a result of the negotiation or execution of this
lease. Each party shall indemnify and hold harmless the other party from any
and all liability for any breach of this representation and warranty and the
breaching party shall pay any compensation to any broker or person who may be
deemed or held to be entitled thereto.
37. RIGHT OF FIRST REFUSAL FOR ADDITIONAL SPACE: If at any time during the
first forty eight (48) months of this Lease Lessor contemplates leasing other
space within the building in which the Premises is located, Lessor shall notify
Lessee at the address shown in the paragraph 23 herein and Lessee shall have
ten (10) days from receipt of such notice to notify Lessor of it's intent to
lease such space. Rent for this additional space will be at the same rent per
square foot contained herein at the time of notice. In any event the term for
the additional space will co-terminate with this lease.
<PAGE> 12
38. ONE TIME RIGHT TO CANCEL: Lessee shall have a one time right to cancel
this Lease, without payment of additional fees or penalties of any type, at the
end of the thirty seventh (37th) month. Lessor must be notified of Lessee's
intent to cancel by the end of the thirty first (31st) month.
39. OFFICE BUILD OUT: Lessor will construct a five thousand (5,000) square
foot, two story office area as referenced in "Exhibit C" herein according to
standards as described in "Exhibit B" herein. Lessee agrees to pay Lessor upon
issuance of either a temporary or permanent certificate of occupancy the sum of
$80,000 in full and final payment for the construction for this office space.
40. PARKING: Lessor agrees to provide, free of charge, parking for 35 cars
as shown on "Exhibit A" herein as "initial parking". At any time during the
first forty eight (48) months of this Lease Lessor agrees to construct, at no
additional cost to Lessee, up to 25 additional parking spaces as shown on
"Exhibit A" herein as "future parking" within three (3) months of receiving
written notice from Lessee to commence such construction
41. OPTION TO EXTEND TERM: Lessee may extend the term of this Lease for
one term of three (3) years by notifying Lessor of it's intention to do so no
later than six (6) months prior to expiration. Rent for the extended term shall
be mutually agreeable at the current market rate.
42. ONE TIME RIGHT TO EXPAND THE PREMISES: Any time prior to the close of
business on March 11,1996 Lessee may amend this Lease to 75,000 square feet, by
letter which becomes part of this lease, with rent as follows:
Month One $0
Month two through twelve $18,688
Month thirteen through sixty one $21,563
<PAGE> 13
IN WITNESS WHEREOF, Lessor and Lessee have hereunto executed this Lease and
affixed their seals as of the day and year first above written.
LESSOR:
Riverport Commerce Center, INC.
a Kentucky Corporation
Attest: By: /s/ REED M. BOONE
----------------------------------
Reed M. Boone
TERRI A. SAMPLES It's: Vice President
- - -----------------
LESSEE:
SOFTWARE SPECTRUM, INC.
a TEXAS Corporation
Attest: By: /s/ KEITH R. COOGAN
----------------------------------
Keith R. Coogan
CHRISTI L. BREWER It's: Vice President - Operations
- - -----------------
State of Kentucky )
)SS:
County of Jefferson )
Be it remembered that on the 15th day of March, 1996, before me, a Notary
Public in and for said County and State, personally appeared Reed M. Boone as
Vice President of Riverport Commerce Center, INC. as Lessor in the foregoing
Lease agreement, and for and on behalf of said corporation acknowledged the
signing and execution of said instrument, that the signing and execution of
said instrument is their free act and deed of said corporation, for the uses
and purposes in said instrument mentioned.
In testimony whereof, I have hereunto subscribed my name and affixed by
notarial seal on the day and year last aforesaid.
Notary Public, State at Large, KY
/s/ TERRI A. SAMPLES My Commission Expires Mar. 13, 1998
--------------------
Notary Public
[SEAL]
<PAGE> 14
Be it remembered that on the 8th day of March, 1996 before me, a Notary Public
in and for said County and State, personally appeared Keith R. Coogan as Vice
President - Operations of Software Spectrum, INC., granting consent to the
foregoing Lease agreement, and for and on behalf of said corporation
acknowledged the signing and execution of said instrument, that the signing and
execution of said instrument is their free act and deed of said corporation,
for the uses and purposes in said instrument mentioned.
In testimony whereof, I have hereunto subscribed my name and affixed by
notarial seal on the day and year last aforesaid.
Christi L. Brewer
----------------------------------
Notary Public
[SEAL]
<PAGE> 15
"EXHIBIT B"
Office Build Out Specifications
HVAC: Gas fired furnaces with electric air conditioning. Multiple units
provide zone cooling and heating.
Ceilings: Dropped grid with 2' X 4' lay in acoustical panels.
Floors: Commercial grade carpet ($15/sq. yd. allowance) or 12" X 12" vinyl
tile.
Walls: 5/8" drywall on metal studs painted the color of your choice.
Lighting: 2' X 4' lay in florescent fixtures.
Sprinkler: Chrome sprinkler heads.
Rest rooms: Ceramic tile floors and 4' wainscot. Formica clad partitions.
Toilet paper holders and paper towel dispensers.
Interior doors: Solid wood veneer stain grade with metal jambs. Stained or
painted in the color of your choice.
Exterior doors: Glass store front door. Office to warehouse are painted metal
with half glass. All exterior doors have closure devices push - pull hardware
and kick plates.
Hardware: Commercial grade latch style in brushed aluminum or brushed brass
finish.
<PAGE> 16
[Riverport Warehouse Company Letterhead]
March 15, 1996
Mr. Keith Coogan
Vice President - Operations
SOFTWARE SPECTRUM
2140 Merritt Avenue
Garland, TX 75041
Dear Keith:
Enclosed is a fully executed copy of our Lease agreement. I have submitted the
non-disturbance agreement to GREAT FINANCIAL BANK and asked they send the
executed copy directly to you. I'll follow up to make sure they do so.
Thank you, it's still a pleasure working with you!
Sincerely,
/s/ REED M. BOONE
Reed M. Boone
<PAGE> 17
"EXHIBIT C"
[BLUEPRINT]
PARTIAL FIRST FLOOR PLAN / SCALE: 1/8" = 1' - 0"
<PAGE> 18
"EXHIBIT A"
[BLUEPRINT]
INITIAL PARKING AND FUTURE PARKING
<PAGE> 19
"EXHIBIT C"
[BLUEPRINT]
MEZZANINE PLAN - SCALE: 1/8" = 1' - 0"
<PAGE> 20
[GREAT FINANCIAL BANK' LETTERHEAD]
March 19, 1996
Mr. Keith Coogan
Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas 75041
RE: Riverport Commerce Center, Inc.
Dear Mr. Coogan:
Per Instructions from Reed Boone, I have enclosed for your records a fully
executed Subordination, Non-Disturbance and Attornment Agreement.
If there is anything else you need from me, feel free to call at (502) 562-6443.
Sincerely,
/s/ DEBRA DANIEL
Debra Daniel
W:R\C1901
Enclosure
cc: Reed Boone
<PAGE> 21
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
THIS AGREEMENT, made this 8th day of March, 1996 by and between
SOFTWARE SPECTRUM, INC., a TEXAS Corporation with principal offices at 2140
Merritt Drive, Garland, Texas 75041, and GREAT FINANCIAL BANK, FSB, with a
mailing address of One Financial Square, Louisville, Kentucky 40202.
WITNESSETH
WHEREAS, by Lease dated 8th day of March, 1996 as amended (hereinafter
referred to as the "LEASE"), Riverport Commerce Center, Inc. ("LANDLORD")
leased and rented to Tenant certain premises located in Jefferson County,
Kentucky (the "Property") a more particular description of which Property
appears in Exhibit A, attached hereto and by this reference made a part hereof;
and
WHEREAS, the Property is or is to be encumbered by a mortgage, deed of
trust, deed to secured debt or other similar security agreement (the
"Mortgage") in favor of or to be assigned to Lender; and
WHEREAS, Lender does not wish to make the loan secured by the Mortgage
or to consent to Tenant's Lease, unless Tenant subordinates the Lease and
Tenant's rights thereunder to the lien and provisions of the Mortgage; and
WHEREAS, Tenant and Lender desire hereby to establish certain rights,
safeguards, obligations and priorities with respect to their respective
interests by means of the following Subordination, Non-Disturbance and
Attornment Agreement;
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants and promises herein contained, and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
Tenant and Lender agree as follows;
(l) The Lease and the rights of Tenant thereunder are and shall be
subject and subordinate to the lien of the Mortgage and to all of the terms,
conditions and provisions thereof, to all advances made or to be made
thereunder, to the full extent of the principal sum and interest thereon from
time to time secured thereby, and to any renewal, substitution, extension,
modification or replacement thereof, including any increase in the indebtedness
secured thereby or any supplements thereto. In the event that Lender or any
other person acquires titled to the property pursuant to the exercise of any
remedy provided for in the Mortgage or by reason of the acceptance of a deed in
lieu of foreclosure (the Lender, any other such person and their participants,
successors and assigns being referred to herein as the "Purchaser"), Tenant
covenants and agrees to attorn to and recognize and be bound to Purchaser as
its new Landlord, and subject to the proviso in Paragraph 2 of this Agreement,
the Lease shall continue in full force
<PAGE> 22
and effect as a direct lease between Tenant and Purchaser, except that,
notwithstanding anything to the contrary herein or in the lease, the provisions
of the Mortgage will govern with respect to the disposition of proceeds of
insurance policies or condemnation or eminent domain awards.
(2) So long as the Lease is in full force and effect and Tenant is not
in default under any provision of the lease or this Agreement, and no event has
occurred which has continued to exist for a period of time (after notice, if
any, required by the Lease) as would entitle Landlord to terminate the Lease or
would cause without further action by Landlord, the termination of the Lease of
would entitle Landlord to terminate the Lease or would cause without further
action by Landlord, the termination of the Lease or would entitle Landlord to
dispossess the Tenant thereunder:
a. the right of possession of Tenant to the leased
premises shall not be terminated of disturbed by any steps or
proceedings taken by Lender in the exercise of any of its rights under
the Mortgage or the indebtedness secured thereby; and
b. The Lease shall not be terminated or affected by said
exercise of any remedy provided for in the Mortgage, and Lender hereby
covenants that any sale by it of the Property pursuant to the exercise
of any rights and remedies under the Mortgage or otherwise, shall be
made subject to the Lease and the rights of Tenant thereunder.
(3) In no event shall Lender or any other Purchaser be:
a. liable for any act or omission of Landlord or any
prior landlord;
b. liable for the return of any security deposit;
c. subject to any offsets or defenses which the Tenant
might have against Landlord or any prior landlord;
d. bound by any payment of rent or additional rent which
Tenant might have paid to Landlord or any prior landlord for more than
the current month; or
e. bound by any amendment or modification of the Lease
made without Lender's or such other Purchaser's prior written consent.
(4) Tenant agrees to give prompt written notice to Lender of any
default by Landlord under the Lease which would entitle Tenant to cancel the
Lease or abate the rent payable thereunder, and agrees that notwithstanding any
provision of the Lease, no notice of cancellation thereof given on behalf of
Tenant shall be effective unless Lender has received said notice and has failed
within 30 days of the date of receipt thereof to cure Landlord's default, or if
the default cannot be cured within 30 days, has failed to commence and to
diligently pursue the cure of Landlord's default which gave rise to such right
of cancellation or abatement. Tenant further agrees to give such notices to any
successor of Lender, provided that such successor shall have given written
notice to Tenant of its acquisition of Lender's interest in the Mortgage and
<PAGE> 23
designated the address to which such notices are to be sent.
(5) Tenant acknowledges that Landlord will execute and deliver to
Lender an Assignment of Leases and Rents conveying the rentals under the Lease
as additional security for the loan secured by the Mortgage, and Tenant hereby
expressly consents to such Assignment and has no notice of a prior assignment
of the Lease or the rents thereunder.
(6) Tenant agrees that it will not, without the prior written consent
of Lender, do any of the following, and any such purported action without such
consent shall be void as against Lender:
a. modify the Lease of any extensions or renewals thereof
in such a way as to reduce the rent, accelerate rent payments,
shorten the original term, or change any renewal option;
b. terminate the Lease except as provided by its terms;
c. tender or accept a surrender of the Lease or make a
prepayment in excess of one month of rent thereunder; or
d. subordinate or permit subordination of the Lease to
any lien subordinate to the Mortgage.
(7) Tenant hereby represents and warrants that, (a) it has
unconditionally accepted and occupied the leased premises and commenced payment
of rent under the Lease without claim or right of set-off, or claim of any
default by Landlord; (b) minimum annual rent currently payable under the Lease
is $181,128; (c) the Lease sets forth the entire agreement between Landlord
and Tenant, is in full force and effect in accordance with its terms, and has
not, in any way, been amended, modified, assigned or sublet; (d) there exists no
default by either party to the Lease or other ground (nor any state of facts
which with the giving of notice, the passage of time, or both, could constitute
a default or such other ground), for ceasing or reducing the payment of rental,
or for cancellation or termination of the Lease; (e) the commencement date of
the Lease is May 1, 1996 and the primary lease term expires May 31, 2001,
however, tenant has the right to cancel this Lease May 31, 1999 with written
notice to Landlord no later than November 30, 1998;
(f) all requirements of the Lease, including any construction and parking
requirements, have been complied with and no charges, set-offs, or other
credits exist against the rentals nor have rentals been prepaid except as
provided by the Lease terms, but in no event have rentals been paid more than
thirty (30) days in advance.
(8) Tenant agrees to certify in writing to Lender, upon request,
whether or not any default on the part of Landlord exists under the Lease and
the nature of any such default.
(9) The foregoing provisions shall be self-operative and effective
without the execution of any further instruments on the part of either party
hereto. However, Tenant agrees to execute
<PAGE> 24
and deliver to Lender or to any person to whom Tenant herein agrees to attorn
such other instruments as either shall request in order to effectuate said
provisions.
(10) From and after payment in full of the loan secured by the
Mortgage and the recordation of a release or satisfaction thereof, without the
transfer of the Property to Lender as a Purchaser, this Agreement shall become
void and of no further force or effect.
(11) The agreements herein contained shall be binding upon and shall
inure to the benefit of the parties hereto, their respective participants,
successors, and assigns, and, without limiting such, the agreements of Lender
shall specifically be binding upon any Purchaser of the Property at foreclosure
or at a sale under power.
(12) This agreement may not be modified other than by an agreement in
writing signed by the parties hereto or their respective successors.
(13) This agreement may be signed in counterparts.
(14) If any term or provision of this Agreement shall to any extent be
held invalid or unenforceable, the remaining terms and provisions hereof shall
not be affected thereby, but each term and provision hereof shall be valid and
enforceable to the fullest extent permitted by law.
<PAGE> 25
IN WITNESS WHEREOF, Tenant and Lender have caused this instrument to be
executed under seal as of the day and year first above written,
TENANT:
SOFTWARE SPECTRUM, INC.
By:/s/ Keith R. Coogan
----------------------------------------
Title: Vice President of Operations
------------------------------------
LENDER:
GREAT FINANCIAL BANK, FEB
By:/s/ Gerald M. Karem
----------------------------------------
Title: First Vice President
------------------------------------
STATE OF TEXAS )
) SS
COUNTY OF DALLAS )
On 8 March 1996, before me, Christi L. Brewer, the undersigned
officer, personally appeared Keith R. Coogan, who acknowledged himself to be
the V.P. of Operations of Software Spectrum, Inc., a corporation, and that Keith
R. Coogan he, as such V.P. of Operations, being authorized to do so, executed
the foregoing instrument for the purposes therein contained, by signing the
name of the corporation by himself or herself as V.P. of Operations.
In witness whereof I hereunto set my hand and official seal.
[SEAL] /s/ CHRISTI L. BREWER
---------------------------------------
Notary Public
Commission expires 21 December 1996
<PAGE> 26
COMMONWEALTH OF KENTUCKY)
)
COUNTY OF JEFFERSON )
On this 17th March 1996, before me, Tricia Jones Hurley, the
undersigned officer, personally appeared Gerald M. Karem, who acknowledged
himself to be the First Vice President, of Great Financial Bank, FSB, and that
Gerald M. Karem he, as such First V.P., being authorized to do so, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by himself or herself as First V.P.
In witness whereof I hereunto set my hand and official seal.
[SEAL] /s/ TRICIA JONES HURLEY
---------------------------------------
Notary Public
Notary Public, State at Large, KY
Commission expires My commission expires May 6, 1997
---------------------------------
This instrument was prepared by:
- - ---------------------------------------------
- - ---------------------------------------------
- - ---------------------------------------------
<PAGE> 27
"EXHIBIT A"
REVISED LOT 22 CREATED BY MINOR SUBDIVISION PLAT OF RECORD WHICH HAS BEEN
APPROVED BY THE LOUISVILLE AND JEFFERSON COUNTY PLANNING COMMISSION WHICH IS
ATTACHED TO DEED RECORDED IN DEED BOOK 6527, PAGE 60, IN THE OFFICE OF THE
CLERK OF JEFFERSON COUNTY, KENTUCKY.
THE STREET ADDRESS FOR THE PREMISES IS 7101 - C Intermodal Drive Louisville KY
40258.
<PAGE> 28
[SOFTWARE SPECTRUM LETTERHEAD]
March 13,1996
Mr. Reed M. Boone
Riverport Warehouse Company
7200 Riverport Drive
Louisville, Kentucky 40258
Re: Lease and Subordination, Non-Disturbance and Attornment Agreement
Dear Reed:
Enclosed you will find two (2) partially executed originals of the above
mentioned documents. Please return one (1) fully executed original of each
document to my attention at your earliest convenience.
Should you have any questions or need additional information, please do not
hesitate to contact me at (214) 864-7812.
Yours very truly,
/s/ KEITH R. COOGAN
- - -------------------------------
Keith R. Coogan
Vice President of Operations
KRC:cb
Enclosures as stated.
<PAGE> 29
[SOFTWARE SPECTRUM LETTERHEAD]
VIA FACSIMILE TRANSMISSION 1-502-933-7149
March 8, 1996
Mr. Reed M. Boone
Riverport Warehouse Company
PO Box 58098
Louisville, Kentucky 40268-0098
Dear Reed:
Please allow this letter to confirm our telephone conversation of earlier today
in which I confirmed that Software Spectrum, Inc. will lease 62,500 square feet
of space as more fully described in the lease documents that you provided me
today. I have executed the lease agreements reflecting this amount of space and
you will receive these next Tuesday.
Please contact me if you require any further information.
Yours very truly,
/s/ Keith R. Coogan
Keith R. Coogan
Vice President of Operations
KRC:cb
<PAGE> 30
[RIVERPORT WAREHOUSE COMPANY LETTERHEAD]
March 7, 1996
Mr. Keith R. Coogan
Vice President - Operations
SOFTWARE SPECTRUM, INC.
2140 Merritt Drive
Garland, Texas 75041
Re: Lease form.
Dear Keith:
Enclosed are two original copies of the lease form we have agreed upon. Please
sign both and return to me. When I receive them I will sign and return one copy
to you and submit the non-disturbance agreement to our lender.
It's a pleasure doing business with you and everyone with your firm! I look
forward to a long and very satisfying relationship.
Sincerely,
/s/ Reed M. Boone
Reed M. Boone
<PAGE> 31
[MARSH & MCLENNAN LETTERHEAD]
Facsimile Marsh & McLennan
Transmittal 2200 Ross Avenue #3300
Sheet Dallas, Texas 75201
Telephone 214-979-9860
Date 03/07/96 Fax no. 864-7889
To Keith Coogan
Company Software Spectrum, Inc.
Total number of pages, including this cover 2
From Barb Murray
Tel. no. 214-979-9860 Fax no. 214-979-9710
The information contained in this facsimile message is confidential, may be
privileged, and is intended for the use of the individual or entity named
above. If you, the reader of this message, are not the intended recipient, the
agent, or employee responsible for delivering this transmission to the intended
recipient, you are expressly prohibited from copying, disseminating,
distributing, or in any other way using any of the information contained in
this facsimile message.
If this transmission is not received in good order, please call sender
directly.
Comments:
Attached is the certificate you requested. The original will be mailed to you
today.
Please let me know if you have any questions.
cc: Mark Locke - Chubb Ins. Group
Sally Dillenback
<PAGE> 1
EXHIBIT 10.17
OFFICE LEASE
REFERENCE PAGE
<TABLE>
<S> <C>
BUILDING: 8755 W. Higgins Road
Chicago, Illinois 60631
LANDLORD: BENEFICIARIES OF AMERICAN
NATIONAL BANK TRUST NUMBER
104601-03
LANDLORD'S ADDRESS: Suite 100, 8755 W. Higgins Road
Chicago, Illinois 60631
LEASE REFERENCE DATE: April 26, 1996
TENANT: Software Spectrum, Inc.
TENANT'S ADDRESS:
(a) As of beginning of Term: 2140 Merritt Drive
(b) Prior to beginning of Term
(if different): Garland, Texas 75041
PREMISES IDENTIFICATION: Suite Number 400 (for outline of
Premises see Exhibit A attached
to this Lease and made a part of
this Lease by this reference)
PREMISES RENTABLE AREA: approximately 16,612 sq. ft.
USE: General Office
SCHEDULED COMMENCEMENT DATE: July 1, 1996
TERMINATION DATE: June 30, 2001
TERM (or "Initial Term") OF
LEASE: 5 years and 0 months beginning on
the Commencement Date and ending
on the Termination Date (unless
sooner terminated pursuant to the
Lease)
INITIAL ANNUAL RENT (Article 3): $361,311.00
INITIAL MONTHLY INSTALLMENT OF
ANNUAL RENT (Article 3): $30,109.25
BASE YEAR (DIRECT EXPENSES): 1996
BASE YEAR (TAXES): Taxes for 1995 payable in 1996
TENANT'S PROPORTIONATE SHARE: 7.10981% (16,612 sq. ft./233,649 sq. ft.)
SECURITY DEPOSIT: $ 0
REAL ESTATE BROKERS DUE
COMMISSION: U.S. Equities Realty, Inc.
Cushman & Wakefield
</TABLE>
The Reference Page information is incorporated into and made a part of the
Lease. In the event of any conflict between any Reference Page information and
the Lease, the Lease shall control. This Lease includes Exhibits A through C,
all of which are made a part of this Lease.
TAF
<PAGE> 2
LANDLORD: TENANT:
BENEFICIARIES OF AMERICAN SOFTWARE SPECTRUM, INC., a
NATIONAL BANK TRUST Texas corporation
NUMBER 104601-03
By: RREEF Management Company, By: /s/ THEODORE A. FREDERICKS
a California Corporation Title: Facilities Director
By: _______________________________ Dated: May 4, 1996
Title: ______________________________
Dated: ______________________________
4 TAF
<PAGE> 3
LEASE
By this Lease Landlord leases to Tenant and Tenant leases from Landlord
the Premises in the Building as set forth and described on the Reference Page.
The Reference Page, including all terms defined thereon, is incorporated as
part of this Lease.
1. USE AND RESTRICTIONS ON USE. The Premises are to be used solely for the
purposes stated on the Reference Page. Tenant shall not do or permit anything
to be done in or about the Premises which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Building or injure, annoy,
or disturb them or allow the Premises to be used for any improper, immoral,
unlawful, or objectionable purpose. Tenant shall not do, permit or suffer in,
on, or about the Premises the sale of any alcoholic liquor as defined in the
Illinois Liquor Control Act without the written consent of Landlord first
obtained, or the commission of any waste. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to Tenant's use of the
Premises and its occupancy and shall promptly comply with all governmental
orders and directions for the correction, prevention and abatement of any
violations in or upon, or in connection with, Tenant's use of the Premises, all
at Tenant's sole expense. Tenant shall not do or permit anything to be done on
or about the Premises or bring or keep anything into the Premises which will in
any way increase the rate of, invalidate or prevent the procuring of any
insurance protecting against loss or damage to the Building or any of its
contents by fire or other casualty or against liability for damage to property
or injury to persons in or about the Building or any part thereof.
2. TERM.
2.1. The Term (if and as required by the Context, "Initial Term") of
this Lease shall begin on the date ("Commencement Date") that the Premises are
substantially completed. Landlord shall tender possession of the Premises with
all the work, if any, to be performed by Landlord pursuant to Exhibit B to this
Lease substantially completed. Tenant shall deliver a punch list of items not
completed within 30 days after Landlord tenders possession of the premises and
Landlord agrees to proceed with due diligence to perform its obligations
regarding such items within 45 days of Landlord's receipt of such punch list.
Upon any extension of the Commencement Date, the Termination Date shall be
extended to the same extent so that the Term of this Lease shall continue for
the length of time indicated on the Reference Page unless sooner terminated as
provided in this Lease. Landlord and Tenant shall execute a memorandum setting
forth the actual Commencement Date and Termination Date. Landlord will use
commercially reasonable efforts to obtain a Certificate of Occupancy from the
City of Chicago if one is so required by the City of Chicago, provided,
however, if applicable governmental authorities prohibit Tenant from operating
at the Premises or cause Tenant to cease operating at the Premises because
Landlord has not obtained any required Certificate of Occupancy, Tenant's
obligation to pay rent and other sums due
TAF
Initials
1
<PAGE> 4
Landlord for the period that Tenant is not allowed to operate at the Premises
shall abate.
2.2. Tenant agrees that in the event of the inability of Landlord to
deliver possession of the Premises on the Scheduled Commencement Date, Landlord
shall not be liable for any damage resulting from such inability, but Tenant
shall not be liable for any rent until the time when Landlord can, after notice
to Tenant, deliver possession of the Premises to Tenant. No such failure to
give possession on the scheduled Commencement Date shall affect the other
obligations of Tenant under this Lease, except that if Landlord is unable to
deliver possession of the Premises within one hundred twenty (120) days of the
Scheduled Commencement Date (other than as a result of strikes, shortages of
materials or similar matters beyond the reasonable control of Landlord and
Tenant is notified by Landlord in writing as to such delay), Tenant shall have
the option to terminate this Lease unless said delay is as a result of: (a)
Tenant's failure to agree to plans and specifications; (b) Tenant's request for
materials, finishes or installations other than Landlord's standard except as
for such, if any, that Landlord shall have expressly agreed to furnish without
extension of time agreed by Landlord; (c) Tenant's change in any plans or
specifications; or, (d) performance or completion by a party employed by
Tenant. If said delay is the result of any of the foregoing, the Commencement
Date and the payment of rent under this Lease shall be accelerated by the
number of days of such delay.
2.3. In the event Landlord shall permit Tenant to occupy the Premises
prior to the Commencement Date, such occupancy shall be subject to all the
provisions of this Lease. Said early possession shall not advance the
Termination Date.
3. RENT.
3.1. The rate of Annual Rent and the Monthly Installments thereof to be
in effect throughout the Term of this Lease shall be as follows:
<TABLE>
<CAPTION>
Period Annual Rent Monthly installment
------ ----------- -------------------
<S> <C> <C>
07/01/96 - 06/30/97 $361,311.00 $30,109.25
07/01/97 - 06/30/98 $369,617.04 $30,801.42
07/01/98 - 06/30/99 $377,922.96 $31,493.58
07/01/99 - 06/30/00 $386,229.00 $32,185.75
07/01/00 - 06/30/01 $394,535.04 $32,877.92
</TABLE>
3.2. Tenant agrees to pay to Landlord the Annual Rent in effect from
time to time by paying the Monthly Installment of Rent then in effect on or
before the first day of each full calendar month during the Term, except that
the first month's rent shall be paid upon the execution of this Lease. The
Monthly Installment of Rent in effect at any time shall be one-twelfth of the
Annual Rent in effect at such time. Rent for any period during the Term which
is less than one full month shall be a
TAF
Initials
2
<PAGE> 5
prorated portion of the Monthly Installment of Rent based upon a thirty (30)
day month. Said rent shall be paid to Landlord, without deduction or offset and
without notice or demand, at the Landlord's address, as set forth on the
Reference Page, or to such other person or at such other place as Landlord may
from time to time designate in writing.
3.3. Tenant recognizes that late payment of any rent or other sum due
under this Lease will result in administrative expense to Landlord, the extent
of which additional expense is extremely difficult and economically impractical
to ascertain. Tenant therefore agrees that if rent or any other sum is not paid
within ten (10) days after coming due and payable pursuant to this Lease, such
amount shall bear interest at twelve percent (12%) per annum for the first ten
(10) days after due and when such amount remains due and unpaid for more than
ten (l0) days after said amount is due, such interest shall be supplanted by a
late charge in an amount equal to the greater of: (a) Fifty Dollars ($50.00),
or (b) a sum equal to five percent (5%) per month of the unpaid rent or other
payment. The amount of the late charge to be paid by Tenant shall be reassessed
and added to Tenant's obligation for each successive monthly period until paid.
The provisions of this Section 3.3 in no way relieve Tenant of the obligation
to pay rent or other payments on or before the date on which they are due, nor
do the terms of this Section 3.3 in any way affect Landlord's remedies pursuant
to Article 20 of this Lease in the event said rent or other payment is unpaid
after date due.
3.4. No security or guarantee which may now or hereafter be furnished
to Landlord for the payment of rent or the performance of Tenant's other
obligations under this Lease shall in any way constitute a bar to the recovery
of the Premises or defense to any action in unlawful detainer or to any other
action which Landlord may bring for a breach of any of the terms, covenants or
conditions of this Lease.
4. RENT ADJUSTMENTS.
4.1. For the purpose of this Article 4, the following terms are defined
as follows:
4.1.1. BASE YEAR (DIRECT EXPENSES): The calendar year for Base
Year (Direct Expenses) set forth on the Reference Page.
4.1.2. BASE YEAR (TAXES): The calendar year for Base Year
(Taxes) set forth on the Reference Page.
4.1.3. COMPARISON YEAR: Each calendar year falling partly or
wholly within the Term after the Base Year (Direct Expenses) or the Base Year
(Taxes), as the case may be.
4.1.4. DIRECT EXPENSES: All direct costs of operation,
maintenance, repair and management of the Building (including the amount of any
credits which Landlord may grant to particular tenants of the Building in lieu
of providing any standard services or paying any standard costs described in
this Section 4.1.2 for similar tenants), as determined in accordance with
TAF
Initials
3
<PAGE> 6
generally accepted accounting principles, including the following costs by way
of illustration, but not limitation: water and sewer charges; insurance
premiums of or relating to all insurance policies and endorsements deemed by
Landlord to be reasonably necessary or desirable and relating in any manner to
the protection, preservation, or operation of the Building or any part thereof
and if Landlord self insures or carries deductibles in excess of $2,000.00,
amounts equal to the savings in premiums effected thereby as reasonably
determined by Landlord; utility costs, including, but not limited to, the cost
of heat, light, power, steam, gas, and waste disposal; the cost of janitorial
services; the cost of security and alarm services; window cleaning costs; labor
costs; costs and expenses of managing the Building including management fees;
air conditioning costs; elevator maintenance fees and supplies; material costs;
equipment costs including the cost of maintenance, repair and service
agreements and rental and leasing costs; purchase costs of equipment other than
capital items; current rental and leasing costs of items which would be
amortizable capital items if purchased; tool costs; licenses, permits and
inspection fees; wages and salaries; employee benefits and payroll taxes;
accounting and legal fees; any sales, use or service taxes incurred in
connection therewith.
4.1.5. DIRECT EXPENSES shall not include depreciation or
amortization of the Building or equipment in the Building except as provided in
Section 4.7 of this Lease, loan principal payments, costs of alterations of
tenants' premises, leasing commissions, interest expenses on long-term
borrowings, advertising costs, management salaries and benefits for management
personnel above the grade of building manager and executive personnel (other
than personnel located at the Building).
4.1.6. TAXES: Real estate taxes and any other taxes, charges
and assessments which are levied with respect to the Building or the land
appurtenant to the Building, or with respect to any improvements, fixtures and
equipment or other property of Landlord, real or personal, located in the
Building and used in connection with the operation of the Building and said
land, and/or any tax which shall be levied in addition to or in lieu of real
estate, possessory interest or personal property taxes; and all fees, expenses
and costs incurred by Landlord in investigating, protesting, contesting or in
any way seeking to reduce or avoid increase in any assessments, levies or the
tax rate pertaining to any Taxes to be paid by Landlord in any Lease Year.
Taxes shall not include any corporate franchise, or estate, inheritance or net
income tax, or tax imposed upon any transfer by Landlord of its interest in
this Lease or the Building.
4.2. If in any Comparison Year, (i) Direct Expenses paid or incurred
shall exceed Direct Expenses paid or incurred in the Base Year (Direct
Expenses) and/or (ii) Taxes paid by Landlord in any Comparison Year shall
exceed the amount of such Taxes which became due and payable in the Base Year
(Taxes), regardless of the year for which such Taxes are assessed, Tenant shall
pay as additional rent for such Comparison Year Tenant's Proportionate Share of
such excess. The annual determination of Direct Expenses shall be made by
Landlord and if certified by a nationally recognized firm of public accountants
selected by Landlord shall be binding upon Landlord and Tenant. Tenant may
review the books and records supporting such determination in the
TAF
Initials
4
<PAGE> 7
office of Landlord, or Landlord's agent, during normal business hours, upon
giving Landlord five (5) days advance written notice within sixty (60) days
after receipt of such determination, but in no event more often than once in
any one year period. In the event that during all or any portion of any
calendar year, the Building is not fully rented and occupied Landlord may make
any appropriate adjustment in occupancy-related Direct Expenses for such year
for the purpose of avoiding distortion of the amount of such Direct Expenses to
be attributed to Tenant by reason of variation in total occupancy of the
Building, by employing sound accounting and management principles to determine
Direct Expenses that would have been paid or incurred by Landlord had the
Building been fully rented and occupied, and the amount so determined shall be
deemed to have been Direct Expenses for such Year.
4.3. Prior to the actual determination thereof for a Comparison Year,
Landlord may from time to time estimate the amount of Tenant's Proportionate
Share of Direct Expenses and/or Taxes for the Comparison Year or portion
thereof, at Landlord's option including amounts estimated to become due from
Tenant on account of Taxes pursuant to Articles 6 and/or 29 of this Lease. If
such Direct Expenses are estimated to exceed the Direct Expenses for the Base
Year (Direct Expenses), Landlord will give Tenant written notification of the
amount of such estimated excess and Tenant agrees that it will pay, by increase
of its Monthly Installments of Rent due in such Comparison Year, additional
rent in the amount of Tenant's Proportionate Share of such estimated excess. If
such Taxes are estimated to exceed the Taxes for the Base Year (Taxes),
Landlord will give Tenant written notification of the amount of such estimated
excess and Tenant agrees that it will pay, by increase of its Monthly
Installments of Rent due in such Comparison Year, additional rent at such rate
that the full estimated amount of Tenant's proportionate Share of such
estimated excess shall have been paid to Landlord when or before said payment
by Landlord is due. Any such increased rate of Monthly Installments of Rent
pursuant to this Article 4.3 shall remain in effect until further written
notification to Tenant pursuant hereto.
4.4. When the above mentioned actual determination of Direct Expenses
is made or the actual bill or bills for the Taxes to be paid by Landlord in any
Comparison Year is issued and Landlord shall determine the amount of any actual
excess over the amount of such Taxes which became due and payable in the Base
Year (Taxes), and when Tenant is so notified in writing, then:
4.4.1. If the total additional rent Tenant actually paid
pursuant to Section 4.3 of this Lease on account of Direct Expenses for the
Comparison Year is less than Tenant's Proportionate Share of the actual excess
of the Direct Expenses, then Tenant shall pay to Landlord as additional rent in
one lump sum within thirty (30) days of receipt of Landlord's bill therefor the
difference between such total additional rent actually paid by Tenant pursuant
to said Section 4.3 of this Lease on account of Direct Expenses for the
Comparison Year and the Tenant's proportionate share of such excess; and
4.4.2. If the total additional rent Tenant actually paid
pursuant to section 4.3 of this Lease on account of Taxes for the Comparison
Year is less than Tenant's Proportionate Share of the actual excess of the
Taxes, then Tenant shall pay to Landlord as additional rent in one lump sum
within thirty (30) days of receipt of Landlord's bill therefor the difference
TAF
Initials
5
<PAGE> 8
between such total additional rent actually paid by Tenant pursuant to said
Section 4.3 of this Lease on account of Taxes for the Comparison Year and the
Tenant's Proportionate Share of such excess; and
4.4.3. If the total additional rent Tenant actually paid
pursuant to Section 4.3 of this Lease on account of Direct Expenses for the
Comparison Year is more than Tenant's Proportionate Share of the actual excess
of Direct Expenses as so determined, then Landlord shall credit the difference
against the then next due payments to be made by Tenant under this Article 4;
provided, however, that in no event shall the total additional rent to be paid
by Tenant on account of Direct Expenses in any Comparison Year be less than the
total additional rent on account of Direct Expenses due from Tenant in the Base
Year (Direct Expenses). Tenant shall not be entitled to a credit by reason of
actual Direct Expenses in any Comparison Year being less than Direct Expenses
in the Base Year (Direct Expenses); and
4.4.4. If the total additional rent Tenant actually paid
pursuant to Section 4.3 of this Lease on account of Taxes for the Comparison
Year is more than Tenant's Proportionate Share of the actual excess of Taxes as
so determined, then Landlord shall credit the difference against the then next
due payments to be made by Tenant under this Article 4; provided, however, that
in no event shall the total additional rent to be paid by Tenant on account of
Taxes in any Comparison Year be less than the total additional rent on account
of Taxes due from Tenant in the Base Year (Taxes). Tenant shall not be entitled
to a credit by reason of actual Taxes in any Comparison Year being less than
Taxes in the Base Year (Taxes).
4.5. If the Commencement Date is other than January 1 and is in a
Comparison Year or if the Termination Date is other than December 31, Tenant's
Proportionate Share of Direct Expenses and Taxes for the Lease Year in which
said Date occurs shall be prorated based upon a three hundred sixty-five (365)
day year.
4.6. Even though the Term has expired and Tenant has vacated the
premises, when the final determination is made of Tenant's Proportionate Share
of Direct Expenses or Taxes for the Comparison Year in which the Lease
terminated, Tenant shall pay any increase due over the estimated Direct
Expenses or Taxes paid; and conversely any overpayment, less any amounts due
Landlord under this Lease, shall be rebated to Tenant.
4.7. In addition Landlord shall be entitled to amortize and include as
an additional rental adjustment Tenant's Proportionate Share of: (i) an
allocable portion of the cost of capital improvement items which are reasonably
calculated to reduce operating expenses; (ii) the cost of fire sprinklers and
suppression systems and other life safety systems; and (iii) the cost of other
capital expenses which are required under any governmental laws, regulations or
ordinances which were not applicable to the Building at the time it was
constructed. All such costs shall be amortized over the reasonable life of such
improvements in accordance with such reasonable life and amortization schedules
as shall be determined by Landlord in accordance with generally accepted
accounting principles, with interest on the unamortized amount at one percent
(1%) in excess of the prime lending rate announced as such by The Northern
Trust Company as of February 1st of each year. Landlord represents that Mark
Smith, current property manager, has not received any
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written notice of any capital improvements required by governmental laws,
regulations or ordinances which were not applicable to the Building at the time
it was constructed.
5. SECURITY DEPOSIT. [INTENTIONALLY OMITTED]
6. ALTERATIONS.
6.1. Except for those, if any, specifically provided for in Exhibit B
to this Lease, Tenant shall not make or suffer to be made any alterations,
additions, or improvements, including, but not limited to, the attachment of
any fixtures or equipment in, on, or to the premises or any part thereof or the
making of any improvements as required by Article 7 of this Lease, without the
prior written consent of Landlord, which consent will not be unreasonably
withheld. When applying for such consent, Tenant shall, if requested by
Landlord, furnish complete plans and specifications for such alterations,
additions and improvements.
6.2. In the event Landlord consents to the making of any such
alteration, addition or improvement by Tenant, the same shall be made using
Landlord's contractor (unless Landlord agrees otherwise) at Tenant's sole cost
and expense. If Tenant shall employ any Contractor other than Landlord's
Contractor and such other Contractor or any Subcontractor of such other
Contractor shall employ any non-union labor or supplier, Tenant shall be
responsible for and hold Landlord harmless from any and all delays, damages and
extra costs suffered by Landlord as a result of any dispute with any labor
unions concerning the wage, hours, terms or conditions of the employment of any
such labor. In any event Landlord may charge Tenant a reasonable charge to
cover its overhead as it relates to such proposed work.
6.3. All alterations, additions or improvements proposed by Tenant
shall be constructed in accordance with all government laws, ordinances, rules
and regulations and Tenant shall, prior to construction, provide the additional
insurance required under Article 12 of this Lease in such case, and also all
such assurances to Landlord, including but not limited to, waivers of lien,
surety company performance bonds and personal guaranties of individuals of
substance as Landlord shall require to assure payment of the costs thereof and
to protect Landlord and the Building and appurtenant land against any loss from
any mechanic's, materialmen's or other liens.
6.4. All alterations, additions, and improvements in, on, or to the
Premises made or installed by Tenant, including carpeting, shall be and remain
the property of Tenant during the Term but excepting furniture, furnishings,
movable partitions of less than full height from floor to ceiling and other
trade fixtures, shall become a part of the realty and belong to Landlord
without compensation to Tenant upon the expiration or sooner termination of the
Term, at which time title shall pass to Landlord under this Lease as by a bill
of sale, unless Landlord elects otherwise. Upon such election by Landlord,
Tenant shall upon demand by Landlord, at Tenant's sole cost and expense,
forthwith and with all due diligence remove any such alterations, additions or
improvements which are designated by Landlord to be removed, and Tenant shall
forthwith and with all due diligence, at its sole cost and expense, repair and
restore the Premises to their original condition, reasonable wear and tear and
damage by fire or other casualty excepted.
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6.5. Tenant shall pay in addition to any sums due pursuant to Article 4
of this Lease, any increase in real estate taxes attributable to any such
alteration, addition or improvement for so long, during the Term, as such
increase is ascertainable; at Landlord's election said sums shall be paid in
the same way as sums due under said Article 4.
7. REPAIR.
7.1. Landlord shall have no obligation to alter, remodel, improve,
repair, decorate or paint the Premises, except as specified in Exhibit B if
attached to this Lease and except that Landlord shall repair and maintain the
structural portions of the Building, including the basic mechanical, plumbing,
air conditioning, heating and electrical systems installed or furnished by
Landlord. By taking possession of the Premises, Tenant accepts them as being in
good order, condition and repair and in the condition in which Landlord is
obligated to deliver them. It is hereby understood and agreed that no
representations respecting the condition of the Premises or the Building have
been made by Landlord to Tenant, except as specifically set forth in this
Lease.
7.2. Tenant shall, at all times during the Term, keep the Premises in
good condition and repair excepting damage by fire, or other casualty, and in
compliance with all applicable governmental laws, ordinances and regulations
pertaining to Tenant's use of the Premises, promptly complying with all
governmental orders and directives for the correction, prevention and abatement
of any violations or nuisances in or upon, or connected with, Tenant's use of
the Premises, all at Tenant's sole expense.
7.3. Landlord shall not be liable for any failure to make any repairs
or to perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant.
7.4. Except as provided in Article 23 of this Lease, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the
premises or to fixtures, appurtenances and equipment in the Building. Except to
the extent, if any, prohibited by law, Tenant waives the right to make repairs
at Landlord's expense under any law, statute or ordinance now or hereafter in
effect. In any case, Tenant shall give Landlord at least thirty (30) days
notice describing in reasonable detail any repair which Tenant proposes to make
at Landlord's expense and Tenant shall not make any such repair unless Landlord
fails to commence such repair within said time or fails to continue with such
repair with reasonable diligence. In the case of emergency repairs (i.e.,
repairs necessary to prevent imminent damage or injury to human health or
safety), Landlord shall have a commercially reasonable time under the
circumstances to respond to Tenant's notice prior to the time that Tenant may
undertake such emergency repairs.
8. LIENS. Tenant shall keep the Premises, the Building and appurtenant land
and Tenant's leasehold interest in the Premises free from any liens arising out
of any services, work or
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materials performed, furnished, or contracted for by Tenant, or obligations
incurred by Tenant, including (without limitation) liens arising under the
Illinois Mechanics' Lien Act or Commercial Real Estate Broker Lien Act. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, either cause the same to be released of record or provide
Landlord with insurance against the same issued by a major title insurance
company or such other protection against the same as Landlord shall accept,
Landlord shall have the right to cause the same to be released by such means as
it shall deem proper, including payment of the claim giving rise to such lien.
All such sums paid by Landlord and all expenses incurred by it in connection
therewith shall be considered additional rent and shall be payable to it by
Tenant on demand with interest at the rate of three percent (3%) per annum in
excess of the prime lending rate announced as such by The Northern Trust
Company, or the highest rate permitted by law, whichever is lower.
9. ENVIRONMENTAL MATTERS. Tenant shall not, and shall not direct, suffer or
permit any of its agents, contractors, employees, licensees or invitees to at
any time handle, use, manufacture, store or dispose of in or about the Premises
or the Building any (collectively "Hazardous Materials") flammables,
explosives, radioactive materials, hazardous wastes or materials, toxic wastes
or materials, or other similar substances, petroleum products or derivatives or
any substance subject to regulation by or under any federal, state and local
laws and ordinances relating to the protection of the environment or the
keeping, use or disposition of environmentally hazardous materials, substances,
or wastes, presently in effect or hereafter adopted, all amendments to any of
them, and all rules and regulations issued pursuant to any of such laws or
ordinances (collectively "Environmental Laws"), not shall Tenant suffer or
permit any Hazardous Materials to be used in any manner not fully in compliance
with all Environmental Laws, in the Premises or the Building and appurtenant
land or the environment to become contaminated with any Hazardous Materials.
Notwithstanding the foregoing, and subject to Landlord's prior consent, Tenant
may handle, store, use or dispose of products containing small quantities of
Hazardous Materials (such as aerosol cans containing insecticides, toner for
copiers, paints, paint remover and the like) to the extent customary and
necessary for the use of the Premises for general office purposes; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building and appurtenant land or the environment.
Tenant shall hold each and all of the "Landlord Entities" harmless from and
defend them against any and all loss, claims, liability or costs (including
court costs and attorney's fees) incurred by reason of any actual or asserted
failure of Tenant to fully comply with all applicable Environmental Laws, or
the presence, handling, use or disposition in or from the Premises of any
Hazardous Materials (even though permissible under all applicable Environmental
Laws or the provisions of this Lease), or by reason of any actual or asserted
failure of Tenant to keep, observe, or perform any provision of this Article 9.
10. ASSIGNMENT AND SUBLETTING.
10.1. Tenant shall not have the right to assign or pledge this Lease or
to sublet the whole or any part of the Premises whether voluntarily, or by
operation of law, or permit the use or
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occupancy of the Premises by anyone other than Tenant, and shall not make,
suffer or permit such assignment, subleasing or occupancy without the prior
written consent of Landlord, which consent shall not be unreasonably withheld
for subleasing, and said restrictions shall be binding upon any and all
assignees of the Lease and subtenants of the Premises. In the event Tenant
desires to sublet, or permit such occupancy of, the Premises, or any portion
thereof, or assign this Lease, Tenant shall give written notice thereof to
Landlord at least sixty (60) days but no more than one hundred eighty (180)
days prior to the proposed commencement date of such subletting or assignment,
which notice shall set forth the name of the proposed subtenant or assignee,
the relevant terms of any sublease and copies of financial reports and other
relevant financial reports and other relevant financial information of the
proposed subtenant or assignee.
10.2. Notwithstanding any assignment or subletting, permitted or
otherwise, Tenant shall at all times remain directly, primarily and fully
responsible and liable for the payment of the rent specified in this Lease and
for compliance with all of its other obligations under the terms, provisions
and covenants of this Lease. Upon the occurrence of an "Event of Default" (as
defined in this Lease), if the Premises or any part of them are then assigned
or sublet, Landlord, in addition to any other remedies provided in this Lease
or provided by law, may, at its option, collect directly from such assignee or
subtenant all rents due and becoming due to Tenant under such assignment or
sublease and apply such rent against any sums due to Landlord from Tenant under
this Lease, and no such collection shall be construed to constitute a novation
or release of Tenant from the further performance of Tenant's obligations under
this Lease.
10.3. In addition to Landlord's right to approve of any subtenant or
assignee, Landlord shall have the option, in its sole discretion, in the event
of any proposed subletting or assignment, to terminate this Lease, or in the
case of a proposed subletting of less than the entire Premises, to recapture
the portion of the Premises to be sublet, as of the date the subletting or
assignment is to be effective. Notwithstanding the foregoing, Landlord shall
not exercise such rights of termination or recapture in the case of any one or
more subleases (i) that are for terms that expire no later than six (6) months
prior to the Termination Date; and (ii) that are for less than fifty percent
(50%), in the aggregate, of the area of the Premises. The option shall be
exercised, if at all, by Landlord giving Tenant written notice given by
Landlord to Tenant within sixty (60) days following Landlord's receipt of
Tenant's written notice as required above. If this Lease shall be terminated
with respect to the entire Premises pursuant to this Section, the Term of this
Lease shall end on the date stated in Tenant's notice as the effective date of
the sublease or assignment as if that date had been originally fixed in this
Lease for the expiration of the Term. If Landlord recaptures under this Section
only a portion of the Premises, the rent to be paid from time to time during
the unexpired Term shall abate proportionately based on the proportion by which
the approximate square footage of the remaining portion of the Premises shall
be less than that of the Premises as of the date immediately prior to such
recapture. Tenant shall, at Tenant's own cost and expense, discharge in full
any outstanding commission obligation on the part of Landlord with respect to
this Lease, and any commissions which may be due and owing as a result of any
proposed assignment or subletting, whether or not the Premises are recaptured
pursuant to this
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Section 10.3 and rented by Landlord to the proposed tenant or any other tenant.
10.4. All lease renewal option rights or space option rights, special
privileges and extra services granted to Tenant by this Lease, or addendum or
amendment to this Lease or letter of agreement shall be personal to the
original Tenant named in this Lease and shall endure only so long as said
Tenant continues to be the Tenant under this Lease and remains in possession of
the Premises. Consent by Landlord to any assignment or subletting shall not
include Consent to the assignment or transferring of any of said options, right,
privileges or services and all of them shall terminate entirely upon such
assignment or as to the space subleased in the case of a sublease. Unless
expressly agreed in writing by Landlord to the contrary, every sublease of any
of the Premises and the rights of the sublessee under the sublease shall be
subordinate to this Lease and the rights of Landlord under this Lease and shall
not survive termination of this Lease or of Tenant's rights to possession under
this Lease, and each sublease shall so provide.
10.5. In the event that Tenant sells, sublets, assigns or transfers this
Lease, Tenant shall pay to Landlord as additional rent an amount equal to fifty
percent (50%) of any Increased Rent (as defined below) when and as such
Increased Rent is received by Tenant. As used in this Section, "Increased Rent"
shall mean the excess of (i) all rent and other consideration which Tenant is
entitled to receive by reason of any sale, sublease, assignment or other
transfer of this Lease, over (ii) the rent otherwise payable by Tenant under
this Lease at such time. For purposes of the foregoing, any consideration
received by Tenant in form other than cash shall be valued at its fair market
value as determined by Landlord in good faith.
10.6. Notwithstanding any other provision hereof, Tenant shall have no
right to make (and Landlord shall have the absolute right to refuse consent to)
any assignment of this Lease or sublease of any portion of the Premises if at
the time of either Tenant's notice of the proposed assignment or sublease or
the proposed commencement date thereof, there shall exist any uncured default
of Tenant or matter which will become a default of Tenant with passage of time
unless cured; or if the proposed assignee or sublessee is an entity: (a) with
which Landlord is already in negotiation as evidenced by the issuance of a
written proposal; (b) is already an occupant of the Building unless Landlord is
unable to provide the amount of space required by such occupant; (c) is a
governmental agency; (d) is incompatible with the character of occupancy of the
Building; or (e) would subject the Premises to a use which would: (i) involve
increased personnel or wear upon the Building; (ii) violate any exclusive right
granted to another tenant of the Building; or, (iii) require any addition to or
modification of the Premises or the Building in order to comply with building
code or other governmental requirements. Tenant expressly agrees that Landlord
shall have the absolute right to refuse consent to any such assignment or
sublease and that for the purposes of any statutory or other requirement of
reasonableness on the part of Landlord such refusal shall be reasonable.
10.7. Tenant will pay to Landlord on demand a sum equal to all of
Landlord's reasonable costs, including attorney's fees, incurred in
investigating and considering any proposed or purported assignment or pledge of
this Lease or sublease of any
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of the Premises, regardless of whether Landlord shall consent to, refuse
consent, or determine that Landlord's consent is not required for, such
assignment, pledge or sublease. Any purported sale, assignment, mortgage,
transfer of this Lease or subletting which does not comply with the provisions
of this Article 10 shall be void.
10.8. If Tenant is a corporation, partnership or trust, any transfer or
transfers of or change or changes within any twelve month period in the number
of the outstanding voting shares of the Corporation, the general partnership
interests in the partnership or the identity of the persons or entities
controlling the activities of such partnership or trust resulting in the
persons or entities owning or controlling a majority of such shares,
partnership interests or activities of such partnership or trust at the
beginning of such period no longer having such ownership or control shall be
regarded as equivalent to an assignment of this Lease to the persons or
entities acquiring such ownership or control and shall be subject to all the
provisions of this Article 10 to the same extent and for all intents and
purposes as though such an assignment. Notwithstanding the foregoing, if Tenant
is a publicly traded company, the foregoing shall not apply. In any event, the
merger or consolidation of Tenant with another entity shall require the written
consent of Landlord (which consent shall not be unreasonably withheld or
delayed), unless (a) Tenant is the surviving entity, and (b) the successor
entity assumes all obligations of Tenant under this Lease, and has a net worth
equal to or greater than Tenant's net worth immediately prior to such merger or
consolidation.
11. INDEMNIFICATION. None of the Landlord Entities shall be liable and
Tenant hereby waives all claims against them for any damage to any property or
any injury to any person in or about the Premises or the Building by or from
any cause whatsoever (including without limiting the foregoing, rain or water
leakage of any character from the roof, windows, walls, basement, pipes,
plumbing works or appliances, the Building not being in good condition or
repair, gas, fire, oil, electricity or theft), except to the extent caused by
or arising from any actual or asserted negligent or willful act or willful
omission of Landlord or its agents, employees or contractors. Tenant shall
protect, indemnify and hold the Landlord Entities harmless from and against any
and all loss, claims, liability or costs (including court costs and attorney's
fees) incurred by reason of (a) any damage to any property (including but not
limited to property of any Landlord Entity) or any injury (including but not
limited to death) to any person occurring in, on or about the Premises or the
Building to the extent that such injury or damage shall be caused by or arise
from any actual or alleged act, neglect, fault, or omission by or of Tenant,
its agents, servants, employees, invitees, or visitors to meet any standards
imposed by any duty with respect to the injury or damage; (b) the conduct or
management of any work or thing whatsoever done by the Tenant in or about the
Premises or from transactions of the Tenant concerning the Premises; (c)
Tenant's failure to comply with any and all governmental laws, ordinances and
regulations applicable to Tenant's use of the Premises or its occupancy; or (d)
any breach or default on the part of Tenant in the performance of any covenant
or agreement on the part of the Tenant to be performed pursuant to this Lease.
The provisions of this Article shall survive the termination of this Lease with
respect to any claims or liability occurring prior to such termination.
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12. INSURANCE.
12.1. Tenant shall keep in force throughout the Term a commercial
general liability insurance policy or policies to protect the Landlord Entities
against any liability to the public or to any invitee of Tenant or a Landlord
Entity incidental to the use of or resulting from any accident occurring in or
upon the Premises with a comprehensive single limit of not less than
$2,000,000.00 per occurrence and not less than $5,000,000.00 in the aggregate
or such larger amount as Landlord may prudently require from time to time, and
insurance protecting against liability under Worker's Compensation Laws with
limits at least as required by statute. Tenant shall also keep in force
throughout the Term All Risk or Special Form coverage protecting Tenant against
loss of or damage to Tenant's alterations, additions, improvements, carpeting,
floor coverings, panelings, decorations, fixtures and other business personal
property situated in or about the Premises to the full replacement value of the
property so insured, and Business Interruption Insurance with limit of
liability representing loss of at least approximately six months of income.
12.2. Each of the aforesaid policies shall (a) be provided at Tenant's
expense; (b) name the Landlord Entities as additional insureds; (c) be issued
by an insurance company with a minimum Best's rating of "A:VII" during the
Term; and (d) provide that said insurance shall not be canceled unless thirty
(30) days prior written notice shall have been given to Landlord; and said
policy or policies or certificates thereof shall be delivered to Landlord by
Tenant upon the Commencement Date and at least thirty (30) days prior to each
renewal of said insurance.
12.3. Whenever Tenant shall undertake any alterations, additions or
improvements in, to or about the Premises ("Work") the aforesaid insurance
protection must extend to and include injuries to persons and damage to
property arising in connection with such Work, without limitation including
statutory limits required by applicable Worker's Compensation Laws and $500,000
per occurrence for Employer's Liability, and such other insurance as Landlord
shall require; and the policies of or certificates evidencing such insurance
must be delivered to Landlord prior to the commencement of any such Work.
13. WAIVER OF SUBROGATION. So long as their respective insurers so permit,
Tenant and Landlord hereby mutually waive their respective rights of recovery
against each other for any loss insured by fire, extended coverage, All Risks
or other insurance now or hereafter existing for the benefit of the respective
party but only to the extent of the net insurance proceeds payable under such
policies. Each party shall obtain any special endorsements required by their
insurer to evidence compliance with the aforementioned waiver.
14. SERVICES AND UTILITIES.
14.1. Provided Tenant shall not be in default under this Lease, and
subject to the other provisions of this Lease, Landlord agrees to furnish to
the Premises between the hours of 8:00 a.m. and 6:00 p.m. on generally
recognized business days and between 8:00 a.m. and 1:00 p.m. on Saturdays (but
exclusive in any event of Sundays and legal holidays), the following services
and utilities subject to the rules and regulations of the Building prescribed
from time to time, all of which shall be
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comparable in quality and quantity to that provided in first-class office
buildings in the general area of the Building: (a) water suitable for normal
office use of the Premises; (b) heat and air conditioning required in
Landlord's judgment for the use and occupation of the Premises; (c) janitorial
service; (d) elevator service by nonattended automatic elevators; (e) such
window washing as may from time to time in Landlord's judgment be reasonably
required; and, (f) equipment to bring to Tenant's meter, electricity for
lighting, convenience outlets and other normal office use. To the extent that
Tenant is not billed directly by a public utility, Tenant shall pay, upon
demand, as additional rent, for all electricity used by Tenant in the Premises.
The charge shall be at the rates charged for such services by the local public
utility. Tenant shall pay for all electric light bulbs, tubes and ballasts.
Tenant agrees at all times to cooperate fully with Landlord and to abide by all
the regulations and requirements which Landlord may prescribe for the proper
functioning and protection of said systems. Landlord shall not be liable for,
and Tenant shall not be entitled to, any abatement or reduction of rental by
reason of Landlord's failure to furnish any of the foregoing, unless such
failure shall persist for an unreasonable time after written notice of such
failure is given to Landlord by Tenant and provided further that Landlord shall
not be liable to Tenant when such failure is caused by accident, breakage,
repairs, labor disputes of any character, energy usage restrictions or by any
other cause, similar or dissimilar, beyond the reasonable control of Landlord.
Landlord shall use reasonable efforts to remedy any interruption in the
furnishing of services and utilities; provided, however, if as a result of
interruption in utilities to the Building for greater than 150 days Tenant is
unable to occupy and operate the Premises, Tenant may terminate this Lease at
any time prior to the restoration of such service upon written notice to
Landlord. Notwithstanding the above, Landlord shall be entitled, without
compensation to Tenant or any abatement of rent, to cooperate voluntarily in a
reasonable manner with the efforts of national, state or local governmental
bodies or suppliers of utilities in reducing consumption of energy or other
resources.
14.2. Should Tenant require any additional work or service, as described
above, including services furnished outside ordinary business hours specified
above, Landlord may, on terms to be agreed, upon reasonable advance notice by
Tenant, furnish such additional service and Tenant agrees to pay Landlord such
charges as may be agreed upon, including any tax imposed thereon, but in no
event at a charge less than Landlord's actual cost plus overhead for such
additional service and, where appropriate, a reasonable allowance for
depreciation of any systems being used to provide such service.
14.3. Wherever heat-generating machines or equipment are used by Tenant
in the Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in or for the benefit of the Premises and the cost thereof,
including the cost of installation and the cost of operations and maintenance,
shall be paid by Tenant to Landlord upon demand as such additional rent.
14.4. Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises, including but not limited to, electronic
data processing machines and machines using current in excess of 200 watts or
110 volts, which
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will in any way increase the amount of electricity or water usually furnished
or supplied for use of the Premises for normal office use, nor connect with
electric current, except through existing electrical outlets in the Premises,
or water pipes, any apparatus or device for the purposes of using electrical
current or water. It Tenant shall require water or electric current in excess
of that usually furnished or supplied for use of the Premises as normal office
use, Tenant shall procure the prior written consent of Landlord for the use
thereof, which Landlord may refuse, and if Landlord does consent, Landlord may
cause a water meter or electric current meter to be installed so as to measure
the amount of such excess water and electric current. The cost of any such
meters shall be paid for by Tenant. Tenant agrees to pay as additional rent to
Landlord promptly upon demand therefor, the cost of all such excess water and
electric current consumed (as shown by said meters, if any, or, if none, as
reasonably estimated by Landlord) at the rates charged for such services by the
local public utility or agency, as the case may be, furnishing the same, plus
any additional expense incurred in keeping account of the water and electric
current so consumed.
14.5. As provided in this Lease, Tenant shall be entitled to the use of
wiring ("Communications Wiring") from the vault of Illinois Bell Telephone
Company or its successor ("IBT") at or near the entrance to the Building to
Tenant's telephone panel at or near the entrance to the Premises, sufficient
for normal general office use of the Premises. Tenant shall not install any
additional Communications Wiring without the prior written consent of Landlord,
which Landlord may refuse; nor shall Tenant remove any Communications Wiring
without such consent. Tenant shall be responsible for, and indemnify and hold
Landlord harmless from and against, all injuries and damages to persons or
property and all expenses, claims and liabilities resulting from the
installation, use, maintenance, repair or replacement of Communications Wiring
("Wiring Work") by Tenant or anyone employed by Tenant. If and so long as an
arrangement ("Provider Arrangement") shall be in effect between Landlord and
IBT or other qualified concern to provide any Wiring Work on an exclusive basis
Tenant shall obtain such Wiring Work as Tenant shall require from such provider
through or as directed by Landlord and shall pay all the costs thereof billed
directly to Tenant by such provider. If and so long as no Provider Arrangement
shall be in effect, Tenant shall arrange for, through Landlord if required by
Landlord, and pay directly for, all such Wiring Work as Tenant shall require
from such provider as Tenant shall select subject to the prior authorization of
Landlord, which Landlord may refuse for any reason, including (without
limitation) that Landlord is not satisfied as to the expertise or reliability
of the provider or the liability insurance protection to be given.
14.6. In addition to the parking spaces provided to Tenant on a
non-exclusive basis in the seven-story parking deck adjacent to the Building,
Tenant shall be entitled to eight (8) reserved parking spaces in said parking
deck at a location to be determined by Landlord. Tenant shall not be charged
additional rent for these parking spaces.
15. HOLDING OVER. Tenant shall pay Landlord for each day Tenant retains
possession of the Premises or part of them after termination of this Lease by
lapse of time or otherwise at the rate ("Holdover Rate") which shall be 150% of
the greater of: (a) the amount of the Annual Rent for the last period prior to
the date
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of such termination plus all Rent Adjustments under Article 4; and, (b) the
then market rental value of the Premises as determined by Landlord assuming a
new lease of the Premises of the then usual duration and other terms, in either
case prorated on a daily basis, and also pay all damages sustained by Landlord
by reason of such retention, and shall indemnify and hold Landlord harmless
from any loss or liability resulting from such holding over and/or failure to
surrender the Premises when and in the condition required by Sections 6.4. and
27.2. of this Lease. If Landlord gives notice to Tenant of Landlord's election
to that effect, such holding over shall constitute renewal of this Lease for a
period from month to month or one year, whichever shall be specified in such
notice, in either case at the Holdover Rate, but if the Landlord does not so
elect, no such renewal shall result notwithstanding acceptance by Landlord of
rent after such termination; and instead, a tenancy at sufferance at the
Holdover Rate shall be deemed to have been created. In any event, no provision
of this Article 15 shall be deemed to waive Landlord's right of reentry or any
other right under this Lease or at law.
16. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, this Lease
shall be subject and subordinate at all times to ground or underlying leases
and to the lien of any mortgages or deeds of trust now or hereafter placed on,
against or affecting the Building, Landlord's interest or estate in the
Building, or any ground or underlying lease; provided, however, that if the
lessor, mortgagee, trustee, or holder of any such mortgage or deed of trust
elects to have Tenant's interest in this Lease be superior to any such
instrument, then, by notice to Tenant, this Lease shall be deemed superior,
whether this Lease was executed before or after said instrument.
Notwithstanding the foregoing, Tenant covenants and agrees to execute and
deliver upon demand such further instruments evidencing such subordination or
superiority of this Lease as may be required by Landlord. Landlord shall use
reasonable efforts to provide Tenant with a non-disturbance agreement in form
and content reasonably acceptable to Tenant in the event this Lease is
subordinated to any mortgage hereafter placed on the Building.
17. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
all the rules and regulations as set forth in Exhibit C to this Lease and all
reasonable modifications of and additions to them from time to time put into
effect by Landlord. Landlord shall not be responsible to Tenant for the
non-performance by any other tenant or occupant of the Building of any such
rules and regulations.
18. REENTRY BY LANDLORD; PERFORMANCE OF TENANT'S OBLIGATIONS.
18.1. Landlord reserves and shall at all times have the right to
re-enter the Premises to inspect the same, to supply janitor service and any
other service to be provided by Landlord to Tenant under this Lease, and, upon
not less than 24 hours advance notice, to show said premises to prospective
purchasers, mortgagees or tenants, and at all times without notice to alter,
improve or repair the Premises and any portion of the Building including,
without limitation, the improvements and other items described in Section 4.7
and Article 7 of this Lease, without abatement of rent, and may for that
purpose erect, use and maintain scaffolding, pipes, conduits and other
necessary structures and open any wall, ceiling or floor in and through the
Building and premises where reasonably required by the character
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of the work to be performed, provided entrance to the Premises shall not be
blocked thereby, and further provided that the business of Tenant shall not be
interfered with unreasonably, Landlord hereby agreeing to use commercially
reasonable efforts to minimize any such interference with Tenant's business and
inconvenience to Tenant, its employees and visitors.
18.2. Landlord may, at Landlord's option, enter into and upon the
Premises with, or if Tenant shall have vacated the Premises without, five (5)
days notice, if Landlord determines in its sole discretion that Tenant is not
acting within a commercially reasonable time to maintain, repair or replace
anything for which Tenant is responsible under this Lease and correct the same,
without being deemed in any manner guilty of trespass, eviction or forcible
entry and detainer and without incurring any liability for any damage or
interruption of Tenant's business resulting therefrom. If Tenant shall have
vacated the Premises, Landlord may at Landlord's option re-enter the Premises
at any time during the last six months of the then current Term of this Lease
and make any and all such changes, alterations, revisions, additions and tenant
and other improvements in or about the Premises as Landlord shall elect, all
without any abatement of any of the rent otherwise to be paid by Tenant under
this Lease.
18.3. Landlord shall have the right at any time to change the
arrangement and/or locations of entrances, or passageways, doors and doorways,
and corridors, elevators, stairs, toilets or other public parts of the Building
(provided no such changes interfere with or diminish Tenant's access to the
Premises or the toilet or elevator facilities serving the Premises) and to
change the name, number or designation by which the Building is commonly known.
In the event that Landlord damages any portion of any wall or wall covering,
ceiling, or floor or floor covering within the Premises, Landlord shall repair
or replace the damaged portion to match the original as nearly as commercially
reasonable but shall not be required to repair or replace more than the portion
actually damaged.
18.4. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned by any action
of Landlord authorized by this Article 18. Tenant agrees to reimburse Landlord,
on demand, as additional rent, for any expenses which Landlord may incur in
thus effecting compliance with Tenant's obligations under this Lease.
18.5. For each of the aforesaid purposes, Landlord shall at all times
have and retain a key with which to unlock all of the doors in the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency to obtain entry to
any portion of the Premises. As to any portion to which access can not be had
by means of a key or keys in Landlord's possession, Landlord is authorized to
gain access by such means as Landlord shall elect and the cost of repairing any
damage occurring in doing so shall be borne by Tenant and paid to Landlord as
additional rent upon demand. Landlord acknowledges and agrees that certain
areas of the Premises designated by Tenant shall be computer rooms and computer
servers and, although Tenant shall provide Landlord with a key to such areas,
Landlord shall not be providing any janitorial services to such areas and,
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therefore, shall not enter such areas unless otherwise authorized to do so
under this Lease. In any event, Landlord shall use reasonable efforts to notify
Tenant prior to entering such areas.
19. DEFAULT.
19.1. Except as otherwise provided in Article 21 of this Lease, the
following events shall be deemed to be Events of Default under this Lease:
19.1.1. Tenant shall fail to pay when due any sum of money
becoming due to be paid to Landlord under this Lease, whether such sum be any
installment of the Rent reserved by this Lease, any other amount treated as
additional rent under this Lease, or any other payment or reimbursement to
Landlord required by this Lease, whether or not treated as additional rent
under this Lease, and such failure shall continue for a period of five days
after written notice that such payment was not made when due, but if any such
notice shall be given, for the twelve month period commencing with the date of
such notice, the failure to pay within five days after due any additional sum
of money becoming due to be paid to Landlord under this Lease during such
period shall be an Event of Default, without notice.
19.1.2. Tenant shall fail to comply with any term, provision
or covenant of this Lease which is not provided for in another Section of this
Article and shall not cure such failure within twenty (20) days (forthwith, if
the failure involves a hazardous condition) after written notice of such
failure to Tenant, provided, however, that if such failure requires additional
time to complete a cure thereof and such failure does not result in an
emergency situation or a hazardous condition at the Premises, at Landlord's
option Tenant may have an additional ten (10) days to complete a cure of such
failure so long as Tenant is diligently pursuing such cure to its completion.
19.1.3. Tenant shall abandon or vacate any substantial portion
of the Premises.
19.1.4. Tenant shall fail to vacate the Premises immediately
upon termination of this Lease, by lapse of time or otherwise, or upon
termination of Tenant's right to possession only.
19.1.5. The leasehold interest of Tenant shall be levied upon
under execution or be attached by process of law or Tenant shall fail to
contest diligently the validity of any lien or claimed lien and give sufficient
security to Landlord to insure payment thereof or shall fail to satisfy any
judgment rendered on such claim or lien and have the same released, and such
default shall continue for ten (10) days after written notice thereof to
Tenant.
19.1.6. Tenant shall become insolvent, admit in writing its
inability to pay its debts generally as they become due, file a petition in
bankruptcy or a petition to take advantage of any insolvency statute, make an
assignment for the benefit of creditors, make a transfer in fraud of creditors,
apply for or consent to the appointment of a receiver of itself or of the whole
or any substantial part of its property, or file a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws, as now in
effect or hereafter
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amended, or any other applicable law or statute of the United States or any
state thereof.
19.1.7. A court of competent jurisdiction shall enter an order,
judgment or decree adjudicating Tenant bankrupt, or appointing a receiver of
Tenant, or of the whole or any substantial part of its property, without the
consent of Tenant, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the bankruptcy laws of the United
States, as now in effect or hereafter amended, or any state thereof, and such
order, judgment or decree shall not be vacated or set aside or stayed within
sixty (60) days from the date of entry thereof.
20. REMEDIES.
20.1. Except as otherwise provided in Article 21 of this Lease, upon
the occurrence of any of the Events of Default described or referred to in
Article 19 of this Lease, Landlord shall have the option to pursue any one or
more of the following remedies without any notice or demand whatsoever,
concurrently or consecutively and not alternatively:
20.1.1. Landlord may, at its election, terminate this Lease
or terminate Tenant's right to possession only, without terminating the Lease.
20.1.2. Upon any termination of this Lease, whether by lapse
of time or otherwise, or upon any termination of Tenant's right to possession
without termination of the Lease, Tenant shall surrender possession and vacate
the Premises immediately, and deliver possession thereof to Landlord, and
Tenant hereby grants to Landlord full and free license to enter into and upon
the Premises in such event with or without process of law and to repossess
Landlord of the Premises as of Landlord's former estate and to expel or remove
Tenant and any others who may be occupying or be within the Premises and to
remove Tenant's signs and other evidence of tenancy and all other property of
Tenant therefrom without being deemed in any manner guilty of trespass,
eviction or forcible entry or detainer, and without incurring any liability for
any damage resulting therefrom, Tenant waiving any right to claim damages for
such re-entry and expulsion, and without relinquishing Landlord's right to rent
or any other right given to Landlord under this Lease or by operation of law.
20.1.3. Upon any termination of this Lease, whether by lapse
of time or otherwise, Landlord shall be entitled to recover as damages, all
past due rent, including any amounts treated as additional rent under this
Lease, and other sums due and payable by Tenant on the date of termination,
plus as liquidated damages and not as a penalty, an amount equal to either, as
Landlord shall elect: (i) the total amount of Annual Rent and additional rent
which was due to be paid under this Lease for the then most recent Lease Year
or such shorter time as equals the then otherwise unexpired term of this Lease;
or (ii) the sum of: (a) an amount equal to the then present value of the rent
reserved in this Lease for the residue of the stated Term of this Lease
including any amounts treated as additional rent under this Lease and all other
sums provided in this Lease to be paid by Tenant, minus the fair rental value
of the Premises for such residue (which the parties agree shall not exceed
eighty percent (80%) of the then present value of the rent reserved for such
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residue); (b) the value of the time and expense necessary to obtain a
replacement tenant or tenants, and the estimated expenses described in Section
20.1.4 of this Lease relating to recovery of the Premises, preparation for
reletting and for reletting itself; and (c) the cost of performing any other
covenants which would have otherwise been performed by Tenant.
20.1.4. Upon any termination of Tenant's right to possession only
without termination of the Lease:
20.1.4.1. Neither such termination of Tenant's right to
possession nor Landlord's taking and holding possession thereof as provided in
Section 20.1.2 of this Lease shall terminate the Lease or release Tenant, in
whole or in part, from any obligation, including Tenant's obligation to pay the
rent, including any amounts treated as additional rent, under this Lease for
the full Term, and if Landlord so elects Tenant shall pay forthwith to Landlord
the sum equal to the entire amount of the rent, including any amounts treated
as additional rent under this Lease, for the residue of the Term plus any other
sums provided in this Lease to be paid by Tenant for the remainder of the Term.
20.1.4.2. Landlord may, but need not, relet the Premises or any
part thereof for such rent and upon such terms as Landlord, in its sole
discretion, shall determine (including the right to relet the premises for a
greater or lesser term than that remaining under this Lease, the right to relet
the Premises as a part of a larger area, and the right to change the character
or use made of the Premises). In connection with or in preparation for any
reletting, Landlord may, but shall not be required to, make repairs,
alterations and additions in or to the Premises and redecorate the same to the
extent Landlord deems necessary or desirable, and Tenant shall, upon demand,
pay the cost thereof, together with Landlord's expenses of reletting,
including, without limitation, any broker's commission incurred by Landlord. If
Landlord decides to relet the Premises or a duty to relet is imposed upon
Landlord by law, Landlord and Tenant agree that nevertheless Landlord shall at
most be required to use only the same efforts Landlord then uses to lease
premises in the Building generally and that in any case that Landlord shall not
be required to give any preference or priority to the showing or leasing of the
Premises over any other space that Landlord may be leasing or have available
and may place a suitable prospective tenant in any such other space regardless
of when such other space becomes available. Landlord shall not be required to
observe any instruction given by Tenant about any reletting or accept any
tenant offered by Tenant unless such offered tenant has a credit-worthiness
acceptable to Landlord and leases the entire Premises upon terms and conditions
including a rate of rent (after giving effect to all expenditures by Landlord
for tenant improvements, broker's commissions and other leasing costs) all no
less favorable to Landlord than as called for in this Lease, nor shall Landlord
be required to make or permit any assignment or sublease for more than the
current term or which Landlord would not be required to permit under the
provisions of Article 10 of this Lease.
20.1.4.3. Until such time as Landlord shall elect to terminate
the Lease and shall thereupon be entitled to recover the amounts specified in
such case in Section 20.1.3 of this Lease, Tenant shall pay to Landlord upon
demand the full amount of all rent, including any amounts treated as additional
rent
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under this Lease and other sums reserved in this Lease for the remaining Term,
together with the costs of repairs, alterations, additions, redecorating and
Landlord's expenses of reletting and the collection of the rent accruing
therefrom (including attorney's fees and broker's commissions), as the same
shall then be due or become due from time to time, less only such consideration
as Landlord may have received from any reletting of the Premises; and Tenant
agrees that Landlord may file suits from time to time to recover any sums
falling due under this Article 20 as they become due. Any proceeds of
reletting by Landlord in excess of the amount then owed by Tenant to Landlord
from time to time shall be credited against Tenant's future obligations under
this Lease but shall not otherwise be refunded to Tenant or inure to Tenant's
benefit.
20.2. If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this Lease, it shall become
necessary or appropriate for Landlord to employ or consult with an attorney
concerning or to enforce or defend any of Landlord's rights or remedies arising
under this Lease, Tenant agrees to pay all Landlord's reasonable attorney's
fees so incurred. Tenant expressly waives any right to: (a) trial by jury; and
(b) service of any notice required by any present or future law or ordinance
applicable to landlords or tenants but not required by the terms of this Lease.
20.3. Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies provided in this Lease or any other
remedies provided by law (all such remedies being cumulative), nor shall
pursuit of any remedy provided in this Lease constitute a forfeiture or waiver
of any rent due to Landlord under this Lease or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants contained in this Lease.
20.4. No act or thing done by Landlord or its agents during the Term
shall be deemed a termination of this Lease or an acceptance of the surrender
of the Premises, and no agreement to terminate this Lease or accept a surrender
of said Premises shall be valid, unless in writing signed by Landlord. No
waiver by Landlord of any violation or breach of any of the terms, provisions
and covenants contained in this Lease shall be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants contained in this Lease. Landlord's acceptance of the
payment of rental or other payments after the occurrence of an Event of Default
shall not be construed as a waiver of such Default, unless Landlord so notifies
Tenant in writing. Forbearance by Landlord in enforcing one or more of the
remedies provided in this Lease upon an Event of Default shall not be deemed or
construed to constitute a waiver of such Default or of Landlord's right to
enforce any such remedies with respect to such Default or any subsequent
Default.
21. TENANT'S BANKRUPTCY OR INSOLVENCY.
21.1. If at any time and for so long as Tenant shall be subjected to
the provisions of the United States Bankruptcy Code or other law of the United
States or any state thereof for the protection of debtors as in effect at such
time (each a "Debtor's Law,"):
21.1.1. To the extent that the provisions of such Debtor's Law
shall prohibit the declaring of an event described
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in Article 19 of this Lease to be a default under this Lease, or the
enforcement of any right or remedy provided to Landlord in said Article 20,
such event shall not be a default and such right or remedy shall not be
enforced.
21.1.2. Except to the extent expressly provided by such Debtor's
Law, Tenant, Tenant as debtor-in-possession, and any trustee or receiver of
Tenant's assets (each a "Tenant's Representative") shall have no greater right
to remain in possession of all or any part of the Premises than would be
accorded to Tenant if such Debtor's Law were not applicable; if such Debtor's
Law requires or permits the imposition upon or payment by Tenant's
Representative of charges for the use or possession thereof, such charges shall
in no event be less that the Rent and Additional Rent which are or would be
payable absent of such Debtor's Law pursuant to Articles 3 and 4 of this Lease
with respect to such portion of the Premises for the period of such possession
or use thereof by Tenant's Representative.
21.1.3. Tenant's Representative shall have no greater right to assume
or assign this Lease or any interest in this Lease, or to sublease any of the
Premises than accorded to Tenant in Article 10 of this Lease, except to the
extent Landlord shall be required to permit such assumption, assignment or
sublease by the provisions of such Debtor's Law. Without limitation of the
generality of the foregoing, any right of any Tenant's Representative to assume
or assign this Lease or to sublease any of the Premises shall be subject to the
conditions that:
21.1.3.1. Such Debtor's Law shall provide to Tenant's
Representative a right of assumption of this Lease which Tenant's
Representative shall have timely exercised and Tenant's Representative shall
have fully cured any default of Tenant under this Lease.
21.1.3.2. Tenant's Representative or the proposed assignee, as
the case shall be, shall have deposited with Landlord as security for the
timely payment of Rent an amount equal to the larger of: (a) three months' Rent
and other monetary charges accruing under this Lease; and (b) any sum specified
in Article 5; and shall have provided Landlord with adequate other assurance of
the future performance of the obligations of the Tenant under this Lease.
Without limitation, such assurances shall include, at least, in the case of
assumption of this Lease, demonstration to the satisfaction of the Landlord
that Tenant's Representative has and will continue to have sufficient
unencumbered assets after the payment of all secured obligations and
administrative expenses to assure Landlord that Tenant's Representative will
have sufficient funds to fulfill the obligations of Tenant under this Lease;
and, in the case of assignment, submission of current financial statements of
the proposed assignee, audited by an independent certified public accountant
reasonably acceptable to Landlord and showing a net worth and working capital
in amounts determined by Landlord to be sufficient to assure the future
performance by such assignee of all of the Tenant's obligations under this
Lease.
21.1.3.3. The assumption or any contemplated assignment of this
Lease or subleasing any part of the Premises, as shall be the case, will not
breach any provision in any other lease, mortgage, financing agreement or other
agreement by which Landlord is bound.
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21.1.3.4. Landlord shall have, or would have had absent the
Debtor's Law, no right under Article 10 of this Lease to refuse consent to the
proposed assignment or sublease by reason of the identity or nature of the
proposed assignee or sublessee or the proposed use of the Premises concerned.
22. QUIET ENJOYMENT. Landlord represents and warrants that it has full right
and authority to enter into this Lease and that Tenant, while paying the rental
and performing its other covenants and agreements contained in this Lease,
shall peaceably and quietly have, hold and enjoy the Premises for the Term
without hindrance or molestation from Landlord subject to the terms and
provisions of this Lease. Landlord shall not be liable for any interference or
disturbance by other tenants or third persons, nor shall Tenant be released
from any of the obligations of this Lease because of such interference or
disturbance.
23. DAMAGE BY FIRE, ETC.
23.1. In the event the Premises or the Building are damaged by fire or
other cause and in Landlord's reasonable estimation such damage can be
materially restored within ninety (90) days, Landlord shall forthwith repair
the same and this Lease shall remain in full force and effect, except that if
such damage is not the result of any negligence or willful misconduct of Tenant
or its agents, employees, or invitees, then Tenant shall be entitled to a
proportionate abatement in rent from the date of such damage. Such abatement of
rent shall be made pro rata in accordance with the extent to which the damage
and the making of such repairs shall interfere with the use and occupancy by
Tenant of the Premises from time to time. Within thirty (30) days from the date
of such damage, Landlord shall notify Tenant, in writing, Landlord's reasonable
estimation of the length of time within which material restoration can be made,
and Landlord's determination shall be binding on Tenant. For purposes of this
Lease, the Building or Premises shall be deemed "materially restored" if they
are in such condition as would not prevent or materially interfere with
Tenant's use of the Premises for the purpose for which it was being used
immediately before such damage.
23.2. If such repairs cannot, in Landlord's reasonable estimation, be
made within ninety (90) days, Landlord and Tenant shall each have the option of
giving the other, at any time within sixty (60) days after such damage, notice
terminating this Lease as of the date of such damage. In the event of the
giving of such notice, this Lease shall expire and all interest of the Tenant
in the Premises shall terminate as of the date of such damage as if such date
had been originally fixed in this Lease for the expiration of the Term. In the
event that neither Landlord nor Tenant exercise the above set forth option to
terminate this Lease in the event of partial destruction, then Landlord shall
repair or restore such damage, this Lease continuing in full force and effect,
and the rent becoming due which this Lease shall be proportionately abated as
provided in Section 23.1 of this Lease. Landlord shall not be required to
repair or replace any damage or boss by or from fire or other cause to any
panelings, decorations, partitions, additions, railings, ceilings, floor
coverings, office fixtures or any other property or improvements installed on
the Premises or belonging to Tenant. Any insurance which may be carried by
Landlord or Tenant against loss or damage to the Building or Premises shall be
for the sole
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benefit of the party carrying such insurance and under its sole control.
23.3. In the event that Landlord should fail to complete such repairs
and material restoration within sixty (60) days after the date estimated by
Landlord therefor as extended by this Section 23.3, Tenant may at its option
and as its sole remedy terminate this Lease by delivering written notice to
Landlord, within fifteen (15) days after the expiration of said period of time,
whereupon the Lease shall end on the date of such notice or such later date
fixed in such notice as if the date of such notice was the date originally
fixed in this Lease for the expiration of the Term; provided, however, that if
construction is delayed because of changes, deletions or additions in
construction requested by Tenant, strikes, lockouts, casualties, Acts of God,
war, material or labor shortages, government regulation or control or other
causes beyond the reasonable control of Landlord, the period for restoration,
repair or rebuilding shall be extended for the amount of time Landlord is so
delayed. Notwithstanding anything to the contrary contained in this Article:
(a) Landlord shall not have any obligation whatsoever to repair, reconstruct,
or restore the Premises when the damages resulting from any casualty covered by
the provisions of this Article 23 occur during the last twelve (12) months of
the Term or any extension thereof, but if Landlord determines not to repair
such damages Landlord shall notify Tenant and if such damages shall render any
material portion of the Premises untenantable Tenant shall have the right to
terminate this Lease by notice to Landlord within fifteen (15) days after
receipt of Landlord's notice; and (b) in the event the holder of any
indebtedness secured by a mortgage or deed of trust covering the Premises or
Building requires that any insurance proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this Lease by delivering
written notice of termination to Tenant within fifteen (15) days after such
requirement is made by any such holder, whereupon this Lease shall end on the
date of such damage as if the date of such damage were the date originally
fixed in this Lease for the expiration of the Term.
23.4. In the event of any damage or destruction to the Building or
Premises by any peril covered by the provisions of this Article 23, it shall be
Tenant's responsibility to properly secure the Premises and upon notice from
Landlord to remove forthwith, at its sole cost and expense, such portion of all
of the property belonging to Tenant or its licensees from such portion or all
of the Building or Premises as Landlord shall request and Tenant hereby
indemnifies, protects, defends and holds Landlord harmless from any loss,
liability, costs and expenses, including attorneys' fees, arising out of any
claim of damage or injury as a result of any actual or alleged failure of
Tenant to properly secure the Premises prior to such removal and/or such
removal.
24. EMINENT DOMAIN. If all or any substantial part of the Premises shall be
taken or appropriated by any public or quasi-public authority under the power
of eminent domain, or conveyance in lieu of such conveyance, either party to
this Lease shall have the right, at its option, of giving the other, at any
time within thirty (30) days after such taking, notice terminating this Lease,
except that Tenant may only terminate this Lease by reason of taking or
appropriation as above provided, if such taking or appropriation shall be so
substantial as to materially interfere
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with Tenant's use and occupancy of the Premises. If neither party to this Lease
shall so elect to terminate this Lease, the rental thereafter to be paid shall
be adjusted on a pro rata basis. In addition to the rights of Landlord above,
if any substantial part of the Building shall be taken or appropriated by any
public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, and regardless of whether the Premises or any part
thereof are so taken or appropriated, Landlord shall have the right, at its
sole option, to terminate this Lease. Landlord shall be entitled to any and all
income, rent, award, or any interest whatsoever in or upon any such sum, which
may be paid or made in connection with any such public or quasi-public use or
purpose, and Tenant hereby assigns to Landlord any interest it may have in or
claim to all or any part of such sums, other than any separate award which may
be made with respect to Tenant's trade fixtures and moving expenses; Tenant
shall make no claim for the value of any unexpired Term.
25. SALE BY LANDLORD. In event of a sale or conveyance by Landlord of the
Building, the same shall operate to release Landlord from any future liability
upon any of the covenants or conditions, expressed or implied, contained in
this Lease in favor of Tenant, and in such event Tenant agrees to look solely
to the responsibility of the successor in interest of Landlord in and to this
Lease. Except as set forth in this Article 25, this Lease shall not be affected
by any such sale and Tenant agrees to attorn to the purchaser or assignee. If
any security has been given by Tenant to secure the faithful performance of any
of the covenants of this Lease, Landlord may transfer or deliver said security,
as such, to Landlord's successor in interest and thereupon Landlord shall be
discharged from any further liability with regard to said security.
26. ESTOPPEL CERTIFICATES. Within ten (l0) business days following any
written request which Landlord may make from time to time, Tenant shall execute
and deliver to Landlord or mortgagee or prospective mortgagee a sworn statement
certifying: (a) the date of commencement of this Lease; (b) the fact that this
Lease is unmodified and in full force and effect (or, if there have been
modifications to this Lease, that this lease is in full force and effect, as
modified, and stating the date and nature of such modifications); (c) the date
to which the rent and other sums payable under this Lease have been paid; (d)
the fact that there are no current defaults under this Lease by either Landlord
or Tenant except as specified in Tenant's statement; and (e) such other matters
as may be requested by Landlord. Landlord and Tenant intend that any statement
delivered pursuant to this Article 26 may be relied upon by any mortgagee,
beneficiary or purchaser and Tenant shall be liable for all loss, cost or
expense resulting from the failure of any sale or funding of any loan caused by
any material misstatement contained in such estoppel certificate. Tenant
irrevocably agrees that if Tenant fails to execute and deliver such certificate
within such ten (10) business day period Landlord or Landlord's beneficiary or
agent may execute and deliver such certificate on Tenant's behalf, and that
such certificate shall be fully binding on Tenant if Tenant fails to execute
and deliver a contrary certificate within five (5) days after receipt by Tenant
of a copy of the certificate so executed on behalf of Tenant.
27. SURRENDER OF PREMISES.
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27.1. Tenant shall, at least thirty (30) days before the last day of
the Term, arrange to meet Landlord for a joint inspection of the Premises. In
the event of Tenant's failure to arrange such joint inspection to be held
prior to vacating the Premises, Landlord's inspection at or after Tenant's
vacating the Premises shall be conclusively deemed correct for purposes of
determining Tenant's responsibility for repairs and restoration.
27.2 At the end of the Term or any renewal of the Term or other sooner
termination of this Lease, Tenant will peaceably deliver up to Landlord
possession of the Premises, together with all improvements or additions upon or
belonging to the same, by whomsoever made, in the same conditions received or
first installed, broom clean and free of all debris, excepting only ordinary
wear and tear and damage by fire or other casualty. Tenant may, and at
Landlord's request shall, at Tenant's sole cost, remove upon termination of
this Lease, any and all furniture, furnishings, movable partitions of less than
full height from floor to ceiling, trade fixtures and other property installed
by Tenant, title to which shall not be in or pass automatically to Landlord
upon such termination, repairing all damage caused by such removal. Property
not so removed shall unless requested to be removed be deemed abandoned by the
Tenant and title to the same shall thereupon pass to Landlord under this Lease
as by a bill of sale. All other alterations, additions and improvements in, on
or to the Premises shall be dealt with and disposed of as provided in Article 6
hereof.
27.3. All obligations of Tenant under this Lease not fully performed as
of the expiration or earlier termination of the Term shall survive the
expiration or earlier termination of the Term. Upon the expiration or earlier
termination of the Term, Tenant shall pay to Landlord the amount, as estimated
by Landlord, necessary to repair and restore the Premises as provided in this
Lease and/or to discharge Tenant's obligation for unpaid amounts due or to
become due to Landlord. All such amounts shall be used and held by Landlord for
payment of such obligations of Tenant, with Tenant being liable for any
additional costs upon demand by Landlord, or with any excess to be returned to
Tenant after all such obligations have been determined and satisfied. Any
otherwise unused Security Deposit shall be credited against the amount payable
by Tenant under this Lease.
28. NOTICES. Any notice or document required or permitted to be delivered
under this Lease shall be addressed to the intended recipient, shall be
transmitted personally, by fully prepaid registered or certified United States
Mail return receipt requested, or by reputable independent contract delivery
service furnishing a written record of attempted or actual delivery,
and shall be deemed to be delivered when tendered for delivery to the addressee
at its address set forth opposite its signature on the Reference Page, or at
such other address as it has then last specified by written notice delivered in
accordance with this Article 28, or if to Tenant at either its aforesaid
address or its last known registered office or home of a general partner or
individual owner, whether or not actually accepted or received by the
addressee.
29. TAXES PAYABLE BY TENANT. In addition to rent and other charges to be
paid by Tenant under this Lease, Tenant shall reimburse to Landlord, upon
demand, any and all taxes payable by Landlord (other than net income taxes)
whether or not now
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customary or within the contemplation of the parties to this Lease: (a) upon,
allocable to, or measured by or on the gross or net rent payable under this
Lease, including without limitation any gross income tax or excise tax levied
by the State, any political subdivision thereof, or the Federal Government with
respect to the receipt of such rent; (b) upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy of the Premises or any portion thereof, including any sales,
use or service tax imposed as a result thereof; (c) upon or measured by the
Tenant's gross receipts or payroll or the value of Tenant's equipment,
furniture, fixtures and other personal property of Tenant or leasehold
improvements, alterations or additions located in the Premises; or (d) upon
this transaction or any document to which Tenant is a party creating or
transferring any interest of Tenant in this Lease or the Premises. At
Landlord's election said sums shall be reimbursed to Landlord in the same way
as sums due under Article 4 of this Lease. In addition to the foregoing, Tenant
agrees to pay, before delinquency, any and all taxes levied or assessed against
Tenant and which become payable during the term hereof upon Tenant's equipment,
furniture, fixtures and other personal property of Tenant located in the
Premises.
30. INTENTIONALLY DELETED.
31. RELOCATION OF TENANT. Landlord, at its sole expense, on at least one
hundred twenty (120) days prior written notice, may require Tenant to move from
the Premises to other space of comparable size (which space shall not be in
more than one location) and decor at the same rent as then being paid by Tenant
in order to permit Landlord to consolidate the space leased to Tenant with
other adjoining space leased or to be leased to another tenant. In the event of
any such relocation, Landlord shall use commercially reasonable efforts to
minimize disruption to Tenant's operations, Landlord will pay all expenses of
preparing and decorating the new premises so that they will be substantially
similar to the Premises from which Tenant is moving, Landlord will deliver the
relocated premises to Tenant ready for occupancy, and Landlord will also pay
the expense of moving Tenant's furniture and equipment to the relocated
premises. In such event this Lease and each and all of the terms and covenants
and conditions hereof shall remain in full force and effect and thereupon be
deemed applicable to such new space except that a revised Reference Page and a
revised Exhibit A shall become part of this Lease and shall reflect the
location of the new premises.
32. REMOVAL OF TENANT'S PROPERTY. Any and all property which may be removed
from the Premises by Landlord pursuant to the authority of this Lease or of
law, to which Tenant is or may be entitled, may be handled, removed and/or
stored, as the case may be, by or at the direction of Landlord but at the risk,
cost and expense Of Tenant, and Landlord shall in no event be responsible for
the value, preservation or safekeeping thereof. Tenant shall pay to Landlord,
upon demand, any and all expenses incurred in such removal and all storage
charges against such property so long as the same shall be in Landlord's
possession or under Landlord's control. Any such property of Tenant not retaken
by Tenant from storage within thirty (30) days after removal from the Premises
shall, at Landlord's option, be deemed conveyed by Tenant to Landlord under
this Lease as by a bill of sale without further payment or credit by Landlord
to Tenant.
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33. DEFINED TERMS AND HEADINGS. The Article headings shown in this Lease are
for convenience of reference and shall in no way define, increase, limit or
describe the scope or intent of any provision of this Lease. Any
indemnification or insurance of Landlord shall apply to and inure to the
benefit of all the following "Landlord Entities", being Landlord, Landlord's
investment manager, and the trustees, boards of directors, officers, general
partners, beneficiaries, stockholders, employees and agents of each of them.
Any option granted to Landlord shall also include or be exercisable by
Landlord's trustee, beneficiary, agents and employees, as the case may be. In
any case where this Lease is signed by more than one person, the obligations
under this Lease shall be joint and several. The terms "Tenant" and "Landlord"
or any pronoun used in place thereof shall indicate and include the masculine
or feminine, the singular or plural number, individuals, firms or corporations,
and their and each of their respective successors, executors, administrators
and permitted assigns; according to the context hereof. The term "rentable
area" shall mean the rentable area of the Premises or the Building as
calculated by the Landlord on the basis of the plans and specifications of the
Building including a proportionate share of any common areas. Tenant hereby
accepts and agrees to be bound by the figures for the rentable space footage of
the Premises and Tenant's Proportionate Share shown on the Reference Page.
34. TENANT'S AUTHORITY. If Tenant signs as a corporation each of the persons
executing this Lease on behalf of Tenant represents and warrants that Tenant
has been and is qualified to do business in the State of Illinois, that the
corporation has full right and authority to enter into this Lease, and that all
persons signing on behalf of the corporation were authorized to do so by
appropriate corporate actions. If Tenant signs as a partnership, trust or other
legal entity, each of the persons executing this Lease on behalf of Tenant
represents and warrants that Tenant has complied with all applicable laws,
rules and governmental regulations relative to its right to do business in the
State of Illinois and that such entity on behalf of the Tenant was authorized
to do so by any and all appropriate partnership, trust or other actions. Tenant
agrees to furnish promptly upon request a corporate resolution, proof of due
authorization by partners, or other appropriate documentation evidencing the
due authorization of Tenant to enter into this Lease.
35. ENFORCEABILITY. If for any reason whatsoever any of the provisions of
this Lease shall be unenforceable or ineffective, all of the other provisions
shall be and remain in full force and effect.
36. COMMISSIONS. Each of the parties: (a) represents and warrants to the
other that it has not dealt with any broker or finder in connection with this
Lease, except as described on the Reference Page; and, (b) indemnifies and
holds the other harmless from any and all losses, liability, costs or expenses
(including attorneys' fees) incurred as a result of any alleged breach of the
foregoing warranty by it.
37. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of
its provisions. This Lease shall in all respects be governed by the laws of the
State of Illinois.
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38. SUCCESSORS AND ASSIGNS. Subject to the provisions of Article 10, the
terms, covenants and conditions contained in this Lease shall be binding upon
and inure to the benefit of the heirs, successors, executors, administrators
and assigns of the parties to this Lease.
39. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all
agreements of the parties to this Lease and supersedes any previous
negotiations. There have been no representations made by the Landlord or
understandings made between the parties other than those set forth in this
Lease and its exhibits. This Lease may not be modified except by a written
instrument duly executed by the parties to this Lease.
40. EXAMINATION NOT OPTION. Submission of this Lease shall not be deemed to
be a reservation of the Premises. Landlord shall not be bound by this Lease
until it has received a copy of this Lease duly executed by Tenant and has
delivered to Tenant a copy of this Lease duly executed by Landlord, and until
such delivery Landlord reserves the right to exhibit and lease the Premises to
other prospective tenants. Notwithstanding anything contained in this Lease to
the contrary, Landlord may withhold delivery of possession of the Premises from
Tenant until such time as Tenant has paid to Landlord any security deposit
required by Article 5 of this Lease, the first month's rent as set forth in
Article 3 of this Lease and any sum owed pursuant to this Lease.
41. RECORDATION. Tenant shall not record or register this Lease or a short
form memorandum hereof without the prior written consent of Landlord, and then
shall pay all charges and taxes incident such recording or registration.
42. LIMITATION OF LANDLORD'S LIABILITY. Redress for any claim against
Landlord under this Lease shall be limited to and enforceable only against and
to the extent of Landlord's interest in the property of which the Premises are
a part. The obligations of Landlord under this Lease are not intended to and
shall not be personally binding on, nor shall any resort be had to the private
properties of, any of its trustees or board of directors and officers, as the
case may be, its investment manager, the general partners thereof, or any
beneficiaries, stockholders, employees, or agents of Landlord or the investment
manager.
43. RENEWAL OPTION.
43.1. Tenant shall, provided the Lease is in full force and effect and
Tenant is not in default under any of the other terms and conditions of the
Lease at the time of notification or commencement, have one (1) option to renew
this Lease for a term of five (5) years for the portion of the Premises being
leased by Tenant as of the date the renewal term is to commence, on the same
terms and conditions set forth in the Lease, except as modified by the terms,
covenants and conditions as set forth below.
43.2. If Tenant elects to exercise said option, then Tenant shall
provide Landlord with written notice no earlier than the date which is twelve
(12) months prior to the expiration of the then current term of the Lease, but
no later than the date which is six (6) months prior to the expiration of the
current term of the Lease, and the Annual Rent and Monthly Installment in
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effect at the expiration of the then current term of the Lease shall be
increased, commencing on the first day of the new renewal term, to reflect the
current fair market rental for comparable space in other similar buildings in
the same rental market as of the date the renewal term is to commence. If
Tenant fails to provide such notice, Tenant shall have no further or additional
right to extend or renew the term of the Lease. The notice shall be given in
the manner provided in the Lease for the giving of notices to Landlord.
43.3. Landlord shall advise Tenant of the Annual Rent and Monthly
Installment no later than thirty (30) days after receipt of Tenant's written
request therefor. Said notification of the new Annual Rent may include a
provision for its escalation to provide for a change in fair market rental
between the time of notification and the commencement of the renewal term. If
Tenant and Landlord are unable to agree on a mutually acceptable rental rate
not later than sixty (60) days prior to the expiration of the then current
term, then Landlord and Tenant shall each appoint a qualified MAI appraiser
doing business in the area, in turn those two independent MAI appraisers shall
appoint a third MAI appraiser and the majority shall decide upon the fair
market rental for the Premises as of the expiration of the then current term.
Landlord and Tenant shall equally share in the expense of this appraisal except
that in the event the Annual Rent and Monthly Installment is found to be within
ten percent (10%) of the original rate quoted by Landlord, then Tenant shall
bear the full cost of all the appraisal process. In no event shall the Annual
Rent and Monthly Installment be subject to determination or modification by any
person, entity, court or authority other than as set forth expressly herein.
43.4. This option is not transferable; the parties hereto acknowledge
and agree that they intend that the aforesaid option to renew this Lease shall
be "personal" to Tenant as set forth above and that in no event will any
assignee or sublessee have any rights to exercise the aforesaid option to
renew.
44. RIGHT OF FIRST REFUSAL. Provided Tenant is not then in default under the
terms, covenants and conditions of the Lease, and subject to the rights of
other tenants, Tenant shall have the right to lease approximately 6,000 square
feet of contiguous space on the fourth floor of the Building as shown on
Exhibit D (the "Expansion Premises") at such time as Landlord receives an offer
from a third party to lease the Expansion Premises which Landlord is prepared
to accept (the "Offer"). In such a case, Landlord shall give written notice to
Tenant of the Offer, in all its particulars and Tenant shall have a period of
five (5) business days in.which to exercise Tenant's right to lease the
Expansion Premises, failing which Landlord may lease the Expansion Premises to
the third party on the basis of the Offer. If Tenant does not exercise its
option, this right shall continue and be effective at any time during the Term
that Landlord receives an Offer, except in the event that the Offer is from the
tenant then occupying the Expansion Premises, in which case Tenant shall have
no right hereunder. If Tenant exercises its option to include the Expansion
Premises hereunder, effective on the delivery date specified in the Offer, the
Expansion Space shall automatically be included in the Premises and be subject
to all the terms and conditions of the Lease, except as set forth in the Offer
and as follows:
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a. Tenant's Proportionate Share shall be recalculated, using the
total square footage of the Premises, as increased by the
Expansion Premises.
b. Except as set forth in the Offer, the Expansion Premises shall be
leased on an "as is" basis and Landlord shall have no obligation
to improve the Expansion Premises or grant Tenant any improvement
allowance thereon.
c. If requested by Landlord, Tenant shall, prior to the beginning of
the term for the Expansion Premises, execute a written memorandum
confirming the inclusion of the Expansion Premises and the Annual
Rent for the Expansion Premises.
45.1 SATELLITE DISH. Landlord hereby grants to Tenant for the Term of the
Lease a license (the "License") to: (a) maintain and operate one (1) parabolic
dish antenna (the "Antenna") not to exceed five (5) feet in diameter on the
roof of the Building in a location directed by Landlord; and (b) use, in common
with others, those certain common utility conduits and shafts within the
Building designated by Landlord (the locations for the Antenna and the common
utility shafts and conduits being herein collectively called the "Equipment
Space Area"), for the purpose of installing, operating, and maintaining the
microwave antenna and transmission and receiving equipment (the "Equipment"),
and for connecting the Equipment to the Premises by means of coaxial or other
wire or cable through said common utility shafts and conduits.
45.2. Tenant's use of the space required for the Antenna itself shall be
exclusive, but Tenant's use of the remainder of the Equipment Space Area shall
be nonexclusive. Landlord shall at all times have access to such Equipment
Space Area for the purpose of operating, maintaining, repairing, or improving
the Building. Landlord reserves the right to grant licenses and leases to other
tenants in the Building or others throughout the Term to use the non-exclusive
portions of the Equipment Space Area, the Building or the roof of the Building
for the operation of radio, microwave, satellite and telecommunications
equipment, so long as such use does not unreasonably interfere with Tenant's
installation or use of the Equipment.
45.3. Tenant shall pay to Landlord, as additional rent, on a monthly
basis, the actual costs incurred by Landlord in furnishing electric power for
the operation of the Equipment. All amounts due under this Section 45.3 shall
constitute additional rent for all purposes of the Lease.
45.4. Tenant shall pay to Landlord the amount of all identifiable
additional taxes and other governmental impositions, (including but not limited
to all permit fees) if any, which shall be required to be paid by Landlord in
any calendar year partly or wholly within the Term by reason of the
installation, maintenance, use or operation of the Equipment.
45.5. Tenant shall, all at Tenant's sole cost, expense and risk, install
the Equipment in a good and workmanlike manner, and in compliance with all
building, electric, communications and safety codes, ordinances, standards,
regulations and requirements of all governmental bodies having jurisdiction in
the matter, including, without limitation, the Federal Government, the Federal
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Communications Commission (the "FCC") or any successor agency having
jurisdiction over radio or telecommunications, the State of Illinois, the City
of Chicago, and the County of Cook. The Equipment shall be connected to
Landlord's power supply in strict compliance with all applicable building,
electrical, fire and safety codes.
45.6. Prior to commencing installation of the Equipment, Tenant shall
first deliver to Landlord Tenant's plans and specifications for the
installation of the Equipment for review and approval by Landlord's personnel
and/or consultants, and also shall obtain, and deliver to Landlord copies of,
all permits, licenses and consents required for the installation and operation
of the Equipment. Tenant shall not commence installation of the Equipment until
Landlord has approved said plans, specifications, permits, licenses and
consents. Landlord shall have the right (but shall not be required) to directly
supervise all phases of the installation. In addition, Tenant shall notify
Landlord upon completion of the installation of the Equipment, Landlord shall
have ten (10) days after receipt of such notification in which to inspect the
installation, and Tenant shall not commence operation of the Equipment until
Landlord has approved the installation.
45.7 All of the Equipment shall be and remain the property of Tenant
throughout the Term, and shall be continuously maintained by Tenant in safe,
structurally sound, clean and sightly condition. Prior to the expiration or
termination of the Term, Tenant shall remove the Equipment (including all
installation and anchoring hardware) and surrender the Equipment Space Area in
substantially the same condition as existing prior to the installation of the
Equipment except for such normal wear and tear as would occur absent the
Equipment. Tenant shall be liable for, and shall reimburse Landlord on demand
for, the cost of repairing all damage done to the Equipment Space Area or the
Building by such removal, including filling and sealing any holes or cavities
left by the removal of installation or anchoring hardware. Any Equipment not so
removed by Tenant may be removed by Landlord and Landlord's cost of doing so
shall be paid to Landlord by Tenant on demand, or at Landlord's option any or
all of such Equipment as was not so removed shall become Landlord's property as
though conveyed by bill of sale.
45.8. Neither the granting of the License hereby or Landlord's review
and approval of the plans and specifications for the installation of the
Equipment and/or supervision and inspection of the installation of the
Equipment shall be construed in any way as a representation by Landlord that
either the installation or the operation of the Equipment is permissible under
applicable laws, ordinances and regulations or as approval by Landlord of the
adequacy or safety of the installation of the Equipment or as a waiver of any
of landlord's rights hereunder. Notwithstanding such approval, consent,
supervision or inspection on the part of Landlord, Tenant shall be responsible
for any damage to the Building or existing structures on the Building, for any
and all interference with the maintenance of the Building or of any system
currently serving the Building caused by Tenant's installation of the
Equipment, and for any damages or injury arising out of such installation
except to the extent caused by or arising from the negligent or willful act of
Landlord or its agents, employees or contractors (to which extent Landlord
agrees to indemnify and hold Tenant harmless). Landlord's cost of repairing any
damage to the Building for which Tenant is responsible as aforesaid which is
not paid by Tenant
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within ten (10) days after Tenant's receipt of Landlord's written notice
concerning such cost shall be due from Tenant on demand.
45.9. Tenant shall operate the Equipment in strict compliance with all
applicable statutes, codes, rules, regulations, standards, and requirements of
all federal, state, and local governmental boards, authorities, and agencies,
including, without limitation, the FCC. The installation, operation, and
maintenance of the Equipment shall at all times strictly comply with all such
technical standards as shall be required by Landlord in good faith as well as
all Landlord's reasonable rules and regulations now or hereafter promulgated.
The operation of the Equipment shall not interfere with the maintenance or
operation of the Building, or any system now or hereafter serving the Building,
or the operation of any existing radio, microwave, satellite or
telecommunications equipment operating in, on or from the Building. In the
event that operation of the Equipment would violate any of the terms or
conditions of this paragraph, Tenant shall either cure such violation or
suspend operation of the Equipment within forty-eight (48) hours after notice
from Landlord of such violation, and shall not resume operation of the
Equipment until such operation is in strict compliance with all of the
requirements of this paragraph. In the event Tenant refuses to either cure such
violation or suspend operation of the Equipment when so notified by Landlord,
or in the event of an emergency, Landlord shall have the right to either cure
such violation or suspend the supply of electric power to the Equipment, and
Landlord shall have no liability to Tenant, and Tenant shall have no right to
an abatement or offset by reason of such suspension.
45.10. So long as there does not exist any uncured Event of Default
under this Lease, the License shall not be cancelled by Landlord or its
successors or assigns. The License granted hereunder may be terminated prior to
the scheduled Termination Date of this Lease (a) at the option of Tenant in the
event the Equipment is or becomes unusable by Tenant by reason of either
inability to obtain or retain all required FCC or other governmental permits
for operation of the Equipment or erection by a third party of an obstruction
(other than temporary) blocking the transmission of signal between the
Equipment and the connecting transmission-receptor installation, this option to
be exercised by not less than thirty (30) days prior written notice from
Tenant; and (b) by Tenant by notice given to the Landlord within 30 days after
the expiration of the period for restoration if the Equipment or the Equipment
Space Area shall be damaged by fire or other casualty to such an extent that
the Equipment is rendered unusable and cannot be restored to usability within
30 days.
46. TENANT IMPROVEMENTS. Landlord shall cause the design and
construction of improvements in the Premises pursuant to the work Letter
attached hereto as Exhibit B, which improvements shall not include any of
Tenants personal property, furniture, equipment or other items of a similar
nature personal to Tenant.
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LANDLORD: TENANT:
BENEFICIARIES OF AMERICAN SOFTWARE SPECTRUM, INC., a
NATIONAL BANK TRUST NUMBER Texas corporation
104601-03
By: RREEF Management Company, By: /s/ THEODORE A. FREDERICH
a California corporation ------------------------------
Title: Facilities Director
Dated: May 4, 1996
By:________________________________
Title: ____________________________
Dated: ____________________________
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EXHIBIT A
attached to and made a part of Lease bearing the
Lease Reference Date of March 26, 1996 between
BENEFICIARIES OF AMERICAN NATIONAL BANK TRUST NUMBER 104601-03,
as Landlord and Software Spectrum, Inc., as Tenant
PREMISES
Exhibit A is intended only to show the general layout of the Premises as of the
beginning of the Term of this Lease. It does not in any way supersede any of
Landlord's rights set forth in Section 18.3 of the Lease with respect to
arrangements and/or locations of public parts of the Building and changes in
such arrangements and/or locations. It is not to be scaled; any measurements or
distances shown should be taken as approximate.
16,612 square feet
(Approximate Configuration)
Suite 400
Chicago, Illinois 60606
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EXHIBIT B
attached to and made a part of Lease bearing the
Lease Reference Date of March 26, 1996 between
BENEFICIARIES OF AMERICAN NATIONAL BANK TRUST NUMBER 104601-03,
as Landlord and SOFTWARE SPECTRUM, INC., as Tenant
WORK LETTER
The undersigned, Landlord and Tenant, respectively, are executing
simultaneously with this Work Letter a written Lease covering premises (the
"Premises") as described in the Lease and hereby attach this Work Letter to
said Lease as Exhibit B thereto. Any defined term used in this Exhibit B which
is not defined herein shall have the meaning provided for such term in the
Lease.
In consideration of the mutual covenants contained herein and in the Lease,
Landlord and Tenant agree as follows:
I. Landlord Work and Plans
A. Landlord agrees to do the Work ("Landlord Work") as shown
on the space plans and specifications prepared by K.
Peterson Associates (the "Architect") dated March 6, 1996
and Addendum One (1) dated March 15, 1996 (the "Space
Plans") and as specified on the Budget Quotation (the
"Quote") prepared by Edison Construction Company dated
March 19, 1996 (as supplemented by March 20, 1996 facsimile
transmittal sheet), copies of which are attached to this
Work Letter as Schedule B-l, excluding any Tenant
furnishings, fixtures, equipment, communications and data
cabling, and electrical/data connections to Tenant's
furniture panels and systems.
B. Any subsequent modifications, revisions or changes to the
Space Plans or to the Quote are expressly subject to
Landlord's prior written approval.
II. Improvements
A. Landlord shall pay for all costs and expenses incurred in
connection with the installation and construction of the
improvements specified in the Space Plans and the Quote. If
Tenant later requests changes, or if unforeseen
circumstances beyond Landlord's control result in changes
to the scope of the work contemplated in the Space Plans or
in the Quote, Tenant will pay the net increase in cost of
the improvements as a result of such changes as more fully
described below.
III. Tenant's Extra Work
If Tenant requests Landlord to do any work in connection with the
premises other than the Landlord Work, or Tenant requests any
modifications or changes to the Landlord Work after approval of
the Space Plans and budget therefor, and Landlord, in its sole
discretion, approves of such other work in writing (such other
work is hereinafter referred to as "Tenant's Extra Work"), the
following terms, conditions, agreements, and procedures shall be
applicable:
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A. Tenant shall, at its sole cost and expense, cause the
Architect to prepare and submit to Landlord, on or before
the date construction commences (the "Plans Due Date"), all
necessary drawings, plans, and specifications covering the
proposed Tenant's Extra Work (such drawings, plans and
specifications are hereinafter referred to as "Tenant's
Extra Work Plans").
B. Landlord agrees to cause the Tenant's Extra Work to be
constructed, provided that Tenant's Extra Work Plans are
acceptable to Landlord and approved in writing by Landlord,
that the timing of Tenant's Extra Work must be coordinated
with the scheduling of Landlord's Work, and that Tenant has
complied with all applicable provisions, terms and
conditions of this Work Letter.
C. All such Tenant's Extra Work shall be done at Tenant's sole
cost and expense. Prior to commencing any of Tenant's Extra
Work, Landlord shall submit to Tenant for Tenant's approval
a written estimate of the cost of Tenant's Extra Work
(hereinafter called ("Estimate"). If Tenant fails to
approve any Estimate in writing within five (5) business
days of its submission to Tenant, the Estimate shall be
deemed disapproved and Landlord shall not be obligated to
proceed with Tenant's Extra Work but Landlord may complete
the construction of the Landlord Work. If Tenant approves
the Estimate, Landlord may require Tenant to deposit the
amount of the Estimate with Landlord within five (5)
business days after Landlord's written request therefor.
Such deposit shall be held as security for the payment of,
and shall be credited, without interest, against the sums
payable by Tenant under this Work Letter.
D. If Tenant shall request any modifications, revisions or
changes to the Tenant's Extra Work at any time and from
time to time, it shall follow the same procedure herein
prescribed for the initiation, approval and commencement of
the Tenant's Extra Work in each such case.
E. Tenant agrees to pay to Landlord the following sums for
Tenant's Extra Work:
1. All costs and expenses pertaining to Tenant's Extra
Work, subcontractors and general and other
conditions, costs and expenses, and
2. An overhead charge of ten percent (10%) of the total
of all such costs under Paragraph III. E. 1. hereof.
Tenant shall pay to Landlord within fifteen (15) business
days after being billed therefor, at any time and from time
to time, the amount of such costs, expenses and charges for
Tenant's Extra Work set forth in such billings, which
amounts shall be treated as additional rent under the
Lease.
IV. Completion of the Work, Tenant's Acts or Omissions, and Defaults
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<PAGE> 40
A. Landlord shall commence construction of the Landlord Work
and shall tender to Tenant the Premises substantially
completed on or prior to the scheduled commencement Date of
the Lease, subject only to ordinary punch list items.
Tenant shall deliver a list of such punch list items, if
any, within thirty (30) days of Tenant's occupancy of the
premises and Landlord shall complete such punch list within
forty-five (45) days of reaching written agreement on such
punch list items with Tenant. Landlord's obligation to
tender the Premises substantially completed on the
Scheduled Commencement Date is subject to acts and events
beyond Landlord's control, including but not limited to
acts of God, strike and other occurrences of "force
majeure." During construction of the Landlord Work,
Landlord shall use its best efforts to apprise Tenant of
the construction schedule for the Landlord Work. In the
event that the Premises are not in fact substantially
completed according to such schedule, Landlord shall have a
reasonable time after such date in which to take such
corrective action as Landlord deems necessary and shall
notify Tenant as soon as it deems such corrective action,
if any, has been completed so that the Premises are ready
for occupancy.
B. Notwithstanding anything in the Lease to the contrary, if
Tenant is not in default hereunder or under the Lease,
Tenant's obligation to pay rent under the Lease shall not
commence until Landlord shall have substantially completed
the Landlord work; provided, however, that if Landlord
shall be delayed in substantially completing the Premises
as a result of any act or omission by Tenant, its agents,
employees, representatives or contractors, or any one or
more of them including, without limitation, the following;
1. Tenant's failure to approve any Estimate within five
(5) business days of its submission to Tenant; or
2. Tenants failure to furnish to Landlord Tenants Extra
Work Plans by the required date; or
3. Tenant's failure to pay amounts or deposit any
Estimate required hereunder within the period set
forth herein; or
4. Tenant's request for any materials, finishes, or
installations other than as specified in the Space
Plans or in the Quote; or
5. Tenant's request that Landlord delay or not construct
the Landlord work or Tenant's Extra Work in all or
part of the Premises; or
6. Tenant's delay in supplying Landlord or Architect
with any requested information; or
7. Tenant's changes at any time or from time to time in
any one or more of the following: Landlord Work,
Tenant's Extra Work, the Space Plans, the Quote or
Tenant's Extra Work
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<PAGE> 41
Plans, regardless of Landlord's approval of any such
changes; or
8. The performance or completion by Tenant, or any
person or entity employed by Tenant, of any work on
or about the Premises including, without limitation,
any disharmony or interference caused by such
performance or completion as further described in
Paragraph V. A. hereof; or
9. Any other act or omission by Tenant or any of its
agents, employees, representatives or contractors;
then, in any such event, the commencement of the term of
the Lease and the payment of rent thereunder shall not be
affected or deferred on account of such delay
notwithstanding that the Landlord Work and/or the Tenant's
Extra Work may not be substantially completed. The cost of
any changes and/or additions made to the Landlord Work,
Tenant's Extra Work, the Space Plans, the Quote, or
Tenant's Extra Work Plans at the request of Tenant after
Landlord and Tenant have agreed on the Space Plans or
Tenant's Extra Work Plans, including but not limited to the
actual cost of such changes or additions, the cost of any
revisions to the Space Plans or Tenant's Extra Work Plans,
and the cost of any delays in construction resulting from
any Tenant requested changes, all as determined by Landlord
in its reasonable discretion, whether or not such changes
are finally agreed to, together with ten percent (10%) of
such costs for Landlord's overhead, shall be paid by Tenant
upon Landlord's presentation of a bill therefor or as
herein required, and such amount shall be treated as
additional rent under the Lease.
C. If Tenant shall fail to comply with any term, provision or
agreement hereunder or if Landlord and Tenant fail to reach
agreement on Tenant's Extra Work Plans within fifteen (15)
days after the submission thereof to Landlord, and if any
such matter is not remedied or resolved to Landlord's
satisfaction fifteen (15) days following written notice to
Tenant, then, in addition to any other remedies granted
Landlord under the Lease in the case of default by Tenant
and any remedies provided for elsewhere in this Work Letter
or available at law or equity, Landlord may elect, upon
notice to Tenant, to: (l) discontinue all work hereunder,
and Tenant's obligation to pay rent shall commence of the
Commencement Date set forth in the Lease, without any
abatement on account of any delay in connection with any
work relating to the Premises, (2) complete the
construction of the Landlord Work pursuant to the Space
Plans as approved by Landlord and Tenant or complete any
work which Landlord and Tenant have agreed to in writing,
tendering possession to Tenant upon substantial completion
thereof, the date of such tender being deemed to be the
Commencement Date under the Lease, and charge Tenant for
the additIonal costs of completing the electrical,
plumbing, office partitions and other
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<PAGE> 42
work, the plans and specifications for which have not been
agreed to by Landlord and Tenant, which amount shall be
paid by Tenant to Landlord as additional rent prior to any
such work commencing, or (3) cancel the Lease, effective
fifteen (15) days after Tenant receives notice thereof,
without incurring any liability on account thereof and the
term granted under the Lease is expressly limited
accordingly. If Landlord cancels the Lease pursuant to the
terms hereof or as a result of Tenant's default under the
Lease, such cancellation shall not affect Tenant's
liability for any sums payable under this Work Letter.
V. Tenant's Access to the Premises
A. After receipt of written notice from Tenant requesting
access to the Premises, Landlord shall permit Tenant and
Tenant's agents or contractors to enter the Premises during
the two (2) week period prior to the Commencement Date
specified in the Lease in order that Tenant may do other
approved work or alterations as may be required by Tenant
to make the premises ready for Tenant's use and occupancy.
Permission by Landlord for such prior entry shall be under
a license and shall be subject to the condition that Tenant
and Tenant's agents, contractors, workmen, mechanics,
suppliers, and invitees shall work in harmony and not
interfere with Landlord and its agents and contractors in
doing their work in the Building or with other tenants and
occupants of the Building. If at any time such entry shall
cause or threaten to cause such disharmony or interference,
Landlord, in its sole discretion, shall have the right to
withdraw and cancel such license upon twenty-four (24)
hours written notice to Tenant (or immediately in case of
emergency or condition causing or likely to cause harm to
person or property) and any further prior entry shall be
prohibited. Tenant agrees that any entry into and any
occupation of the Premises shall be deemed to be under all
of the terms, covenants, conditions and provisions of the
Lease, except as to the covenant to pay rent, and further
agrees that to the extent permitted by Law, Landlord and
its principals, employees and agents shall not be liable in
any way for any injury or death to any person or persons,
loss or damage to any of Tenant's work and installations
made in the Premises, or loss or damage to property placed
therein, the same being at Tenant's sole risk. Tenant
agrees to protect, defend, indemnify, and save harmless
Landlord and its principals, employees and agents from all
liabilities, costs, damages, fees and expenses (including
reasonable attorneys' fees and expenses) arising out of or
connected with the activities of Tenant or its agents,
contractors, workmen, mechanics, suppliers and invitees in
or about the Premises or the Building.
B. In addition to any other conditions or limitations on such
license to enter the Premises prior to the said Occupancy
Date, Tenant expressly agrees that none of its agents,
contractors, workmen, mechanics, suppliers, or invitees
shall enter the Pre-
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<PAGE> 43
mises prior to the date they are tendered by Landlord
unless and until each of them shall furnish such assurances
to Landlord, including but not limited to, insurance
coverages, waivers of lien, surety company performance
bonds and personal guaranties of individuals of substance,
as Landlord shall require to protect Landlord against any
loss, casualty, liability, liens or claims.
VI. Miscellaneous
A. Tenant expressly assumes the responsibility and obligation
of supplying Landlord and Architect with all information
concerning Tenant's requirements with respect to the
Landlord Work and Tenant's Extra Work as and when requested
by any of them.
B. The Landlord Work and Tenant's Extra Work, if any, shall be
done by the contractors and subcontractors designated by
Landlord, in accordance with the terms, conditions and
provisions herein contained.
C. Except as set forth in Paragraph I. A. hereof, Landlord has
no other agreement with Tenant and has no obligation to do
any work with respect to the Premises. Any other work in
the Premises which may be permitted by Landlord pursuant to
the terms and conditions of the Lease shall be done at
Tenant's sole cost and expense and in accordance with the
terms and provisions herein set forth pertaining to
Tenant's Extra Work and such additional requirements as
Landlord deems necessary or desirable.
D. All rights and remedies of Landlord herein created or
otherwise existing at law or equity are cumulative, and the
exercise of one or more such rights or remedies shall not
be deemed to exclude or waive the right to the exercise of
any other rights or remedies. All such rights and remedies
may be exercised and enforced concurrently and whenever and
as often as deemed desirable.
E. Time is of the essence under this Work Letter.
F. Any person signing this Work Letter on behalf of the Tenant
represents and warrants that he/she has the express
authority of the Tenant to do so. Any person signing this
Work Letter on behalf of Landlord represents and warrants
that he/she has the express authority of Landlord to do so.
G. The terms and provisions of the Lease are hereby
incorporated herein by reference and made a part hereof,
but none of the terms or provisions contained herein shall
be interpreted to modify or amend the Lease, except as
provided in Paragraph IV hereof. This Work Letter shall not
be deemed applicable to any additional office space added
to the original Premises at any time or from time to time,
whether by any options under the Lease or otherwise, or to
any portion of the original Premises or any additions
thereto in the event of a renewal or extension of the
original term of the
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<PAGE> 44
Lease, whether by any options under the Lease or otherwise.
H. This Work Letter shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs,
executors, legal representatives, successors and assigns.
I. This Work Letter shall in all respects be governed by the
laws of Illinois.
LANDLORD: TENANT:
BENEFICIARIES OF AMERICAN SOFTWARE SPECTRUM, INC.,
NATIONAL BANK TRUST a Texas corporation
NUMBER 104601-03
By: RREEF Management Company,
a California corporation By: /s/ THEODORE A. FREDERICH
___________________________________
Title: Facilities Director
By:________________________________
Dated: May 4, 1996
Title:_____________________________
Dated: ______________________, 1996
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<PAGE> 45
SCHEDULE B-1
Budget Quotation Prepared by Edison Construction Company
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<PAGE> 46
EXHIBIT C
attached to and made a part of Lease bearing the
Lease Reference Date of March 26, 1996
BENEFICIARIES OF AMERICAN NATIONAL BANK TRUST NUMBER 104601-03,
as Landlord and SOFTWARE SPECTRUM, INC., as Tenant
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person or vendor chosen by Landlord. In addition, Landlord reserves
the right to change from time to time the format of the signs or lettering and
to require previously approved signs or lettering to be appropriately altered.
2. If Landlord objects in writing to any curtains, blinds, shades or
screens attached to or hung in or used in connection with any window or door of
the Premises, Tenant shall immediately discontinue such use. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything or allow
anything to be placed against or near any glass partitions or doors or windows
which may appear unsightly, in the opinion of Landlord, from outside the
Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators or stairways of the Building. The halls,
passages, exits, entrances, shopping malls, elevators, escalators and stairways
are not for the general public, and Landlord shall in all cases retain the
right to control and prevent access to the Building of all persons whose
presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation and interests of the Building and its tenants provided
that nothing contained in this rule shall be construed to prevent such access
to persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities. No tenant and
no employee or invitee of any tenant shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only and Landlord reserves the
right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Premises. Landlord shall not in any way be responsible to
any Tenant for any loss of property on the Premises, however occurring, or for
any damage to any Tenant's property by the janitor or any other employee or any
other person.
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6. Landlord will furnish Tenant free of charge with two keys to each door
in the Premises. Landlord may make a reasonable charge for any additional keys,
and Tenant shall not make or have made additional keys, and Tenant shall not
alter any lock or install a new or additional lock or bolt on any door of its
Premises. Tenant, upon the termination of its tenancy, shall deliver to
Landlord the keys of all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. No equipment, materials, furniture, packages, supplies, merchandise or
other property will be received in the Building or carried in the elevators
except between such hours and in such elevators as may be designated by
Landlord.
9. Tenant shall not place a load upon any floor which exceeds the load per
square foot which such floor was designed to carry and which is allowed by law.
Landlord shall have the right to prescribe the weight, size and position to all
equipment, materials, furniture or other property brought into the Building.
Heavy objects shall, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant which cause noise or vibration that may be
transmitted to the structure of the Building or to any space in the Building to
such a degree as to be objectionable to Landlord or to any tenants shall be
placed and maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate noise or vibration. The persons
employed to move such equipment in or out of the Building must be acceptable to
Landlord. Landlord will not be responsible for loss of, or damage to, any such
equipment or other property from any cause, and all damage done to the Building
by maintaining or moving such equipment or other property shall be repaired at
the expense of Tenant.
10. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord. Tenant shall not waste electricity, water or
air conditioning. Tenant shall keep corridor doors closed.
11. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal holidays
any person unless that person is known to the person or employee in charge of
the Building and has a pass or is properly identified. Tenant shall be
responsible for all persons for whom it requests passes and shall be liable to
Landlord for all acts of such persons. Landlord shall not be liable for damages
for any error with regard to the admission to or exclusion from the Building of
any person.
12. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
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13. The toilet rooms, toilet, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown into any of them, and
the expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Tenant who, or whose employees or invitees,
shall have caused it.
14. Except as expressly permitted under this Lease, Tenant shall not install
any radio or television antenna, loudspeaker or other device on the roof or
exterior walls of the Building. Tenant shall not interfere with radio or
television broadcasting or reception from or in the Building or elsewhere.
15. Except as approved by Landlord, Tenant shall not mark, drive nails,
screw or drill into the partitions, woodwork or plaster or in any way deface
the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not
affix any floor covering to the floor of the Premises in any manner except as
approved by Landlord. Tenant shall repair any damage resulting from
noncompliance with this rule.
16. Tenant shall not install, maintain or operate upon the Premises any
vending machine, except those for employee use approved in writing by Landlord.
17. Tenant shall store all its trash and garbage within its Premises. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of trash and garbage disposal.
All garbage and refuse disposal shall be made in accordance with directions
issued from time to time by Landlord.
18. No cooking shall be done or permitted by any Tenant on the Premises,
except by the Tenant on Underwriters' Laboratory approved equipment for brewing
coffee, tea, hot chocolate and similar beverages shall be permitted provided
that such equipment and use is in accordance with all applicable federal, state
and city laws, codes, ordinances, rules and regulations and further provided
that microwave ovens shall be permitted if Underwriter's Laboratory approved
and if powered by a separate circuit installed by Tenant at its sole cost and
expense and approved by Landlord.
19. Tenant shall not use in any space or in the public halls of the Building
any hand trucks except those equipped with the rubber tires and side guards or
such other material-handling equipment as Landlord may approve. Tenant shall
not bring any other vehicles of any kind into the Building.
20. Tenant shall hot use the name of the Building in connection with or in
promoting or advertising the business of Tenant except as Tenant's address.
21. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instruction form Landlord, and no
employee of Landlord will admit any person (Tenant or otherwise) to any office
without specific instructions from Landlord.
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22. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the tenants of the Building.
23. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
24. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation of
good order in and about the Building. Tenant agrees to abide by all such rules
and regulations in this Exhibit C stated and any additional rules and
regulations which are adopted.
25. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
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<PAGE> 50
EXHIBIT D
attached to and made a part of Lease bearing the
Lease Reference Date of March 26, 1996 between
BENEFICIARIES OF AMERICAN NATIONAL BANK TRUST NUMBER 104601-03,
as Landlord and SOFTWARE SPECTRUM, INC., as Tenant
EXPANSION PREMISES
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<PAGE> 1
EXHIBIT 11.1
SOFTWARE SPECTRUM, INC.
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended March 31
-------------------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Net Income $7,366,000 $8,788,000 $7,004,000
========== ========== ==========
Shares as adjusted: 4,196,173 4,168,829 4,145,418
Average number of shares outstanding
Incremental shares from outstanding
stock options 63,526 47,885 70,394
as determined under the treasury stock
method using average market price
Shares as adjusted 4,259,699 4,216,714 4,215,812
========== ========== ==========
Primary earnings per share $1.73 $2.08 $1.66
===== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT 11.2
SOFTWARE SPECTRUM, INC.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended March 31
-------------------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Net Income $7,366,000 $8,788,000 $7,004,000
========== ========== ==========
Shares as adjusted: 4,196,173 4,168,829 4,145,418
Average number of shares outstanding
Incremental shares from outstanding
stock options 72,746 48,558 73,996
as determined under the treasury stock
method using average market price
Shares as adjusted 4,268,919 4,217,387 4,219,414
========== ========== ==========
Fully diluted earnings per share $1.73 $2.08 $1.66
===== ===== =====
</TABLE>
* Computation is furnished even though the amounts of earnings per share on a
fully diluted basis are not required to be presented in the income statement
under the provisions of Accounting Principles Board Opinion No. 15.
<PAGE> 1
EXHIBIT 13
[SOFTWARE SPECTRUM LOGO]
[PICTURE]
FPO
Annual Report 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter to Our Shareholders . . . . . . . . . . . . . . . . . . . . . 2
Operations Review . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Questions and Answers . . . . . . . . . . . . . . . . . . . . . . . 14
Selected Consolidated Financial Data . . . . . . . . . . . . . . . 17
Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . . . 18
Audited Financial Statements . . . . . . . . . . . . . . . . . . . 22
Report of Independent Certified Public Accountants . . . . . . . . 30
Quarterly Financial Data and Market Information . . . . . . . . . . 31
Corporate Directory . . . . . . . . . . . . . . . . . inside back cover
</TABLE>
[SOFTWARE SPECTRUM LOGO]
<PAGE> 3
CORPORATE PROFILE
Software Spectrum is a leading worldwide supplier of microcomputer
software and technology services to organizations. Focused on delivering the
future of desktop technology, Software Spectrum is committed to providing
superior customer service while maintaining a cost-efficient operating
structure. The Company provides customers with a wide variety of business
software products, volume software licensing services and technology support,
and assists them in the implementation, deployment, and ongoing support of
their personal computing strategies. Software Spectrum, with headquarters in
Garland, Texas, has sales locations, operations centers and technology services
offices in North America, Europe, and Asia/Pacific.
FINANCIAL HIGHLIGHTS
For the years ended March 31,
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales $ 398,501 $ 352,141 $ 283,063 $ 219,471 $ 158,905
Net income 7,366 8,788 7,004 6,282 3,817
Earnings per share 1.73 2.08 1.66 1.70 1.28
BALANCE SHEET DATA
Working capital $ 60,920 $ 58,407 $ 50,619 $ 46,712 $ 20,316
Total assets 150,180 124,698 94,255 69,387 36,404
Shareholders' equity 73,363 65,834 57,041 49,801 22,935
</TABLE>
EARNINGS
NET SALES NET INCOME PER SHARE
(In Millions) (In Millions) (In Dollars)
[GRAPH] [GRAPH] [GRAPH]
1
<PAGE> 4
[PICTURE]
FPO
TO OUR
SHAREHOLDERS
Software Spectrum has entered a new era in our Company's history-- an era
of expanded services and global growth. Several factors have contributed to
this new level of achievement. First, Software Spectrum has made two very
strategic acquisitions: the corporate, government and education division of
Egghead, Inc., and Essentially Group, a technology services company in
Asia/Pacific. Second, we have kept our singular focus--to provide personal
computer software and technology services to organizations worldwide within a
cost-effective operating structure. Finally, we have continued to benefit from
both the talent and expertise of our people and substantial resources that have
kept Software Spectrum's business sound and profitable.
Software Spectrum enters this new era of global expansion and services
growth with the same strong commitment to our customers that has been the
foundation upon which the Company has been built. It is this unsurpassed
dedication to our customers that has allowed us to achieve years of consistent
performance, and to become a leading worldwide provider of PC software and
technology services to organizations.
For the year ended March 31, 1996, we achieved a 13% increase in sales to
$398,501,000 as compared to 1995. Earnings per share were $1.73 for 1996.
As in recent years, we saw revenue growth in all three components of our
business: sales to large organizations; telesales to mid-sized and small
customers; and in our Technology Services Group. Our continued investment in
the expansion of our Technology Services Group and global presence was
reflected in our decreased profitability for fiscal 1996.
Software Spectrum has broadened its business to include technology
services in order to diversify its offerings. That strategy has proven
successful and we have continued to capitalize on it by rapidly growing our
Technology Services Group locations this year. We began fiscal 1996 with four
technology services offices, all located in the United States. Today we have 20
offices in North America, Europe and Asia/Pacific.
<PAGE> 5
Customers' additional service needs are the logical progression of our
business, and they result from increasingly complex computing technologies
which demand that large organizations better manage their desktop assets and
their related lifecycle costs. Our services focus enables us to provide better
support and develop more strategic relationships with existing customers, and
assists us in attracting new customers. One way in which Software Spectrum has
added to the value of our services is by integrating our licensing capabilities
with our technology expertise when providing our enterprise software management
services.
As a result of our European expansion and our recent acquisitions,
Software Spectrum is now able to service major markets and multinational
organizations around the globe. The acquisition of Essentially Group completes
our global operations center strategy by providing an operations center in the
Asia/Pacific region. Together with our existing North American and European
operations centers, we can now provide seamless, "follow the sun" service.
Customers have access to any one of the Company's operations centers for
information about their licensing contracts, to place an order for product, or
to receive technical support anywhere in the world.
Software Spectrum has always invested in new technology and uses its
position within the industry to bring customers the most up-to-date electronic
commerce products and electronic software distribution (ESD) services. We
understand how effective ESD can be as an alternative delivery method, both in
terms of delivering product within an organization, as well as delivering
product to customers via electronic links such as the Internet. The future
will see increases in both electronic commerce and electronic distribution of
software applications.
When it comes to our own, in-house technology, this year we developed and
deployed SOLO 95, Software Spectrum's custom, client/server-based system that
provides intelligent handling of volume licensing and maintenance (VLM)
contracts and transactions. SOLO 95 displays critical customer-specific VLM
contract information by interfacing with our Contract Management Database
(CMD). Our customers continually benefit from the automated exchange of
information between their CMD data and daily account activity on their VLM
agreements.
Also, we are pleased to announce new executive officer appointments. Keith
Coogan has been promoted to Executive Vice President and Chief Operating
Officer, a new position at Software Spectrum. Lisa Stewart, a talented,
long-term employee, was promoted to the newly created position of Vice
President of Customer Operations. We are pleased to promote two such qualified
individuals and welcome Lisa to our executive officer team.
In the coming year, Software Spectrum's opportunities are significant. We
have a larger customer base in which to sell licensing and technology services.
Our investment in technology services will enable us to provide additional,
higher margin services. We will be able to expand our Asia/Pacific presence,
as well as serve multinational organizations seamlessly around the globe with
worldwide licensing and technology support--a benefit no competitor can deliver
as effectively.
I am pleased with both our success and our new stature within the
industry, and the Company remains committed to creating increased value for its
customers, shareholders and employees. We have significant challenges ahead as
we enter this new era of growth and worldwide technology services. But we
enter this era, and this world marketplace, with a great deal of excitement and
confidence about the future.
/s/ JUDY O. SIMS
Judy O. Sims
Chief Executive Officer and President
3
<PAGE> 6
[PICTURE]
FPO
SOFTWARE SPECTRUM
BEGINS A NEW ERA
<PAGE> 7
LEADERS IN DESKTOP TECHNOLOGY
Software Spectrum has accomplished a number of significant service and
global expansion goals that will have long term effects on the Company. These
achievements have made Software Spectrum the world's largest PC software
reseller to organizations: an accomplishment that demands a continued
commitment to meeting the needs of a much larger customer base.
Software Spectrum has maintained a singular focus--desktop
technology--whether selling product, offering volume licensing contracts or
providing technology services on advanced products. The Company's strength is
in the range of services supplied, such as providing on-site consultants for
large corporations, training and support on complex technologies, strategic
planning for corporate IS departments, worldwide volume licensing contract
consulting and reporting, or determining price and availability of hard-to-find
software programs. This distinguishes the Company from those competitors that
dilute their focus by marketing software as a sideline to their primary
business. Software Spectrum sells, deploys, maintains, and supports desktop
technology--the mainstay of today's business computing environments.
To help organizations achieve maximum returns on their desktop technology
investments, the Company has established Technology Services Group (TSG)
offices around the world. Today we have 20 offices on three continents and our
future plans are to continue to expand our TSG presence geographically.
Through the acquisition of Essentially Group, Software Spectrum has been
able to complete its global operations center strategy by securing operations
in Asia/Pacific to supplement those previously established in North America and
Europe. Worldwide access provides multinational organizations, as well as
local businesses and government entities, the opportunity to draw from the
Company's service expertise.
As the Company increased its reach through new office locations, Software
Spectrum also added the Internet to its list of convenient customer purchasing
options. Users can browse through the online catalog, look up product
offerings, place orders, take advantage of promotions and request additional
information.
The Company promotes electronic software distribution (ESD) methods,
selling and supporting software management products that facilitate electronic
distribution and management of client/server software within the enterprise.
In the future, the Company anticipates ESD will also be implemented widely as a
means to distribute software via the Internet and other media.
Maintaining a cost-efficient operating structure is essential to continued
success. The Company continues to strive for greater efficiencies. For
example, the Company recently consolidated its United States distribution
facilities into Louisville, Kentucky. By centralizing fulfillment, costs are
kept down, efficiencies in shipping deadlines are gained, and the Company is
able to provide improved service to its customers from this single location.
The Company owes its solid growth, consistent profitability, and global
services strategies to a stable management team and exceptional employees.
With the depth and breadth of its talented people, Software Spectrum always
keeps an eye to the future, anticipates customer needs and positions itself to
be an able leader in the industry.
[PICTURE]
FPO
Software Spectrum has a singular focus--
to sell, deploy, maintain and support
desktop technology.
5
<PAGE> 8
[PICTURE]
SOFTWARE SPECTRUM
TECHNOLOGY SERVICES GROUP
<PAGE> 9
THE VALUE EQUATION
Software Spectrum believes our future lies in providing services that help
large organizations successfully deploy their PC computing strategies around
the world. The Company is committed to offering services and products that
improve customer business processes and maximize the return on their technology
investments.
Software Spectrum is an undisputed industry leader when it comes to
certification by major software publishers of advanced applications. The
diversified technical certifications of our people allow our customers to
receive comprehensive product support and training. And the Company continues
to add training sites to bring these services closer to customers.
Over the years, Software Spectrum has made a significant investment in
technology and services to adapt to the changing needs of customers. In 1991,
the fee-based technology services business was established to provide customers
with assistance in the implementation, deployment and ongoing support of their
personal computing strategies. Technology services, offered through the
Technology Services Group (TSG) fall within three categories: consulting,
training and support.
Today, Software Spectrum focuses on five key technologies: advanced
networking infrastructure, enterprise messaging and groupware, client/server
application development, enterprise software management services, and Internet
services. These technologies address customers' needs for providing their
employees access to information stored at sites throughout their organizations
around the globe; to enable their employees at different locations to
communicate with each other in a cost-efficient manner; to provide more
flexible access to mission-critical information; and to provide strategies for
controlling the spiraling costs of supporting distributed computing.
Software Spectrum provides additional value to organizations by
concentrating on developing applications that improve the most critical
business processes. This brings organizations early, consistent returns on
their technology investments.
Software Spectrum launched a significant geographic expansion of TSG in
fiscal 1996. Today, TSG has offices in more than 20 major markets in North
America, Europe, and Asia/Pacific. The Company plans to continue to expand its
locations in the future.
In addition to consulting and technical expertise, the Company offers
education and technical training opportunities for information technology
professionals in all the technologies supported. A broad portfolio of courses
is offered that can be tailored to meet any organization's needs, and courses
are held at the customers' offices or at Software Spectrum locations.
SmartLine is Software Spectrum's telephone support service. It is
available for a number of focus technologies, including client/server
applications or network operating systems. Software Spectrum contracts with
major organizations and publishers to augment or replace their end-user
telephone support for individual products or entire product lines.
Software Spectrum is delivering solutions to customers today that will
form the foundation of their businesses for years to come. By focusing on this
specific set of technologies, the Company is able to develop the resources
necessary to support consistent, high-quality global solutions.
[PICTURE]
Software Spectrum is committed to providing services
that help organizations maximize the return on their
technology investments.
7
<PAGE> 10
[PICTURE]
FPO
SEAMLESSLY SERVING CUSTOMERS
WORLDWIDE
<PAGE> 11
"FOLLOW THE SUN" STRATEGY
Software Spectrum now has offices on four continents, with the ability to
provide the same exceptional service in numerous languages across a diverse
group of cultures.
Rather than build a corporation that is a loose consortium of companies or
a multi-company alliance across borders as many of our competitors have done,
Software Spectrum chose to adopt a single global strategy. Wherever a customer
is located in the world, they can reach an operations center that shares the
same commitment to service and the same customer information. Multinational
companies are supplied with a seamless interface to Software Spectrum, and the
Company can leverage its buying power around the world.
Software Spectrum began its global expansion by opening a Canadian office
in Toronto in 1993, and continued in 1994 by establishing a European
headquarters in The Hague and an operations center in Dublin. The Company
augmented European operations by establishing a Technology Services Group
office in London in 1996. Today, Software Spectrum does business in over 40
countries around the world, provides support services in 15 languages, and
invoices customers in many local currencies.
The Company's recent acquisition of the assets of Egghead's corporate,
government and education (CGE) division, one of its largest competitors, was a
strategic move to increase Software Spectrum's market presence and provide the
opportunity to realize operating efficiencies of a larger organization. This
significant event in the Company's recent history effectively doubles Software
Spectrum's market presence, increases its critical mass to deal with suppliers
and customers, and expands the opportunities to market technology services and
volume licensing services to its larger customer base.
The Company's acquisition of Essentially Group, Ltd., a leading
information technology company in Australia and New Zealand, significantly
extends Software Spectrum's global expansion by providing an immediate presence
in the Asia/Pacific region. Essentially Group's established customer base,
qualified management team, strong services capabilities, and large account
penetration provide Software Spectrum a solid foundation upon which to launch
further expansion throughout the Asia/Pacific region.
The Essentially Group acquisition completes the Company's "follow the sun"
strategy, providing operations centers around the globe--in North America,
Europe and Asia/Pacific. With this expansion, Software Spectrum will be able
to service multinational companies with local offices and assist them in
implementing corporate-wide computing strategies around the world.
Software Spectrum prepared to enter the world market by developing
extensive expertise in volume licensing and maintenance (VLM) agreements and by
investing in systems that provide accurate information for consolidated
reporting. This year, Software Spectrum developed SOLO 95, a custom,
client/server-based system, which keeps accurate, up-to-date records on
customers' purchases worldwide, helps customers comply with the terms of their
volume licensing agreements and provides them with an accurate reporting
mechanism. Using individualized data in SOLO 95 in conjunction with the
Company's contract management database, Software Spectrum can guide a customer
to the best purchasing options for their company and properly administer their
licensing agreements.
Software Spectrum's licensing consultants are Software Publishers
Association (SPA) certified software managers, fully equipped to provide
customers with expert decision support and customer activity analysis. With
its volume licensing services, the Company is well positioned to provide
multinational organizations with exceptional VLM expertise, as well as
worldwide volume purchasing services, multi-currency invoicing, multi-lingual
support, global account management, and worldwide consolidated reporting.
[PICTURE] [PICTURE]
FPO FPO
EUROPEAN DIRECTORS: ASIA/PACIFIC DIRECTORS:
Left: Jim Duster, Left: Gary McNabb,
Right: Pim van Oorde Right: David Colvin
9
<PAGE> 12
[PICTURE]
FPO
THE NEXT PHASE
IN DESKTOP COMPUTING
<PAGE> 13
BUSINESS VIA THE INTERNET
Early on, Software Spectrum realized the customer and competitive
advantages of electronic commerce and electronic software distribution (ESD).
ESD takes two forms: one is distributing software within an organization,
via a company's internal network. Software Spectrum recognized the importance
of ESD technology within the large organization as a means to reduce the total
cost of ownership of desktop computing assets. ESD is more than merely an
alternative software distribution method: this technology provides hardware and
software asset management, remote desktop support and automatic installation of
operating systems, packaged and custom applications, and their related
upgrades, to the desktop.
Through its Technology Services Group, the Company supplies enterprise
software management services for customers who adopt ESD within their
organizations. These services help manage distributed PC environments using
cost-efficient approaches. One solution is the Microsoft Systems Management
Server. This solution is supported through the Software Spectrum Systems
Management Server Alliance, an organization founded by Software Spectrum with
the cooperation of Microsoft. The Alliance is a consortium of customers who
collectively represent over one million PCs. The Alliance meets regularly to
discuss the successful planning, implementing and deploying of asset management
software. Software Spectrum's role is to develop valuable add-on tools and
advise and assist these large organizations in their deployment of Microsoft
Systems Management Server.
The second form of electronic software distribution is between businesses
via electronic links such as the Internet. This form of ESD supports Software
Spectrum's strategy of providing customers with fast, convenient delivery of
software products. The Company strongly endorsed Microsoft's recent
announcement allowing Microsoft applications to be made available for ESD by
selected channel partners. Software Spectrum plans to actively participate in
this method of distribution now and in the future, as communication technology
improvements enable ESD.
Software Spectrum opened its World Wide Web site on the Internet in 1995
to provide customers with links to useful information about the Company, its
products and services, and publishers the Company represents. Software
Spectrum also offers a complete Internet online catalog that includes thousands
of products. This electronic catalog economically provides a wider range of
products for customers to choose from than can be provided with other mass
marketing vehicles. In order to help customers determine their best buying
option, Software Spectrum supplies information about products through a
comprehensive search engine, extensive product descriptions, and third-party
reviews.
Software Spectrum prides itself on having invested in new technologies
throughout the years. The Company's early and continuing investment in
electronic software distribution and electronic commerce underscores its
commitment to meeting the changing needs of customers.
[GRAPH]
Software Spectrum offers a WorldWideWeb Site
with pertinent Company information
and a complete online catalog. [GRAPH]
[GRAPH]
11
<PAGE> 14
[PICTURE]
FPO
OUR CUSTOMERS TODAY
AND TOMORROW
<PAGE> 15
EXPANDING GLOBAL PRESENCE
Fortune 1000 companies throughout North America and large organizations
throughout the rest of the world comprise Software Spectrum's primary
multinational customer base. As the world's largest PC software reseller,
Software Spectrum anticipates growth in its product and services sales,
particularly throughout new regions, such as Asia/Pacific, the fastest growing
market for PC technology. The Company also expects to see greater penetration
in European accounts, both in software sales and technology services offered by
the Technology Services Group.
With global expansion comes the ability to better service multinational
companies. The Company is realizing increased worldwide sales to individual
organizations. Also, more and more enterprises are adopting client/server
technology as a means to make mission-critical information readily available to
end users. Software Spectrum is strongly positioned to capitalize on the
increased need for effective PC computing strategies and volume licensing
management that such client/server deployment demands.
Our customers are becoming more varied. While Software Spectrum has
serviced government customers in the past, its recent acquisitions greatly
increase the government agency segment of the Company's customer base. The
Company has enhanced opportunities to offer both the products and support
services that federal, state and foreign governments require.
The same is true for educational institutions. The Company has firmly
established a presence in the educational market. Software Spectrum serves a
sector of the marketplace that strives to keep current on technology while
requiring a great deal of planning assistance. The education market has growth
potential and plans are to continue providing dedicated services to this market
segment.
Software Spectrum has always stayed focused on providing products and
technology services to large organizations. Many of the large organizations that
have recently been added to the Company's customer base did not have a
comparable level of service from their previous vendors. Therefore, this
customer group provides enhanced opportunities for growth of Software Spectrum's
licensing and technology service capabilities.
In recent years, mid-tier customers have been targeted through the
Company's TeleSales group and catalogs. This calendar year alone, Software
Spectrum plans to mail over five million catalogs. Publishers are also
supporting mid-tier customers by extending volume licensing agreements to them,
which more widely promotes the Company's licensing services. As a customer
segment, this mid-size group is also looking for easier software management,
cost-effective technical support, as well as hard-to-find products.
Throughout the last year, the Internet market has developed rapidly.
Through its Internet catalog, Software Spectrum is ready to exploit the massive
potential of this emerging market. The Internet is not one large, general
market, but many smaller specific markets. Internet offerings will allow
Software Spectrum to expand on what it does best--fulfilling the unique needs
of individual customers.
Software Spectrum has ended another profitable year and has embarked on a
new era in business. With the Company's growth comes a renewed commitment to
providing superior service to each and every customer around the globe.
[PICTURE]
FPO
Software Spectrum services a varied customer base around the world that
includes large multinational organizations and mid-tier businesses as well as
the government and education markets.
13
<PAGE> 16
QUESTIONS & ANSWERS
[PICTURE]
FPO
OUR ACQUISITIONS:
ENTERING A NEW ERA
An Interview with Judy Sims,
Chairman, CEO and President
and Keith Coogan,
Executive Vice President and COO
- WHAT WAS YOUR STRATEGY IN PURCHASING THE CORPORATE, GOVERNMENT AND
EDUCATION DIVISION OF EGGHEAD? WHAT BENEFITS WILL YOU SEE FROM THAT
ACQUISITION?
Our strategy in this acquisition was to increase our customer base and
realize the operating efficiencies of a larger, combined organization. In
addition, we saw the opportunity to capitalize on areas of our greatest
expertise, including: volume licensing of PC software to major corporations,
institutions and mid-tier business customers.
Other key benefits of the expanded customer base is that it provides
enhanced opportunities for growth of Software Spectrum Technology Services
Group (TSG) and a larger base of multinational customers to advance our global
expansion. We will be able to service these organizations with our North
American, European and Asia/Pacific operations centers and sales and marketing
locations, and TSG sites worldwide.
- HOW DOES YOUR RECENT ACQUISITION OF THE ESSENTIALLY GROUP, A LEADING
INFORMATION TECHNOLOGY COMPANY IN AUSTRALIA AND NEW ZEALAND, ENHANCE YOUR
GLOBAL PRESENCE AND IMPACT YOUR PLANS TO EXPAND INTO ASIA?
The strategic value of purchasing Essentially Group is profound.
First, we have entered the Asia/Pacific market quickly and efficiently, by
purchasing an established business in this region. Second, since Essentially
Group has been a profitable business throughout Australia and New Zealand, the
company has incoming revenue that will help fund our further expansion in other
Asian markets. Third, it completes our global operations center strategy,
which is to have centralized servicing centers in North America, Europe and
Asia/Pacific to service the needs of multinational customers around the world.
We believe the future lies in providing services that help large
organizations successfully deploy their PC computing strategies around the
world. This acquisition allows us to leapfrog our competition into the
Asia/Pacific region, and it solidifies Software Spectrum's role as a global
provider of PC technology and services.
<PAGE> 17
- YOU HAVE NOW COMPLETED TWO ACQUISITIONS IN A SHORT TIME; HOW ARE YOU
HANDLING THE GROWTH RESULTING FROM THESE PURCHASES?
We have proven ourselves in the past with solid growth, a focus on
effective cost management and exceptional volume licensing and technology
services. Software Spectrum also has the management depth and continuity and
financial resources to support these acquisitions and the new combined
organization.
The CGE division acquisition includes a direct sales force and operations
center which represent areas that were easily blended with our existing sales
and servicing teams.
The Essentially Group comes with a qualified management team that shares
with us a common vision for success in the Asia/Pacific market. The two
principals of the Essentially Group, Gary McNabb and David Colvin, have joined
our overseas management team. Therefore, the drain on existing key personnel
should be less than it would have been, had we expanded into the Asia/Pacific
market through internal growth only.
- HOW HAVE THE RECENT ACQUISITIONS CHANGED SOFTWARE SPECTRUM'S PROFILE?
WHAT IMPACT HAVE THEY HAD ON YOUR MARKET PRESENCE AND STRATEGIC FOCUS?
These acquisitions have made Software Spectrum one of the world's largest
providers of PC software and technology services: we have virtually doubled our
market presence. The CGE acquisition brings to us additional large-, medium-
and small-sized customers, and increases our number of multinational customers
and government presence as well. Today, we believe there is no software
reseller and service provider that can provide the scope of our global
services, as effectively.
Our strategy is to meet the software technology requirements of customers
in major markets throughout North America, Europe and Asia/Pacific. We are
also targeting Asia/Pacific for additional sales and marketing locations to
take advantage of that region's expected rapid growth in software procurement,
licensing management and technology services.
- WHAT IS THE STATUS OF WINDOWS 95 AND WINDOWS NT SALES? HAVE YOUR
CUSTOMERS ADOPTED THE 32-BIT OPERATING ENVIRONMENT AND WHAT IMPACT HAS THIS NEW
TECHNOLOGY HAD ON SOFTWARE SPECTRUM'S OPERATING RESULTS?
Throughout fiscal 1996, these new operating systems did not have a
significant impact on our business. As expected, large organizations have been
relatively slow to migrate to the Windows 95 operating system. However,
Microsoft recently announced more flexible offerings designed to encourage the
large organizations to move to 32-bit architectures more rapidly this year.
Both operating systems offer significant advantages for desktop computing
and each has specific reasons for deployment. Many large organizations are
completing their analysis testing and deployment planning, and we expect sales
of 32-bit operating systems and applications to increase steadily over the next
12-18 months.
15
<PAGE> 18
CORPORATE DIRECTORY
DIRECTORS
Judy O. Sims
Chairman, Chief Executive Officer and President
Software Spectrum, Inc.
Mellon C. Baird
Chairman, Chief Executive Officer and
President of Delfin Systems
Robert D. Graham
Shareholder, Locke Purnell Rain Harrell,
A Professional Corporation
Richard G. Sims
Senior Vice President, Software Spectrum, Inc.
Frank Tindle
Retired Founder, Software Spectrum, Inc.
EXECUTIVE OFFICERS
Judy O. Sims
Chairman, Chief Executive Officer and President
Richard G. Sims
Senior Vice President
Keith R. Coogan
Executive Vice President and Chief Operating Officer
Roger J. King
Vice President, Sales and Marketing
Robert B. Mercer
Vice President and Chief Information Officer
Deborah A. Nugent
Vice President of Finance and Chief Financial Officer
Lisa M. Stewart
Vice President, Customer Operations
[PICTURE]
FPO
Standing (L-R): Lisa Stewart, Roger King, Bob Mercer, Deborah Nugent
Seated (L-R): Richard Sims, Judy Sims, Keith Coogan
<PAGE> 19
SELECTED CONSOLIDATED
FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended March 31,
STATEMENT OF INCOME DATA --------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994 1993 1992
--------------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 398,501 $ 352,141 $ 283,063 $ 219,471 $ 158,905
Gross margin 54,438 48,328 38,142 30,211 21,313
Operating income 10,163 12,938 10,562 9,594 6,318
Net income $ 7,366 $ 8,788 $ 7,004 $ 6,282 $ 3,817
=============== ============== ============ ============= ============
Earnings per share $ 1.73 $ 2.08 $ 1.66 $ 1.70 $ 1.28
=============== ============== ============ ============= ============
Weighted average shares outstanding 4,260 4,217 4,216 3,690 2,988
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
BALANCE SHEET DATA --------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994 1993 1992
--------------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Working capital $ 60,920 $ 58,407 $ 50,619 $ 46,712 $ 20,316
Total assets 150,180 124,698 94,255 69,387 36,404
Shareholders' equity 73,363 65,834 57,041 49,801 22,935
</TABLE>
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following table sets forth, for each of the years indicated, the
percentage which each item listed below represents of the Company's net sales
for the years specified and the percentage increase (decrease) of each item as
compared to the immediately preceding year.
<TABLE>
<CAPTION>
Percentage of Net Sales Year to Year Change
For Years Ended March 31, For Years Ended March 31,
------------------------------- ---------------------------
1996 1995 1994 1995 to 1996 1994 to 1995
-------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 13.2% 24.4%
Cost of sales 86.3 86.3 86.5 13.2 24.0
------- ------- -------
Gross margin 13.7 13.7 13.5 12.6 26.7
Selling, general and administrative
expenses 11.1 10.0 9.7 25.1 28.3
------- ------- -------
Operating income 2.6 3.7 3.8 (21.4) 22.5
Interest income, net .2 .1 .1 107.8 41.4
------- ------- -------
Income before income taxes 2.8 3.8 3.9 (16.3) 23.2
Federal and state income taxes 1.0 1.3 1.4 (16.4) 19.0
------- ------- -------
Net income 1.8% 2.5% 2.5% (16.2) 25.5
======= ======= =======
</TABLE>
NET SALES
In fiscal 1996, the Company's revenues were derived primarily from the
sale of PC software and technology services in North America and Europe. The
Company's sales have increased in each year since the Company's inception in
1983. Increases in sales of PC software and technology services correspond to
the Company's market share growth and geographic expansion, combined with the
increase in demand for the major software products and technology services
offered by the Company. This increased demand has resulted from the continued
growth in the installed base of microcomputers, the introduction of new more
powerful microcomputer hardware systems, new software introductions and
upgrades, and customers' increased focus on the desktop for critical business
applications.
For the years ended March 1996 and 1995, sales of PC software
increased 12% and 22%, respectively. The Company sells PC software applications
through volume license and maintenance ("VLM") agreements, or right to copy
arrangements, and ships full-packaged PC software products from its
distribution centers or through distributors. The Company serves as a
designated service provider for VLM agreements, which are frequently used by
customers seeking to standardize desktop software applications and,
consequently, may involve significant quantities of unit sales for each
customer at lower per unit prices than full-packaged software products. The
increased popularity of VLM agreements has contributed to the increase in unit
volume sales, as well as the reduction in average unit prices of PC software in
recent years. Sales of software through VLM agreements represented 46%, 35%
and 15% of sales for the years ended March 1996, 1995 and 1994, respectively.
18
<PAGE> 21
NET SALES (continued)
For the years ended March 1996 and 1995, revenue from technology
services provided through the Company's Technology Services Group, increased
90% and 80%, respectively. In fiscal 1996, the Company increased the number of
its technology service offices from four in the United States to ten in North
America and Europe. In February 1996, the Company ceased the fulfillment
services it had been providing to a customer. Because the Company's revenue
from fee-based services has grown from a relatively small revenue base, as
compared to the Company's net sales of PC software, fee-based services
continued to represent less than 5% of the Company's overall sales for fiscal
1996.
In October 1995, the Company acquired Software Alternatives Inc., a
leading PC software supplier to business organizations in Canada. This
acquisition significantly increased the Company's market presence in Canada. In
April 1996, the Company acquired substantially all of the assets of the New
Zealand business operations of Essentially Group Limited and all of the
outstanding shares of capital stock of Essentially Group (Australia) Limited,
information technology companies in New Zealand and Australia. The acquisition
of Essentially Group provides the Company with a business presence in the
Asia/Pacific market and completes the Company's global operations strategy
which includes maintaining operations centers in North America, Europe and
Asia/Pacific to service the major worldwide desktop technology markets.
In May 1996, the Company acquired certain operating assets of the
corporate, government and educational ("CGE") division of Egghead, Inc., a
leading supplier of PC software to organizations in North America. For fiscal
1996, the pro forma combined revenue of the Company and the CGE division was
$762 million. The Company believes that increases in revenue depend upon the
Company's ability to maintain the customer base of the acquired businesses, to
continue to grow its market share and to capitalize on continued growth in
desktop technology markets around the world.
In fiscal 1996, fluctuations in foreign currencies against the U.S.
dollar, did not have a significant effect on the Company's operations.
GROSS MARGIN
Overall gross margin as a percentage of sales was 13.7% in fiscal 1996
and 1995, as compared to 13.5% in fiscal 1994. The stability in overall gross
margin in fiscal 1996, as compared to fiscal 1995, and the improvement in
fiscal 1995, as compared to fiscal 1994, resulted from the growth in revenue
from fee-based services. The contribution from these services represented
approximately 17% of overall gross margin for fiscal 1996, an increase from
approximately 13% for fiscal 1995 and 8% for fiscal 1994. Had the Company not
increased its revenues from services in each of fiscal 1996 and 1995, its
overall margins would have declined as compared to each of the preceding years.
Gross margins on PC software sales declined by .4% as a percentage of sales in
fiscal 1996 as compared to fiscal 1995 and .8% in fiscal 1995 as compared to
fiscal 1994. These declines were primarily attributable to the growth in sales
of software through VLM agreements in each year because the Company generally
realizes lower gross margins on sales of software through VLM agreements, as
compared to sales of full-packaged software products.
The Company anticipates that its overall gross margin, as a percentage
of sales, may decline in fiscal 1997 as a result of recent acquisitions, which
shift the Company's sales mix between products and services, if the percentage
of PC software sales made through VLM agreements continues to increase, or if
publishers respond to continued market pressure by reducing incentive funds
available to their channel partners.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include the costs of the
Company's sales and marketing organization and purchasing, distribution and
administrative costs. The Company has capitalized on the increased demand for
PC software and technology services by expanding its sales and support staff in
each of the last three fiscal years. The Company incurs a significant amount
of marketing and advertising costs based upon available advertising and
cooperative marketing funds received from software publishers. These funds are
offset against selling, general and administrative expenses.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (CONTINUED)
Selling, general and administrative expenses, as a percentage of
sales, increased in fiscal 1996 compared to fiscal 1995. This increase was
primarily due to the expansion of the Company's Technology Services Group and
development of the Company's global operations. Selling, general and
administrative expenses, as a percentage of sales, increased in fiscal 1995 as
compared to fiscal 1994, primarily due to investment in the Company's European
operations and costs associated with the upgrade of the Company's computer
systems.
The Company anticipates that its operating results in fiscal 1997 may
be negatively impacted by the costs associated with integrating its recent
business acquisitions into the Company's overall operating structure.
Thereafter, the Company believes it may realize operating efficiencies as a
result of its larger size and increased market presence.
FEDERAL AND STATE INCOME TAXES
The modest decrease in the Company's effective tax rate for fiscal
1996 to 34.7%, as compared to 34.8% for fiscal 1995, is primarily due to an
increase in tax-exempt interest income. The effective tax rate for fiscal 1995
decreased as compared to the effective tax rate of 36% in fiscal 1994, as a
result of an increase in tax exempt interest income and decrease in state and
local taxes as a percent of income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had approximately $36.5 million in
cash, cash equivalents and short term interest-bearing investments and an
unsecured $20 million credit facility under which no amounts were outstanding.
In May 1996, the Company replaced its $20 million credit facility with a new
facility including a $30 million term loan and a $60 million revolving credit
line. The new facility is initially secured by accounts receivable and
inventory and a pledge of the stock of the Company's domestic and foreign
subsidiaries. In May 1996, the Company utilized a portion of its existing cash
and its term loan to fund the acquisition of the CGE division of Egghead, Inc.
The principal amount of the term loan is due in quarterly installments
beginning in June 1997 through March 2001, increasing from $1,500,000 to
$2,250,000. The revolving credit line expires in May 1999.
The Company generally carries inventory adequate to meet full-packaged
PC software product sales for a period of approximately one month. Terms on the
Company's accounts receivable are generally net 30 days from date of invoice or
10 days in the case of summary periodic billings to customers. At March 31,
1996 and 1995, accounts receivable represented approximately 63 and 57 days of
historical sales, respectively. The increase in the number of days of
historical sales is primarily due to the increase in the percentage of
receivables represented by sales made through VLM agreements, which, in
general, require detailed reporting and, as a result, have lengthened both the
billing and collection cycles.
20
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In fiscal 1996 and 1995, $16.7 million and $15.5 million of cash,
respectively, were provided by operations. The Company realized cash from
operations in fiscal 1996 and 1995, as compared to fiscal 1994, as a result of
reduced inventory levels and management of vendor payments related to VLM
agreements. Because sales of software through VLM agreements represent sales of
licensed products not held in inventory, the Company has not increased its
inventory balances in proportion to its sales growth. In addition, certain
software suppliers' VLM programs allow for periodic payments; therefore, cash
flow from operations has improved as sales of software through VLM agreements
have increased.
The increase in furniture, equipment and leasehold improvements at
March 31, 1996, reflects capital expenditures related to the Company's
geographic expansion of its Technology Services Group, the ongoing upgrade of
its computer systems, expansion of its office facilities at the Garland, Texas,
headquarters and the acquisition of Software Alternatives Inc. The Company's
capital expenditures for fiscal 1997 are expected to total approximately $11
million, including expenditures to further upgrade and expand the Company's
computer and telephone systems in its operations centers, expand its office
facilities in Garland, Texas, and to continue to grow its Technology Services
Group division.
The Company expects that its cash requirements for fiscal 1997 will be
satisfied from cash flow from operations and borrowings under its credit
facility.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Management's Discussion and Analysis of Financial Condition, as
well as the accompanying Company's Annual Report, includes certain
forward-looking statements of the Company including future market trends,
estimates regarding the economy and the software industry in general and key
performance indicators which impact the Company. In developing any
forward-looking statements, the Company makes a number of assumptions including
expectations for continued market growth, anticipated revenue and gross margin
levels, and cost savings and efficiencies. If the industry's or the Company's
performance differs materially from these assumptions or estimates, Software
Spectrum's actual results could vary significantly from the estimated
performance reflected in any forward-looking statements. Accordingly, forward-
looking statements should not be relied upon as a prediction of actual results.
The Company's Form 10-K for the March 31, 1996 fiscal year, contains certain
cautionary statements that identify factors that could cause the Company's
actual results to differ materially from those in the forward looking
statements in this report.
INFLATION
The Company believes that inflation has not had a material impact on
its operations or liquidity to date.
21
<PAGE> 24
SOFTWARE SPECTRUM, INC.
CONSOLIDATED BALANCE SHEETS
As of March 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 28,123 $ 11,543
Short - term investments 8,407 14,728
Trade accounts receivable, net of allowance for
doubtful accounts ($1,201 at 1996 and $1,371 at 1995) 73,875 67,859
Inventories 12,937 13,665
Prepaid expenses 10,092 6,194
Other current assets 2,435 2,169
-------- --------
Total current assets 135,869 116,158
Furniture, equipment and leasehold improvements, at cost 17,033 12,696
Less accumulated depreciation and amortization 7,866 5,179
-------- --------
9,167 7,517
Intangibles and other assets 5,144 1,023
-------- --------
$150,180 $124,698
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 61,231 $ 47,539
Other current liabilities 13,718 10,212
-------- --------
Total current liabilities 74,949 57,751
Other liabilities 1,868 1,113
Shareholders' equity
Preferred stock, par value $.01; authorized, 400,000 shares;
issued and outstanding, none - -
Common stock, par value $.01; authorized, 10,000,000 shares;
issued 4,241,384 shares at 1996
and 4,209,550 shares at 1995 42 42
Additional paid-in capital 36,394 35,979
Retained earnings 37,465 30,315
-------- --------
73,901 66,336
Less treasury stock at cost; 34,026 shares at 1996 and
32,238 shares at 1995 538 502
-------- --------
Total shareholders' equity 73,363 65,834
-------- --------
$150,180 $124,698
======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
SOFTWARE SPECTRUM, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended March 31,
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $398,501 $352,141 $283,063
Cost of sales 344,063 303,813 244,921
-------- -------- --------
Gross margin 54,438 48,328 38,142
Selling, general and administrative expenses 44,275 35,390 27,580
-------- -------- --------
Operating income 10,163 12,938 10,562
Interest income (expense)
Interest income 1,175 587 423
Interest expense (53) (47) (41)
-------- -------- --------
1,122 540 382
-------- -------- --------
Income before income taxes 11,285 13,478 10,944
Federal and state income taxes 3,919 4,690 3,940
-------- -------- --------
Net income $ 7,366 $ 8,788 $ 7,004
======== ======== ========
Earnings per share $ 1.73 $ 2.08 $ 1.66
======== ======== ========
Weighted average shares outstanding 4,260 4,217 4,216
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
SOFTWARE SPECTRUM, INC.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
For the years ended March 31, 1996, 1995 and 1994
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
----------------------- Paid-In Retained -------------------
Shares Amount Capital Earnings Shares Amount Total
----------- -------- ---------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1993 4,138,668 $ 41 $ 35,282 $ 14,478 - $ - $49,801
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $44 17,227 1 258 - - - 259
Net income - - - 7,004 - - 7,004
Foreign currency
translation adjustment - - - (23) - - (23)
----------- ----- -------- -------- -------- ------- -------
Balances at March 31, 1994 4,155,895 42 35,540 21,459 - - 57,041
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $171 53,655 - 439 - - - 439
Purchase of treasury stock - - - - (32,238) (502) (502)
Net income - - - 8,788 - - 8,788
Foreign currency
translation adjustment - - - 68 - - 68
----------- ----- -------- -------- -------- ------- -------
Balances at March 31, 1995 4,209,550 42 35,979 30,315 (32,238) (502) 65,834
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $165 31,834 - 415 - - - 415
Purchase of treasury stock - - - - (1,788) (36) (36)
Net income - - - 7,366 - - 7,366
Foreign currency
translation adjustment - - - (216) - - (216)
----------- ----- -------- -------- -------- ------- -------
Balances at March 31, 1996 4,241,384 $ 42 $ 36,394 $ 37,465 (34,026) $ (538) $73,363
=========== ===== ======== ======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 27
SOFTWARE SPECTRUM, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the years ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities
Net income $ 7,366 $ 8,788 $ 7,004
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for bad debts 633 238 240
Depreciation and amortization 2,816 2,285 1,441
Changes in operating assets and liabilities
Increase in accounts receivable (4,427) (21,382) (17,487)
Decrease (increase) in inventories 755 5,314 (5,682)
Increase in prepaid expenses and other assets (5,897) (1,393) (5,740)
Increase in accounts payable and other current liabilities 15,448 21,656 17,582
-------- -------- --------
Net cash provided by (used in) operating activities 16,694 15,506 (2,642)
-------- -------- --------
Investing activities
Sales (purchases) of short-term investments, net 6,321 (9,696) (5,032)
Purchase of furniture, equipment and leasehold improvements (4,166) (3,515) (4,422)
Purchase of subsidiary, net of cash acquired (2,377) - -
-------- -------- --------
Net cash used in investing activities (222) (13,211) (9,454)
-------- -------- --------
Financing activities
Proceeds from stock issuance including tax benefit
related to stock options exercised 415 439 259
Purchase of treasury stock (36) (502) -
-------- -------- --------
Net cash provided by (used in) financing activities 379 (63) 259
-------- -------- --------
Effect of exchange rate changes on cash (271) 68 (23)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 16,580 2,300 (11,860)
Cash and cash equivalents at beginning of year 11,543 9,243 21,103
-------- -------- --------
Cash and cash equivalents at end of year $ 28,123 $ 11,543 $ 9,243
======== ======== ========
Supplemental disclosure of cash paid during the year
Income taxes $ 3,776 $ 4,308 $ 3,711
Interest 35 32 29
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 28
SOFTWARE SPECTRUM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE A -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Software Spectrum, Inc. (the "Company"), is a leading worldwide
supplier of microcomputer software and technology services to organizations. In
fiscal 1996, the Company's revenues were derived primarily from the sale of PC
software and technology services in North America and Europe.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Spectrum Integrated Services, Inc.
(d.b.a. Software Spectrum Technology Services Group), Software Spectrum Canada,
Ltd., Software Alternatives Inc., Software Spectrum Limited, and Software
Spectrum B.V. All intercompany accounts and transactions have been eliminated
in consolidation.
ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures at the date of the financial statements, and revenues and expenses
during the reporting period. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all investments with maturities of three months
or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments consist of debt securities issued by
municipalities and U.S. government agencies. These investments are classified
as available for sale and are recorded at fair value. At March 31, 1996, fair
value approximated amortized cost.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are generally due from a diverse group of
companies and, accordingly, do not include any specific concentrations of
credit risk.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of
cash and cash equivalents, investments, accounts receivable and accounts
payable, approximate their carrying values.
INVENTORIES
Inventories, which consist primarily of purchased microcomputer
software programs, are stated at cost, not in excess of market value. Cost is
determined by the moving weighted average method.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost.
Depreciation of furniture and equipment is provided primarily on the
straight-line method over the estimated useful lives ranging from 2 to 10
years. Amortization of leasehold improvements is provided on the straight-line
method over the terms of the corresponding leases.
26
<PAGE> 29
NOTE A -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of the foreign subsidiaries
are translated to U.S. dollars at year-end exchange rates. Income and expense
items are translated at the average rates of exchange prevailing during the
year. The adjustments resulting from translating the financial statements of
foreign subsidiaries are reflected in shareholders' equity.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of
shipment. Maintenance and service revenue are recognized ratably over the
contractual period or as the services are provided. Advance billings are
recorded as deferred revenue.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares
outstanding during the year increased by incremental shares included from
outstanding stock options as determined under the treasury stock method.
NOTE B -- FINANCING ARRANGEMENTS WITH BANK
As of March 31, 1996, the Company had a $20,000,000 revolving line of
credit facility under which no amounts were outstanding at March 31, 1996 or
1995. This line of credit facility was replaced on May 3, 1996 by the credit
arrangement described in Note H.
NOTE C -- OTHER CURRENT LIABILITIES
Other current liabilities includes deferred revenue of $9,463,000 and
$6,092,000 at March 31, 1996 and 1995, respectively.
NOTE D -- EMPLOYEE BENEFIT PLANS
In July 1989, the Company adopted the 1989 Stock Option Plan in which
non-incentive stock options were granted. In August 1993, the shareholders
approved the adoption of the 1993 Long Term Incentive Plan and the Company then
ceased granting new options under the 1989 Stock Option Plan. Under the terms
of the 1993 Long Term Incentive Plan, awards may be presented in the form of
incentive or non-qualified stock options, restricted shares of common stock, or
units valued on the basis of Company performance.
Stock options are granted at fair market value at the date of grant,
become exercisable over periods of up to five years and expire on various dates
from 1996 through 2002. At March 31, 1996, 312,000 shares of common stock were
reserved for future grant under the 1993 Long Term Incentive Plan.
<TABLE>
<CAPTION>
Number of
Shares
Underlying Price Range
Stock Options Options Per Share
------------- ---------- -----------
<S> <C> <C>
Outstanding at April 1, 1993 162,549 $ 1.20 to $ 25.50
Granted 148,350 16.00 to 28.00
Exercised (7,800) 1.20 to 22.50
Canceled/forfeited (6,400) 20.75 to 28.00
--------
Outstanding at March 31, 1994 296,699 1.20 to 28.00
Granted 105,250 12.00 to 18.03
Exercised (46,099) 1.20 to 16.00
Canceled/forfeited (31,675) 4.67 to 25.50
--------
Outstanding at March 31, 1995 324,175 3.75 to 28.00
Granted 121,250 17.25 to 23.25
Exercised (25,445) 3.75 to 22.25
Canceled/forfeited (19,790) 12.00 to 28.00
--------
Outstanding at March 31, 1996 400,190 4.67 to 28.00
========
Exercisable at March 31, 1996 124,620 4.67 to 28.00
========
</TABLE>
27
<PAGE> 30
SOFTWARE SPECTRUM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
NOTE D -- EMPLOYEE BENEFIT PLANS (Continued)
In July 1992, the Company approved an Employee Stock Purchase Plan
which allows eligible employees to purchase shares of common stock through
payroll deductions. The shares can be purchased at an amount equal to 85% of
the fair market value of the common stock on the exercise date. The plan
provides for a series of monthly offerings, with an exercise date of the 15th
of each month. Each employee may purchase up to $15,000 of fair market value of
common stock per calendar year, limited to 10% of a participant's compensation.
At March 31, 1996, a total of 139,000 shares of common stock were reserved for
issuance under the plan. For the years ended March 31, 1996, 1995 and 1994,
6,260, 7,556 and 9,427 shares, respectively, were issued under the plan.
The Company's employee profit sharing plan covers all employees who
are 19 years of age or older and have one or more years of service with the
Company. The plan includes an employee savings plan component which allows
participants to make voluntary pretax contributions in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. Employer
contributions to the plan are at the discretion of the Board of Directors and
are reduced by forfeited contributions. The Company's contributions to the
employee profit sharing plan for the years ended March 31, 1996, 1995 and 1994,
prior to reductions for forfeitures, were $372,000, $447,000, and $362,000,
respectively.
NOTE E -- LEASES
The Company leases various office and distribution facilities as well
as certain office equipment under leases classified as operating leases.
Minimum rental payments under all long-term, noncancellable operating leases at
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years ending March 31:
<S> <C>
1997 $ 908,000
1998 799,000
1999 778,000
2000 750,000
2001 275,000
Thereafter 36,000
----------
$3,546,000
==========
</TABLE>
Rent expense for operating leases for the years ended March 31, 1996,
1995 and 1994 totaled $1,321,000, $1,275,000 and $908,000, respectively. These
leases are subject to renewal at the Company's option upon expiration.
NOTE F -- INCOME TAXES
The Company's provision for income taxes is comprised of the
following:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $3,109,000 $4,049,000 $3,227,000
State 375,000 335,000 425,000
Deferred 435,000 306,000 288,000
---------- ---------- ----------
$3,919,000 $4,690,000 $3,940,000
========== ========== ==========
</TABLE>
28
<PAGE> 31
NOTE F -- INCOME TAXES (Continued)
The effective income tax rate varies from the federal statutory rate
as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate 34.1% 34.2% 34.0%
State and local income
taxes, net of federal
benefit 2.3 2.5 3.9
Tax-exempt interest (2.5) (1.4) ( .9)
Other .8 ( .5) (1.0)
------- ------- ------
Effective tax rate 34.7% 34.8% 36.0%
======= ======= ======
</TABLE>
Deferred tax assets and liabilities as of March 31, 1996 and 1995,
consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Allowance for bad debts $ 177,000 $ 263,000
Depreciation and amortization (371,000) (290,000)
Other 118,000 386,000
--------- ---------
$ (76,000) $ 359,000
========= =========
</TABLE>
NOTE G -- BUSINESS ACQUISITION
On October 13, 1995, Software Spectrum Canada, Ltd. acquired all of
the outstanding shares of capital stock of Software Alternatives Inc., a
privately-held supplier of personal computer software to Canadian
organizations, for approximately $2,500,000 in cash. The acquisition has been
accounted for as a purchase transaction. The estimated fair market value of the
assets acquired and liabilities assumed was $5,208,000 and $2,708,000,
respectively. The excess of the purchase price over the estimated fair market
value of the net assets acquired is amortized on the straight-line method over
20 years. Pro forma operating results, giving effect to the acquisition as
though it had occurred at the beginning of fiscal 1996 or 1995, are not
presented because they are not materially different than the Company's actual
results.
NOTE H -- SUBSEQUENT EVENTS
On April 2, 1996, the Company acquired substantially all of the assets
of the New Zealand business operations of Essentially Group Limited and all of
the outstanding shares of capital stock of Essentially Group (Australia)
Limited, privately held information technology companies in New Zealand and
Australia. The purchase price approximated $9 million including cash of $6.75
million and 113,502 shares of the Company's common stock, subject to
adjustment. The acquisition will be accounted for as a purchase transaction.
On May 13, 1996, the Company acquired certain operating assets of the
corporate, government, and educational ("CGE") division of Egghead, Inc.
("Egghead"), a leading supplier of microcomputer software to organizations in
North America, for approximately $45 million in cash. The acquisition will be
accounted for as a purchase transaction. The Company also entered into an
agreement to lease certain facilities from Egghead through May 1999, for annual
amounts increasing from approximately $390,000 to $480,000.
In May 1996, the acquisitions were partially financed through a term
bank loan in the amount of $30 million, due in quarterly installments beginning
June 30, 1997, through March 31, 2001, ranging from $1,500,000 to $2,250,000.
The financing arrangement also includes a $60 million revolving credit facility
which expires in May 1999. Until certain financial ratios are maintained for
specified periods, borrowings under the financing arrangements are secured by
liens on accounts receivable, inventory, the pledge of all the Company's shares
in Spectrum Integrated Services, Inc., and the pledge of 66.67% of the
Company's shares in its foreign subsidiaries.
29
<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Software Spectrum, Inc.
We have audited the accompanying consolidated balance sheets of Software
Spectrum, Inc. and subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Software
Spectrum, Inc. and subsidiaries as of March 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended March 31, 1996, in conformity with
generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Dallas, Texas
June 6, 1996
30
<PAGE> 33
QUARTERLY FINANCIAL DATA AND
MARKET INFORMATION (UNAUDITED)
The following table summarizes the unaudited quarterly financial data
for the years ended March 31, 1996 and 1995, and the quarterly range of high
and low quotations for the Company's common stock as reported by the Nasdaq
National Market System (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Common Stock
Price Per Share
Net Gross Net Earnings -------------------
Period Sales Margin Income Per Share High Low
------ --------- ---------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1996
Quarter ended:
June 30 $ 91,397 $ 12,432 $1,615 $.38 $21.00 $14.88
September 30 89,748 12,545 1,788 .42 16.60 12.70
December 31 117,751 15,591 2,773 .65 13.10 9.30
March 31 99,605 13,870 1,190 .28 23.50 17.00
Fiscal 1995
Quarter ended:
June 30 79,207 10,599 1,483 .35 16.00 9.25
September 30 86,164 11,454 1,748 .41 15.00 11.50
December 31 101,463 14,121 3,459 .82 18.50 12.00
March 31 85,307 12,154 2,098 .50 21.50 14.00
</TABLE>
The Company's common stock is traded over the counter and is listed on
the Nasdaq National Market System under the symbol SSPE.
On June 18, 1996, there were 162 holders of record of the Company's
common stock. The Company has never paid cash dividends on its common stock.
The Board of Directors presently intends to retain all earnings for use in the
Company's business and does not anticipate paying cash dividends in the near
term.
31
<PAGE> 34
CORPORATE HEADQUARTERS
2140 Merritt Drive
Garland, Texas 75041
214-840-6600
CANADIAN HEADQUARTERS
Software Spectrum Canada, Ltd.
10 Kingsbridge Garden Circle
Suite 301
Mississauga, Ontario L5R 3K6
416-675-1060
EUROPEAN HEADQUARTERS
Software Spectrum B.V.
Dutch Business Center
Lange Voorhout 58
2514 EG The Hague
The Netherlands
31-70-346-2936
EUROPEAN OPERATIONS CENTRE
Software Spectrum Limited
1 Richview Office Park
Clonskeagh
Dublin 14
Ireland
353-1-260-1788
ASIA/PACIFIC OPERATIONS CENTER
Software Spectrum
2-6 Orion Road
Lane Cove
NSW 2066
Australia
61-2-418-3811
NEW ZEALAND HEADQUARTERS
Software Spectrum
33 College Hill
Ponsonby
Auckland
New Zealand
64-9-309-7777
CORPORATE COUNSEL
Locke Purnell Rain Harrell P.C.
Dallas, Texas
AUDITORS
Grant Thornton LLP
Dallas, Texas
REGISTRAR/TRANSFER AGENT
Society National Bank
c/o KeyCorp Shareholder Services, Inc.
Dallas, Texas
COMMON STOCK
Software Spectrum's common stock is traded over the counter on the Nasdaq
National Market System under the symbol SSPE.
ANNUAL REPORT ON FORM 10-K
Shareholders may obtain a copy, free of charge, of Software Spectrum, Inc.'s
1996 Annual Report on Form 10-K (excluding exhibits) upon request to Investor
Relations, Software Spectrum, Inc. at Corporate Headquarters.
ANNUAL MEETING
The Annual Meeting of the Shareholders of Software Spectrum, Inc. will be held
at the Company's corporate headquarters, at 10:00 a.m. on August 15, 1996. All
shareholders are cordially invited to attend.
INVESTOR RELATIONS
Investor Relations Department
214-840-6600
Software Spectrum, Diamond, Assurance, and SmartLine are trademarks and service
marks of the Company.
32
<PAGE> 35
Inside Back Cover
<PAGE> 1
EXHIBIT 23
Consent of Independent Certified Public Accountants
We have issued our report dated June 6, 1996, accompanying the consolidated
financial statements incorporated by reference in the Annual Report of Software
Spectrum, Inc. on Form 10-K for the year ended March 31, 1996. We hereby
consent to the incorporation by reference of said report in the Registration
Statements of Software Spectrum, Inc. on Forms S-8 (Software Spectrum, Inc.
1993 Long Term Incentive Plan, Software Spectrum, Inc. Employee Stock Purchase
Plan and Amended and Restated Stock Option Plan, filed on July 19, 1995, and
Software Spectrum, Inc. Non-Employee Directors' Retainer Stock Plan, filed on
September 28, 1995).
GRANT THORNTON LLP
Dallas, Texas
July 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> MAR-31-1996
<PERIOD-END> APR-01-1995
<CASH> 28,123
<SECURITIES> 8,407
<RECEIVABLES> 75,076
<ALLOWANCES> (1,201)
<INVENTORY> 12,937
<CURRENT-ASSETS> 135,869
<PP&E> 17,033
<DEPRECIATION> (7,866)
<TOTAL-ASSETS> 150,180
<CURRENT-LIABILITIES> 74,949
<BONDS> 0
<COMMON> 0
0
42
<OTHER-SE> 73,321
<TOTAL-LIABILITY-AND-EQUITY> 150,180
<SALES> 398,501
<TOTAL-REVENUES> 398,501
<CGS> 344,063
<TOTAL-COSTS> 344,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 633
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 11,285
<INCOME-TAX> 3,919
<INCOME-CONTINUING> 7,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,366
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
<PAGE> 1
EXHIBIT 99
PURCHASE AND SALE AGREEMENT
BY AND AMONG
SOFTWARE SPECTRUM, INC., SOFTWARE SPECTRUM (NZ) LIMITED
AND
ESSENTIALLY GROUP LIMITED,
ESSENTIALLY GROUP (NZ) LIMITED,
ESSENTIALLY SOFTWARE (WELLINGTON) LIMITED,
THE MCNABB FAMILY TRUST,
MCNABB NO. 2 FAMILY TRUST,
MCNABB NO. 3 FAMILY TRUST,
RMAD TRUST, DAVID COLVIN AND GARY MCNABB
APRIL 2, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
PURCHASE AND SALE . . . . . . . . 2
-----------------
1.1 Purchase Transaction . . . . . . . . . . . . . . . . . . . . . . . . 2
--------------------
1.2 Purchase and Sale of Assets . . . . . . . . . . . . . . . . . . . . 2
---------------------------
1.3 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4
---------------
1.4 Transfer and Conveyance . . . . . . . . . . . . . . . . . . . . . . 4
-----------------------
1.5 Assumption of Certain Obligations . . . . . . . . . . . . . . . . . 4
---------------------------------
ARTICLE II
CONSIDERATION . . . . . . . . . . . 5
-------------
2.1 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------------
2.2 Sellers' Representative . . . . . . . . . . . . . . . . . . . . . . 7
-----------------------
2.3 Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 8
------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLING GROUP . . . . . . . 9
---------------------------------------------------
3.1 Organization and Authorization . . . . . . . . . . . . . . . . . . . 9
------------------------------
3.2 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . 9
---------------------------
3.3 Capital Stock of . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------
3.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 12
--------------------
3.6 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------
3.7 Assets and Properties . . . . . . . . . . . . . . . . . . . . . . . 13
---------------------
3.8 Environmental Laws and Regulations. . . . . . . . . . . . . . . . . 15
----------------------------------
3.9 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
---------
3.10 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-------------
3.11 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
--------
3.12 Litigation and Related Matters . . . . . . . . . . . . . . . . . . . 17
------------------------------
3.13 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . 17
--------------------
3.14 Trademarks, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------------
3.15 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . 18
----------------------
3.16 Employees; Employee Relations . . . . . . . . . . . . . . . . . . . 20
-----------------------------
3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
---------
3.18 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . 22
-------------------
3.19 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------
3.20 Interests in Customers, Suppliers, Etc. . . . . . . . . . . . . . . 23
---------------------------------------
3.21 Business Relations . . . . . . . . . . . . . . . . . . . . . . . . . 23
------------------
3.22 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------
3.23 Bank Accounts and Powers of Attorney . . . . . . . . . . . . . . . . 23
------------------------------------
3.24 Accuracy of Information Furnished . . . . . . . . . . . . . . . . . 23
---------------------------------
3.25 Availability of Documents . . . . . . . . . . . . . . . . . . . . . 23
-------------------------
3.26 Brokerage, Financial Advisor or Finder Fees . . . . . . . . . . . . 24
-------------------------------------------
3.27 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . 24
------------------------------------
3.28 Security Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----------------
ARTICLE IV
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . 26
---------------------------------------
4.1 Organization and Authorization . . . . . . . . . . . . . . . . . . . 26
------------------------------
4.2 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------
4.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------
4.4 Brokerage, Financial Advisor or Finder Fees . . . . . . . . . . . . 27
-------------------------------------------
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------
4.6 Title to Common Stock . . . . . . . . . . . . . . . . . . . . . . . 27
---------------------
4.7 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-----------
4.8 Financial Statements of SSI . . . . . . . . . . . . . . . . . . . . 28
---------------------------
4.9 Operations of SSI . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----------------
4.10 Litigation or Investigation of SSI . . . . . . . . . . . . . . . . . 28
----------------------------------
ARTICLE V
COVENANTS; REGISTRATION OF SHARES . . . . . . . . . . . . . . . . 28
---------------------------------
5.1 Course of Conduct by the Company and each Subsidiary . . . . . . . . 28
----------------------------------------------------
5.2 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
--------------
5.3 Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . 33
----------------------
5.4 Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
--------------
5.5 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------
5.6 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . 34
---------------
5.7 Registration of Purchase Shares . . . . . . . . . . . . . . . . . . 34
-------------------------------
5.8 Information in Registration Statement . . . . . . . . . . . . . . . 36
-------------------------------------
5.9 Holding the Purchase Shares . . . . . . . . . . . . . . . . . . . . 36
---------------------------
5.10 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . 36
--------------------
5.11 Release from Guarantees . . . . . . . . . . . . . . . . . . . . . . 37
-----------------------
5.12 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
---------
5.13 Access to Books and Records . . . . . . . . . . . . . . . . . . . . 37
---------------------------
5.14 Change of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
--------------
5.15 Assignment of Contracts and Rights . . . . . . . . . . . . . . . . . 38
----------------------------------
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF BUYER . . . . . . . . . . . . . . . . 38
----------------------------------
6.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . 38
------------------------------
6.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
---------
6.3 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------
6.4 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . 39
---------------------
6.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . 39
----------------------
6.6 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
------------
6.7 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . 39
--------------------------
6.8 No Transfers to Affiliates . . . . . . . . . . . . . . . . . . . . . 39
--------------------------
6.9 Compliance with Section 5.1 . . . . . . . . . . . . . . . . . . . . 39
---------------------------
6.10 Deliveries Relating to Stock . . . . . . . . . . . . . . . . . . . . 39
----------------------------
6.11 Additional Deliveries Relating to the Assets . . . . . . . . . . . . 40
--------------------------------------------
6.12 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 40
----------------
6.13 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . 41
---------------------
6.14 Satisfaction of Indebtedness; Repayment of Advances . . . . . . . . 41
---------------------------------------------------
6.15 Government Filings . . . . . . . . . . . . . . . . . . . . . . . . . 41
------------------
6.16 Bank Account Reconciliation. . . . . . . . . . . . . . . . . . . . . 41
---------------------------
ARTICLE VII
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
CONDITIONS TO OBLIGATIONS OF THE SELLING GROUP . . . . . . . . . . 41
----------------------------------------------
7.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . 41
------------------------------
7.2 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . 42
------------------
7.3 Certificate of Buyer . . . . . . . . . . . . . . . . . . . . . . . . 42
--------------------
7.4 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . 42
---------------------
7.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . 42
----------------------
7.6 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
------------
7.7 Bill of Sale, Assignment and Assumption Agreement . . . . . . . . . 42
-------------------------------------------------
7.8 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 42
----------------
7.9 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . 42
---------------------
7.10 Total Consideration . . . . . . . . . . . . . . . . . . . . . . . . 43
-------------------
ARTICLE VIII
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-------
8.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-------
8.2 Delivery of the Shares . . . . . . . . . . . . . . . . . . . . . . . 43
----------------------
8.3 Conveyance of the Assets . . . . . . . . . . . . . . . . . . . . . . 43
------------------------
8.4 Payments to the Selling Group . . . . . . . . . . . . . . . . . . . 43
-----------------------------
8.5 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
----------
ARTICLE IX
TERMINATION PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . 44
----------------------------
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----------
ARTICLE X
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------------
10.1 Buyer's Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
--------------
10.2 Selling Group's Losses . . . . . . . . . . . . . . . . . . . . . . . 45
----------------------
10.3 Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
--------------
10.4 Right to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . 47
---------------
10.5 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-----------
10.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
--------
10.7 Satisfaction of Claims from Escrow . . . . . . . . . . . . . . . . . 48
----------------------------------
10.8 Waiver of Contribution and Indemnification . . . . . . . . . . . . . 48
------------------------------------------
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-------------
11.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 48
----------------
11.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 48
----------------------
11.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
------------
11.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
--------
11.5 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
------------
11.6 Modification and Waiver . . . . . . . . . . . . . . . . . . . . . . 49
-----------------------
11.7 Schedules, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
--------------
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-------
11.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
-------------
11.10 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 51
------------------
11.11 Expenses and Finders' Fees . . . . . . . . . . . . . . . . . . . . . 51
--------------------------
11.12 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . 51
-------------------------
11.13 Number and Gender of Words . . . . . . . . . . . . . . . . . . . . . 51
--------------------------
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
11.14 New Zealand Currency . . . . . . . . . . . . . . . . . . . . . . . . 52
--------------------
11.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 52
------------------
</TABLE>
(iv)
<PAGE> 6
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into as of the 2nd day of April 1996, by and among Software Spectrum,
Inc., a Texas corporation ("SSI"), Software Spectrum (NZ) Limited, duly
incorporated under the laws of New Zealand ("Hybrid") (SSI and Hybrid are,
jointly and severally, referred to herein as "Buyer"), Essentially Group
Limited, duly incorporated under the laws of New Zealand (the "Company"),
Essentially Group (NZ) Limited, duly incorporated under the laws of New Zealand
and a wholly-owned subsidiary of the Company ("NZ"), Essentially Software
(Wellington) Limited, duly incorporated under the laws of New Zealand and a
wholly-owned subsidiary of NZ ("Wgtn"), McNabb No. 2 Family Trust dated
November 1, 1990, McNabb No. 3 Family Trust dated November 1, 1990, The McNabb
Family Trust dated July 1, 1986 (collectively, the "McNabb Family Trusts"),
RMAD Trust dated May 23, 1993 ("RMAD"), David Colvin, individually ("Colvin"),
Gary McNabb, individually ("McNabb") (the Company, NZ and Wgtn are sometimes
referred to herein individually as a "Seller" and collectively as the
"Sellers") (the Company, NZ, Wgtn, the McNabb Family Trusts, RMAD, Colvin and
McNabb are sometimes referred to herein collectively as the "Selling Group").
The Trustees of the McNabb Family Trusts and the RMAD Trust join in this
Agreement as part of the Selling Group not in their personal capacities but
solely for the purpose of binding the assets of the McNabb Family Trusts and
the RMAD Trust and in their capacities as trustees thereof and with the intent
to bind only the individuals for the time being serving in the office of
Trustee or Trustees of the said Trusts during the respective periods that he,
she or they hold that office and not thereafter and all the liabilities and
obligations of the Trustees shall for all purposes be construed not as
unlimited personal liabilities but only as liabilities to perform and observe
the covenants and provisions of this agreement out of and so far as will extend
the property and funds of the Trustees or their successors as Trustees in the
proper and normal course of their administration of the Trust and properly
applicable to the purpose of the Trusts. All references to the Selling Group
in this Agreement shall refer to such Trustees in their capacities as trustees
and not in their personal capacities, however, nothing herein shall limit Anna
McNabb's liability insofar as her marital assets would otherwise be bound as
the spouse of Gary McNabb. McNabb and Colvin are executing this Agreement in
consideration of the benefits to be derived by them through their interests in
the Sellers.
W I T N E S S E T H :
WHEREAS, the McNabb Family Trusts and RMAD currently own all of the
issued ordinary shares of the Company; and
WHEREAS, the Company currently owns 1,000 ordinary shares of
Essentially Group (Australia) Limited, duly incorporated under the laws of New
Zealand ("Australia") (the "Australia Shares"); and
WHEREAS, the Company desires to sell to SSI, and SSI desires to buy
from the Company, the Australia Shares; and
WHEREAS, the Company currently owns all of the issued ordinary shares
of share capital of NZ and Wgtn; and
<PAGE> 7
WHEREAS, the Sellers desire to sell to Hybrid, and Hybrid
desires to buy from the Sellers, substantially all of the assets of the
business operations of the Sellers in New Zealand;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and conditions
hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase Transaction. On Closing Date (as defined below), (a)
SSI agrees to purchase from the Company, and the Company agrees to sell to SSI,
the Australia Shares and (b) Hybrid agrees to purchase from the Sellers, and
the Sellers agree to sell to Hybrid, the Assets (as defined below) for the
Total Consideration (as defined below).
1.2 Purchase and Sale of Assets. The Company, NZ and Wgtn shall,
and the McNabb Family Trusts, RMAD, McNabb and Colvin shall cause the Company,
NZ and Wgtn to sell, convey, transfer, assign and deliver to Hybrid, and Hybrid
will acquire and accept from the Company, NZ and Wgtn, at the Closing (as
defined below), the following assets and properties, free and clear of any and
all Liens (as herein defined) (collectively the "Assets"):
(a) All of the interest in real property of the Company,
NZ and Wgtn subject to Real Property Leases (as defined in Section
3.7) listed on Schedule 1.2(a), including, without limitation, all
buildings, improvements, rights-of-way, easements, rights, liberties,
privileges, hereditaments and appurtenances therefor and located
thereon.
(b) All equipment, supplies, furniture, computer
hardware, telephone equipment, copiers, fixtures, improvements and
other tangible personal property, wherever located, owned by the
Company, NZ and Wgtn for use or used in the operation of their
respective businesses, and otherwise including, without limitation,
the equipment, supplies, furniture, computer hardware, telephone
equipment, copiers, fixtures, improvements and other tangible property
described in Schedule 1.2(b) and, to the extent actually assignable or
transferable, all rights to the agreements with and warranties
received from the manufacturers and distributors of all such personal
property and fixtures and any related contract rights, choses in
action, claims, credits, rights of recovery and setoffs with respect
to such personal property and fixtures.
(c) All of the Company's, NZ's and Wgtn's right, title
and interest in, to and under the leases and rental agreements in
respect of equipment or other tangible personal property for use or
used in the operation of their respective businesses listed in
Schedule 1.2(c) (the "Personal Property Leases"). Schedule 1.2(c)
sets forth the material terms of each Personal Property Lease,
including lease term, cancellation rights, monthly rental and renewal
terms.
(d) All Intellectual Property (has herein defined)
possessed or owned by the Company, NZ and Wgtn and used in the
operation of their respective businesses
-2-
<PAGE> 8
or necessary for the operation of their respective businesses, and all
right, title and interest of the Company, NZ and Wgtn in, to and under
licenses, sublicenses or like agreements providing the Company, NZ and
Wgtn any right or concession to use any software, information or other
intellectual property, and, in each case, for use or used in the
operation of their respective businesses or necessary for the
operation of their respective businesses, including all technology,
know-how, trade secrets, formulae, drawings, designs, systems, forms,
technical manuals, data, computer programs, product information and
development work-in-progress and all documentary evidence thereof
(including the rights of the Company, NZ and Wgtn to prevent the use
by others), and otherwise including, but not limited to, the
Intellectual Property described in Schedule 1.2(d). All right, title
and interest of the Company, NZ and Wgtn in, to and under those
trademarks, trademark registrations, trademark registration
applications, servicemarks, trade names, all other names and slogans
embodying business, product or service goodwill and copyrights and
copyrighted material described in Schedule 1.2(d), and which is a true
and complete list of all such rights that are primarily related to the
operation of their respective businesses.
(e) All licenses, franchises, permits and governmental
authorizations (including any of the foregoing issued or granted by
any federal, state or local government) relating to the conduct of the
Company's, NZ's and Wgtn's business, to the extent assignable or
transferable, including, without limitation, the licenses, franchises,
permits and governmental authorizations described in Schedule 1.2(e).
(f) All of the Company's, NZ's and Wgtn's right, title
and interest in, to and under all contracts and agreements, customer
purchase orders, customer sales orders, sale and distribution
agreements, volume license and maintenance agreements, joint venture
interests, rights to rebates and allowances of any kind and other
instruments and agreements relating to the operation of their
respective businesses, and all goodwill associated with their
respective businesses, including, without limitation, the other
contracts, agreements and other assets described in Schedule 1.2(f).
(g) All of the Company's, NZ's and Wgtn's books and
records (including all disks, tapes and other media-storage data and
information), mailing lists, pricing files and formulae, vendor data,
equipment maintenance records, warranty information, records of
facilities operations, business plans, standard forms of documents,
manuals of operations or business procedures for use or used in the
operation of their respective businesses, wherever located, relating
to the their current operations, except Sellers shall be entitled to
retain the minute books and other records required by law to be
retained by Sellers, provided that Sellers will provide Buyer with
full and complete copies thereof.
(h) All insurance proceeds paid or payable to the
Company, NZ and Wgtn in respect of any damage to or destruction or
loss of any assets or rights of the Company, NZ and Wgtn relating to
their respective businesses whether or not reflected on the Schedules
referred to in this Section 1.2.
(i) All cash, bank deposits or similar cash and cash
equivalent items of the Company, NZ and Wgtn.
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(j) All of the Company's, NZ's and Wgtn's right, title
and interest in and to (a) the trade accounts receivable accrued in
accordance with GAAP (as defined below) arising from the operation of
their respective businesses listed in Schedule 1.2(j) or otherwise
arising in connection with their respective businesses, and (b) all
other accounts receivable listed in Schedule 1.2(j) or otherwise
arising from the operation of their respective businesses, including,
without limitation, advertising and promotional expenditures
reimbursable from suppliers under cooperative advertising and other
promotional and market development fund arrangements, amounts due from
vendors for returned inventory, vendor rebates, marketing expenses
payable by vendors and other programs.
(k) All stock in trade and inventories of the Company, NZ
and Wgtn wherever located listed on Schedule 1.2(k) or otherwise
existing or on hand at the Closing Date;
(l) All customer lists and prospective customer lists of
the Company, NZ and Wgtn wherever located;
(m) Any other asset for use or used in connection with
the Company's, NZ's and Wgtn's business (including, without
limitation, rights in telephone and facsimile numbers or communication
codes used by the Company, NZ and Wgtn) used in or necessary for the
conduct of their respective businesses.
All Schedules provided for in Section 1.2 will reflect the Assets as of the
most recent practicable date prior to the Closing Date and will be supplemented
and updated as of March 31, 1996 to reflect changes in such Schedules resulting
from the operations in the ordinary course of business consistent with past
practice of Sellers in New Zealand. Such updated Schedules are to be provided,
reviewed and agreed upon by Sellers and Buyer not later than April 30, 1996,
subject only to any changes to such Schedules to be reviewed and approved by
Buyer not later than June 30, 1996 in connection with the completion of the
Audit (as defined below) whereupon such Schedules shall become the definitive
Schedules under Section 1.2 of this Agreement.
1.3 Excluded Assets. The Company, NZ and Wgtn will not sell,
convey, transfer, assign or deliver to Hybrid, and Hybrid will not acquire from
the Company, NZ and Wgtn the assets, properties and rights listed on Schedule
1.3.
1.4 Transfer and Conveyance. The Company, NZ and Wgtn shall
execute and deliver to Hybrid at the Closing a Bill of Sale, Assignment and
Assumption Agreement in the form attached hereto as Exhibit A, and all such
other assignments, endorsements and instruments of transfer as shall be
necessary or appropriate to carry out the intent of this Agreement and as shall
be sufficient to vest in Hybrid title to all of the Assets and all right, title
and interest of the Company, NZ and Wgtn thereto.
1.5 Assumption of Certain Obligations. Hybrid will assume and
will be liable for the Company's, NZ's and Wgtn's obligations to render
performance arising after the Closing Date under the agreements and assets
specifically described on Schedules 1.2(a), 1.2(c), 1.2(d), 1.2(f), 1.2(k) and
Schedule 1.5 (but not any obligation for performance or obligation or liability
of the Company, NZ and Wgtn for default or nonperformance under any of the
assets or agreements listed on Schedules 1.2(a), 1.2(c), 1.2(d), 1.2(f), 1.2(k)
and Schedule
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1.5 arising prior to the Closing Date). Except as expressly provided herein,
Hybrid will not assume and will not be liable for any other debts, contracts,
leases, liabilities, licenses, agreements, instruments, arrangements,
commitments, obligations, restrictions, disabilities or duties of the Company,
NZ or Wgtn (including, but not limited to, any and all of the obligations of
the Company and any member of the Selling Group to Bancorp Investments
Limited), other than those arising after the Closing Date under the assets and
agreements listed on Schedules 1.2(c), 1.2(d), 1.2(f), 1.2(k) and Schedule 1.5.
Hybrid shall execute and deliver to the Company, NZ and Wgtn at the Closing the
Bill of Sale, Assignment and Assumption Agreement in the form attached hereto
as Exhibit A.
ARTICLE II
CONSIDERATION
2.1 Consideration.
(a) The aggregate consideration for the Australia Shares
and the Assets (the "Total Consideration") shall be the product of (i)
ten (10) times (ii) the Company's consolidated "net earnings" (as
defined herein) for the Company's fiscal year ending March 31, 1996,
subject to adjustment as provided in Section 2.1(c) below. At
Closing, the Cash Portion (as defined herein) to be paid and the
Purchase Shares (as defined herein) to be issued will be based upon
the most current reasonable estimate of net earnings of the Company
(not to exceed $1,370,000 (New Zealand)) for the fiscal year ending
March 31, 1996, prepared by the Company and reviewed by SSI. The
Total Consideration shall be paid by Buyer to Sellers as follows:
(i) as consideration for the Assets, Buyer shall pay to
the Sellers the sum of cash equal to the product of
(A) .75 times (B) the Total Consideration (the "Cash
Portion"); and
(ii) as consideration for the Australia Shares, SSI shall
issue to Company in the aggregate that number of
shares of common stock, par value $.01 per share, of
Buyer ("Buyer Common Stock") determined by (A) (1)
multiplying the Total Consideration by (2) .25 and
(B) taking the product therefrom and dividing such
amount by the average of the closing bid and ask
prices of Buyer Common Stock (the "Average Share
Price") as reported on the National Association of
Securities Dealers - National Market System for ten
(10) consecutive trading days ending three (3)
business days prior to the Closing Date. No
fractional shares shall be issued in connection with
this transaction. The Company will receive the
largest whole number of shares of Buyer Common Stock
deliverable pursuant to this Section 2.1(a)(ii) (the
"Purchase Shares") and an amount in cash equal to the
Average Share Price multiplied by the fractional
shares deliverable pursuant to the computation set
forth in this Section 2.1(a)(ii).
(b) At the Closing Buyer shall deliver:
(i) $5.0 million (New Zealand) of the Total
Consideration, allocated between the Cash Portion and
the Purchase Shares as set forth below
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(the "Escrowed Amount"), to such escrow agent as
shall be chosen by mutual agreement of the Sellers'
Representative (as defined herein) and Buyer prior to
the Closing (the "Escrow Agent") to be held and
disbursed pursuant to the Escrow Agreement (as
defined below). The Escrowed Amount shall include an
Audit Escrow consisting of $3.0 million of the Cash
Portion and $1.0 million (New Zealand) of the
Purchase Shares (the "Audit Escrow"), to be held
pending any adjustment in the Total Consideration as
a result of the audit of the Company's financial
statements in accordance with the provisions of
Section 2.1(c) of this Agreement and the Escrow
Agreement. The balance of the Escrowed Amount of
$1.0 million (New Zealand) shall be retained from the
Cash Portion to be held by the Escrow Agent to
satisfy claims and expenses, if any, of Buyer arising
under this Agreement pursuant to Article X hereof.
The Cash Portion of the Escrowed Amount will be
invested in interest-bearing securities pursuant to
the terms of the Escrow Agreement attached hereto as
Exhibit B, with such changes or additions thereon as
may be requested by the Escrow Agent and mutually
agreeable to Sellers' Representative and Buyer (the
"Escrow Agreement"). Buyer and Sellers'
Representative agree to enter into the Escrow
Agreement at the Closing;
(ii) to the Sellers the balance of the Cash Portion of the
Total Consideration by check or wire transfer to an
account designated by Sellers; and
(iii) to the Company, the balance of the Purchase Shares.
(c) The Total Consideration shall be subject to
adjustment based on the actual net earnings of the Company on a
consolidated basis as reflected in the Company's audited financial
statements for the fiscal year ending March 31, 1996, such audit to be
performed by Coopers & Lybrand and shall be completed within sixty
(60) days following the Company's fiscal year ending March 31, 1996
(the "Audit"). As used in this Agreement, "net earnings" shall mean
the consolidated net after tax earnings of the Company as reflected on
the Company's statements of earnings for the fiscal year ended March
31, 1996 prepared in conformity with GAAP (as defined herein)
consistently applied, without any adjustment thereto (either upwards
or downwards) for extraordinary or nonrecurring items or events. The
Company shall deliver the Audit to Buyer within one day after receipt
thereof by the Company. Buyer shall have thirty (30) days to have the
Audit reviewed by Buyer and an independent accounting firm of its
choosing. In connection with such review, Buyer shall have complete
access to the Company's auditors and the audit workpapers. If Buyer's
auditors disagree with any aspect of the audit, Buyer and Sellers'
Representative shall mutually agree upon an independent accounting
firm to resolve such dispute. The fees of such third independent
accounting firm shall be paid one-half from the Cash Portion of the
Audit Escrow and one-half by Buyer. If, based on such audited
financial statements, the Total Consideration (as calculated pursuant
to Section 2.1(a) above) should be adjusted upward, Buyer shall pay to
the Sellers in cash the aggregate amount of the increased
consideration, to be allocated among the Sellers in accordance with
the percentages set forth on the signature page
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<PAGE> 12
of this Agreement; provided, however, that in no event shall the Total
Consideration, as adjusted, exceed $16.4 million (New Zealand). If,
based on such audited financial statements, the Total Consideration
(as calculated pursuant to Section 2.1(a) above) should be adjusted
downward, the Buyer shall send written instruction to the Escrow
Agent, with a copy to the Sellers' Representative, of the aggregate
amount of the consideration to be returned to Buyer which shall be
allocated among the Sellers in accordance with the percentages set
forth on the signature page of this Agreement. The Escrow Agent shall
promptly disburse such amount to Buyer, up to the Audit Escrow
balance. If the Total Consideration is adjusted downward by an amount
exceeding the Audit Escrow, in addition to the return of the full
amount of the Audit Escrow to Buyer, the Selling Group will cause the
amount of such excess consideration paid by Buyer to be returned to
Buyer within ten (10) days following such Audit. If the related party
advances set forth in Schedule 3.16 are less than the amount of such
advances determined by the Audit, the net difference will be paid to
the Buyer either from the Escrowed Amount or directly by the Selling
Group, at Buyer's option, within ten (10) days following such Audit.
(d) Payment and performance by the Buyer of liabilities
and obligations assumed under Section 1.5 shall be in addition to
payment of the Total Consideration by the Buyer under this Agreement.
2.2 Sellers' Representative.
(a) In order to efficiently administer (i) the waiver of
any condition to the obligations of the Sellers to consummate the
transactions contemplated hereby, and (ii) the defense and/or
settlement of any claims for which the Sellers may be required to
indemnify the Buyer and/or the Company pursuant to Article X hereof,
the Selling Group hereby designate Robert Parkinson, accountant, of
Auckland, as their representative (the "Sellers' Representative").
(b) The Selling Group hereby authorizes the Sellers'
Representative (i) to take all action necessary in connection with the
waiver of any condition to the obligations of the Selling Group to
consummate the transactions contemplated hereby, or the defense and/or
settlement of any claims for which the Selling Group may be required
to indemnify Buyer and/or the Company pursuant to Article X hereof,
(ii) to give and receive all notices required to be given under the
Agreement, and (iii) to take any and all additional action as is
contemplated to be taken by or on behalf of the Selling Group by the
terms of this Agreement.
(c) In the event that the Sellers' Representative dies,
becomes unable to perform his responsibilities hereunder or resigns
from such position, Gary McNabb, of Auckland, shall fill such vacancy
and shall be deemed to be the Sellers' Representative for all purposes
of this Agreement.
(d) All decisions and actions by the Sellers'
Representative, including without limitation any agreement between the
Sellers' Representative and Buyer relating to the defense or
settlement of any claims for which the Selling Group may be required
to indemnify Buyer and/or the Company pursuant to Article X hereof,
shall be binding upon all of the Selling Group, and no member of the
Selling Group shall have the right to object, dissent, protest or
otherwise contest the same.
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<PAGE> 13
(e) By their execution of this Agreement, each member of
the Selling Group agrees with Buyer and with each other that:
(i) Buyer shall be able to rely conclusively on the
instructions and decisions of Sellers' Representative
as to the settlement of any claims for
indemnification by Buyer and/or the Company pursuant
to Article X hereof or any other actions required to
be taken by the Sellers' Representative hereunder,
and no party hereunder shall have any cause of action
against Buyer for any action taken by the Buyer in
reliance upon the instructions or decisions of the
Sellers' Representative;
(ii) all actions, decisions and instructions of the
Sellers' Representative shall be conclusive and
binding upon all of the Selling Group and no member
of the Selling Group shall have any cause of action
against the Sellers' Representative for any action
taken, decision made or instruction given by the
Sellers' Representative under this Agreement, except
for fraud or wilful breach of this Agreement by the
Sellers' Representative;
(iii) the provisions of this Section 2.2 are independent
and severable, are irrevocable and coupled with an
interest and shall be enforceable notwithstanding any
rights or remedies that any member of the Selling
Group may have in connection with the transactions
contemplated by this Agreement;
(iv) remedies available at law for any breach of the
provisions of this Section 2.2 are inadequate;
therefore, Buyer, the Selling Group and the Sellers'
Representative shall be entitled to temporary and
permanent injunctive relief without the necessity of
proving damages if Buyer, the Selling Group or the
Sellers' Representative brings an action to enforce
the provisions of this Section 2.2; and
(v) the provisions of this Section 2.2 shall be binding
upon the executors, heirs, legal representatives and
successors of each member of the Selling Group, and
any references in this Agreement to a member of the
Selling Group or the Selling Group shall mean and
include the successors to the Selling Group, rights
hereunder, whether pursuant to testamentary
disposition, the laws of descent and distribution or
otherwise.
(f) All fees and expenses incurred by the Sellers'
Representative shall be paid by the Selling Group.
2.3 Tax Considerations.
(a) The parties intend that the sale of the Assets is a
sale of a going concern and that Section 11(1)(c) of the New Zealand
Goods and Services Tax Act of 1985 (the "Act") shall apply to the sale
and purchase contemplated by this Agreement and that the purchase
price of the Assets has been determined on the basis
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<PAGE> 14
that under the Act the sale is a supply to a registered person of a
taxable activity as a going concern and accordingly Goods and Services
Tax is charged to the Sellers at the rate of zero percent.
Accordingly, the Buyer warrants and represents to the Sellers that the
Buyer is and will be on Closing Date a registered person within the
meaning of that Act and undertakes to preserve all records referred to
in Section 75 of the Act which may be transferred to the Buyer
pursuant to this Agreement for such periods as may be required by law
and to make such records available to them and the Seller's
representatives as and when they shall reasonably require them.
(b) For the purposes of Part EH of the New Zealand Income
Tax Act of 1994, the parties agree and confirm that, for the purposes
of the definition of "core acquisition price" in Part EH of the Income
Tax Act, the consideration for the Assets is the lowest price, that
the parties would have agreed upon at which the Assets could be
purchased had the full purchase price for the Assets been paid on
Closing Date and that the consideration for the Assets does not
include any capitalized interest.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLING GROUP
Each member of the Selling Group hereby jointly and severally
represents and warrants to Buyer as follows:
3.1 Organization and Authorization. This Agreement has been duly
executed and delivered by the Selling Group and constitutes a valid and binding
obligation of each member of the Selling Group, enforceable in accordance with
its terms, except to the extent such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally.
3.2 Existence and Good Standing. The Company is a company duly
incorporated, validly existing and capable of suing and being sued under the
laws of New Zealand with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company does not have any subsidiaries except for NZ, Wgtn,
Australia, The Essentially Group Pty Limited, duly incorporated under the
Corporations Law of Australia (company no. 058 645 677) ("Pty"), and
Essentially - Electronic Services Group Pty Ltd., duly incorporated under the
Corporations Law of Australia (company no. 071 264 492) ("Electronic") (each
individually, a "Subsidiary" and collectively the "Subsidiaries"). The
Subsidiaries are companies duly incorporated, validly existing and capable of
suing and being sued under the laws of New Zealand and/or Australia,
respectively, with all requisite corporate power and authority to own, lease
and operate their respective properties and to carry on their respective
businesses as now being conducted. Each of the Company and the Subsidiaries is
duly qualified or licensed as a foreign corporation and in good standing in
each jurisdiction in which the character or location of the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary. Set forth on Schedule 3.2 is a list of the
jurisdictions in which the Company and each of the Subsidiaries is qualified or
licensed to do business as a foreign corporation.
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<PAGE> 15
3.3 Capital Stock of Subsidiaries
(a) Australia has issued 1,000 ordinary shares. No other
shares have been issued. All of the Australia Shares have been
validly issued and are fully paid and nonassessable and no holder
thereof is entitled to any preemptive rights. There are no outstanding
conversion or exchange rights, subscriptions, options, warrants or
other arrangements or commitments obligating Australia to issue any
shares or other securities.
(b) At Closing, the Company will (i) own of record and
beneficially have good and marketable title to 1,000 of the Australia
Shares, representing all of the issued ordinary shares of Australia,
free and clear of any and all liens, security interests, encumbrances,
charges, adverse claims, options, rights, contracts, calls or
commitments of any character whatsoever and (ii) have the right to
vote the Australia Shares on any matters as to which any ordinary
shares of Australia are entitled to be voted under the laws of New
Zealand and Australia's Constitution, free of any right of any other
person.
(c) Pty's authorized share capital consists of (i)
500,000 ordinary shares, par value $1.00 per share, 100,000 "A" Class
Shares, par value $1.00 per share, 100,000 "B" Class Shares, par value
$1.00 per share, 100,000 "C" Class Shares, par value $1.00 per share,
100,000 "D" Class Shares, par value $1.00 per share, and 100,000
Redeemable Preference Shares, par value $1.00 per share, of which
three (3) shares are issued ordinary shares (the "Pty Shares"). No
other shares of share capital have been issued. All of the Pty Shares
have been validly issued and are fully paid and nonassessable and no
holder thereof is entitled to any preemptive rights. There are no
outstanding conversion or exchange rights, subscriptions, options,
warrants or other arrangements or commitments obligating Pty to issue
any shares or other securities.
(d) At Closing, Australia will (i) own of record and
beneficially have good and marketable title to three (3) of the Pty
Shares, representing all of the issued ordinary shares of Pty, free
and clear of any and all liens, security interests, encumbrances,
charges, adverse claims, options, rights, contracts, calls or
commitments of any character whatsoever and (ii) have the right to
vote the Pty Shares on any matters as to which any ordinary shares of
Pty are entitled to be voted under the laws of Australia and Pty's
Articles of Association, Memorandum of Association (or Constitution as
the case may be), free of any right of any other person.
(e) Electronic's authorized share capital consists of (i)
100,000,000 shares of ordinary capital stock, par value $1.00 per
share, of which two (2) shares are issued ordinary shares (the
"Electronic Shares"). No other shares of share capital have been
issued. All of the Electronic Shares have been validly issued and are
fully paid and nonassessable and no holder thereof is entitled to any
preemptive rights. There are no outstanding conversion or exchange
rights, subscriptions, options, warrants or other arrangements or
commitments obligating Electronic to issue any shares or other
securities.
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<PAGE> 16
(f) At Closing, Pty will (i) own of record and
beneficially have good and marketable title to two (2) of the
Electronic Shares, representing all of the issued ordinary shares of
Electronic, free and clear of any and all liens, security interests,
encumbrances, charges, adverse claims, options, rights, contracts,
calls or commitments of any character whatsoever and (ii) have the
right to vote the Electronic Shares on any matters as to which any
ordinary shares of Electronic are entitled to be voted under the laws
of Australia and Electronic's Articles of Association, Memorandum of
Association (or Constitution as the case may be), free of any right of
any other person.
(g) NZ's authorized share capital consists of (i) 50,000
shares of ordinary capital stock, par value $1.00 per share, of which
50,000 shares are issued and fully paid ordinary shares (the "NZ
Shares"). No other shares of share capital are issued or outstanding.
All of the NZ Shares have been validly issued and are fully paid and
nonassessable and no holder thereof is entitled to any preemptive
rights. There are no outstanding conversion or exchange rights,
subscriptions, options, warrants or other arrangements or commitments
obligating Auckland to issue any shares or other securities.
(h) At Closing, the Company will (i) own of record and
beneficially have good and marketable title to 49,999 of the NZ Shares
(with the remaining one (1) share owned by McNabb Family Trust No. 2),
representing all of the issued and outstanding shares of NZ, free and
clear of any and all liens, security interests, encumbrances, charges,
adverse claims, options, rights, contracts, calls or commitments of
any character whatsoever and (ii) have the right to vote the NZ Shares
on any matters as to which any ordinary shares of NZ are entitled to
be voted under the laws of New Zealand and NZ's Articles of
Association, Memorandum of Association (or Constitution as the case
may be), free of any right of any other person.
(i) Wgtn's authorized share capital consists of (i) 1,000
shares of ordinary capital stock, par value $1.00 per share, of which
1,000 shares are issued ordinary shares (the "Wgtn Shares"). No other
shares of share capital are issued or outstanding. All of the Wgtn
Shares have been validly issued and are fully paid and nonassessable
and no holder thereof is entitled to any preemptive rights. There are
no outstanding conversion or exchange rights, subscriptions, options,
warrants or other arrangements or commitments obligating Wgtn to issue
any shares or other securities.
(j) At Closing, the Company will (i) own of record and
beneficially have good and marketable title to 999 of the Wgtn Shares
(with the remaining one (1) share owned by McNabb), representing all
of the issued and outstanding shares of Wgtn, free and clear of any
and all liens, security interests, encumbrances, charges, adverse
claims, options, rights, contracts, calls or commitments of any
character whatsoever and (ii) have the right to vote the Wgtn Shares
on any matters as to which any ordinary shares of Wgtn are entitled to
be voted under the laws of New Zealand and Wgtn's Articles of
Association, Memorandum of Association (or Constitution as the case
may be), free of any right of any other person.
3.4 Authorization.
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<PAGE> 17
(a) Each of the Sellers has full corporate power, capacity
and authority to execute this Agreement and all other agreements and
documents contemplated hereby. The execution and delivery of this
Agreement and such other agreements and documents by the Sellers and
the consummation by the Sellers of the transactions contemplated
hereby have been duly authorized by the Sellers and no other corporate
action on the part of the Sellers is necessary to authorize and
perform the transactions contemplated hereby.
(b) Each member of the Selling Group (other than the
Sellers) has the full power, right, capacity and authority to execute
this Agreement and all other agreements and documents contemplated
hereby. No other action on the part of any member of the Selling
Group (other than the Sellers) is necessary to authorize and perform
the transactions contemplated hereby.
3.5 Financial Statements.
(a) The Selling Group has previously furnished to Buyer
(i) the audited balance sheet of the Company and the audited combined
balance sheet of the Subsidiaries as of March 31, 1995, (the "Audited
Balance Sheets") and the related combined and separate statements of
earnings, shareholders' funds and cash flows of the Subsidiaries for
the fiscal year then ended (collectively the "1995 Financial
Statements") and (ii) the unaudited balance sheet of the Company and
the Subsidiaries on a combined basis as of January 31, 1996, and the
related statements of earnings, shareholders' funds and cash flows of
the Company and the Subsidiaries on a combined basis for the ten month
period then ended (collectively the "Current Financial Statements").
The Audited Balance Sheets and the 1995 Financial Statements have been
prepared in conformity with generally accepted accounting practice (as
defined in the Financial Reporting Act 1993 (NZ)) consistently applied
("GAAP") and, in the case of the Audited Balance Sheets, have been
certified without qualification by Coopers & Lybrand. The Audited
Balance Sheets, the 1995 Financial Statements and the Current
Financial Statements (collectively the "Financial Statements") have
been delivered to the Buyer prior to the date of this Agreement.
(b) The 1995 Financial Statements present fairly the
financial condition, retained earnings, assets and liabilities of the
Company as of the date indicated therein and the results of operations
and cash flows of the Company for the period covered thereby in
conformity with GAAP. The Current Financial Statements present
fairly, in all material respects, the financial condition, retained
earnings, assets and liabilities of the Company as of the dates
indicated therein and the results of operation and cash flows of the
Company for the periods covered thereby and in the opinion of and to
the best knowledge and belief of management of Sellers, there are no
material adjustments necessary to be made to the Current Financial
Statements in order to conform such financial statements to GAAP.
(c) Except to the extent (and not in excess of the
amounts) reflected in the January 31, 1996 balance sheet included in
the Current Financial Statements or as disclosed on Schedule 3.5, the
Company has no liabilities or obligations whether accrued, absolute,
contingent, unasserted or otherwise (including, without limitation,
taxes payable and deferred taxes and interest accrued required to be
reflected in the
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<PAGE> 18
Financial Statements or the notes thereto) other than current
liabilities incurred in the ordinary course of business, consistent
with past practice.
(d) The Selling Group has delivered to Buyer the audited
financial statements of each of the Subsidiaries as of and for the
fiscal year ended March 31, 1995, and interim financial statements for
each of the Subsidiaries as of January 31, 1996 (collectively the
"Subsidiary Financial Statements"). Except as reflected in the
Subsidiary Financial Statements, none of the Subsidiaries has any
liabilities or obligations whether accrued, absolute, contingent,
unasserted or otherwise (including without limitation, taxes payable
and deferred taxes and interest accrued required to be reflected in
the Subsidiary Financial Statements in the notes thereto).
3.6 Tax Matters. Each of the Company and the Subsidiaries has
correctly filed all income tax returns required to be filed by it and all
returns of other Taxes (as defined below) required to be filed by it and has
paid or properly has accrued in the Financial Statements all Taxes. Except as
set forth on Schedule 3.6, (i) no action or proceeding for the assessment or
collection of any Taxes is pending against the Company or any Subsidiary; (ii)
no deficiency, assessment or other claim for any Taxes has been asserted or
made against the Company or any Subsidiary that has not been fully paid or
finally settled; and (iii) no issue has been raised by any taxing authority in
connection with an audit or examination of any return of Taxes. To the extent,
if any, such Taxes are not due and payable, will be assessed following the date
of this Agreement for the current fiscal year, or are being contested in good
faith by appropriate proceedings, appropriate reserves have been established
(segregated to the extent required by GAAP) as required for the payment or
settlement thereof. No federal, state or provincial income tax returns of the
Company or any Subsidiary has been examined, and there are no outstanding
agreements or waivers extending the applicable statutory periods of limitation
for such Taxes for any period. All Taxes which the Company and any Subsidiary
has been required to collect or withhold have been duly withheld or collected
and, to the extent required, have been paid to the proper taxing authority. No
Taxes will be assessed on or after the Closing Date against the Company or any
Subsidiary for any tax period ending on or prior to the Closing Date, or for
any period ending after the Closing Date with respect to any portion of such
tax period that includes or is prior to the Closing Date other than for Taxes
disclosed on Schedule 3.6. "Taxes" shall mean all taxes, charges, fees,
duties, levies or other assessments including, without limitation, income,
excise, property, withholding, value added, sales, use and franchise taxes,
imposed by the New Zealand Government or the Australian Government, or any
province, county, local or foreign government or subdivision or agency thereof,
and including any interest, penalties or additions attributable thereto and,
without limiting the above, shall include PAYE tax, sales tax, income tax,
employment taxes, land tax, goods and services tax, local authority taxes,
levies and rates, customer levies and charges and taxes.
3.7 Assets and Properties.
(a) Personal Property. Except as set forth on Schedule
3.7 and except for inventory and supplies disposed of or consumed, and
accounts receivable collected and cash utilized, all in the ordinary
course of business consistent with past practice, each of the Company
and the Subsidiaries owns good, valid and marketable title to all of
its inventory, equipment and other personal property (both tangible
and intangible) reflected on the latest balance sheet included in the
Financial Statements or acquired since March 31, 1995, free and clear
of any lien, mortgage, deed of trust,
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pledge, security interest, charge, option or other encumbrance or
restriction of any kind or character (collectively, "Liens"), except
for (i) statutory Liens for current taxes, assessments or governmental
charges or levies on property not yet due and payable, (ii)
mechanics', carriers', workers', repairers' and other similar liens
imposed by law arising or incurred in the ordinary course of business
for obligations not yet due and payable and (iii) title retention
arrangement by vendors of inventory until such items of inventory are
paid for or sold to third parties; provided that in any such case,
appropriate reserves or accruals to discharge such liens, rights and
claims of third parties have been included in the Financial
Statements.
(b) Real Property. Neither the Company nor any
Subsidiary owns a fee simple interest in any real property.
(c) Condition of Properties. Except as set forth on
Schedule 3.7, the leasehold estates the subject of the Real Property
Leases (as defined below) and the tangible personal property owned or
leased by the Company and the Subsidiaries are in good operating
condition and repair, ordinary wear and tear excepted; and none of the
members of the Selling Group has any knowledge of any condition or
defect, not disclosed herein, of or any such leasehold estate or the
improvements thereto that would materially affect the fair market
value, use or operation of the property subject to the Real Property
Leases, such improvements or otherwise have a material adverse effect
on the Company or any Subsidiary or their respective businesses or
operations.
(d) Compliance. The continued ownership, operation, use
and occupancy of the leasehold estates that are the subject of the
Real Property Leases and the improvements thereto, as currently
operated, used and occupied will not violate any zoning, building,
health, flood control, safety or other law, ordinance, order or
regulation or any restrictive covenant. There are no violations of
any federal, state, county or municipal law, ordinance, order,
regulation or requirement affecting any portion of the leasehold
estates subject to any of the Real Property Leases and the
improvements thereto and no written notice of any such violation has
been issued by any governmental authority.
(e) Utilities. To the best knowledge and belief of the
Selling Group, all utilities (including, without limitation, water,
sewer, gas, electricity, trash removal and telephone service) are
available to the leasehold estates the subject of Real Property Leases
in sufficient quantities to adequately serve the leasehold estates.
(f) Real Property Leases; Options. Schedule 3.7 sets
forth a list of (i) all leases and subleases under which the Company
or any Subsidiary is lessor or lessee or sublessor or sublessee of any
real property, together with all amendments, supplements,
nondisturbance agreements, brokerage and commission agreements and
other agreements pertaining thereto ("Real Property Leases"); (ii) all
material options held by the Company or any Subsidiary or contractual
obligations on the part of the Company or any Subsidiary to purchase
or acquire any interest in real property; and (iii) all options
granted by the Company or any Subsidiary or contractual obligations on
the part of the Company or any Subsidiary to sell or dispose of any
material interest in real property. Copies of all Real Property
Leases and such options and contractual obligations have been
delivered to Buyer. Neither the Company nor any Subsidiary has
assigned any Real Property Leases or any such options or obligations.
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<PAGE> 20
There are no Liens on the Company's or any Subsidiary's interest in
the Real Property Leases, subject only to (i) Liens for taxes and
assessments not yet due and payable and (ii) those matters set forth
on Schedule 3.7. The Real Property Leases and options and contractual
obligations listed on Schedule 3.7 are in full force and effect and
constitute binding obligations of the Company and the Subsidiaries and
the other parties thereto and (x) there are no defaults thereunder and
(y) no event has occurred which with notice, lapse of time or both
would constitute a default by the Company or any Subsidiary or, to the
knowledge of the Selling Group by any other party thereto.
3.8 Environmental Laws and Regulations.
(a)(i) Neither the Company nor any Subsidiary engages in, or
has engaged in the use, storage, treatment, disposal, or
transportation of "Hazardous Substances" (as defined below), (ii) no
release, leak, discharge, spill, disposal, or emission of Hazardous
Substances has occurred as a result of the operations of the Company
or any Subsidiary, and there is no Hazardous Substance present at any
facility owned or operated by the Company or any Subsidiary which, in
either event, is in a quantity or manner that violates or requires
further investigation or remediation under Environmental Requirements
(as defined below); (iii) there is no pending or threatened litigation
or administrative investigation or proceeding concerning the Company
or any Subsidiary involving Hazardous Substances or Environmental
Requirements; (iv) the Company and the Subsidiaries are, and have been
at all times, in compliance with Environmental Requirements and have,
and are in compliance with, all of the permits they are required to
have for their respective operations under Environmental Requirements;
and (v) the real property subject to the Real Property Leases is not
contaminated nor is it in such condition as justifies or may cause any
government or semi-government body to issue any notice, direction or
order requiring clean-up, decontamination, remedial action or making
good under any Environmental Requirement.
(b) As used in this Agreement, the following terms shall
have the following meanings:
"Environmental Requirements" means all laws, statutes, rules,
regulations, ordinances, guidance documents, judgments, decrees,
orders, agreements and other restrictions and requirements (whether
now or hereafter in effect) of any governmental authority, including,
without limitation, federal, provincial, and local authorities,
relating to the regulation or protection of human health and safety,
natural resources, conservation, the environment, or the storage,
treatment, disposal, transportation, handling, or other management of
industrial or solid waste, hazardous waste, hazardous or toxic
substances or chemicals, or pollutants.
"Hazardous Substance" means substances or materials which are
or have been regulated, controlled or prohibited under any
Environmental Requirements.
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<PAGE> 21
3.9 Contracts.
(a) Set forth on Schedule 3.9 is a list of all material
contracts, arrangements and commitments (whether oral or written) to
which the Company or any Subsidiary is a party or by which the
Company's or any Subsidiary's assets or business are bound including,
without limitation, contracts, arrangements or commitments which
relate to (i) the sale, lease or other disposition by the Company or
any Subsidiary of all or any substantial part of the business or
assets of the Company or any Subsidiary, (ii) the purchase or lease by
the Company or any Subsidiary of a substantial amount of assets, (iii)
the supply by the Company or any Subsidiary of any customer's
requirements for any item or the purchase by the Company or any
Subsidiary of its requirements for any item or of a vendor's output of
any item, (iv) lending or advancing funds by the Company or any
Subsidiary, (v) borrowing or raising of funds or guarantying the
borrowing of funds by any other person, whether under an indenture,
note, loan agreement or otherwise, (vi) any transaction or matter with
any affiliate of the Company or any Subsidiary, (vii) noncompetition
or employment, (viii) licenses and grants to or from the Company or
any Subsidiary relating to any intangible property, (ix) the
acquisition by the Company or any Subsidiary of any operating business
or the capital stock of any person, or (x) any other matter which is
material to the business, assets or operations of the Company or any
Subsidiary "Contracts").
(b) Except as set forth in Schedule 3.9, each Contract is
in full force and effect on the date hereof, neither the Company nor
any Subsidiary is in default under any Contract, neither the Company
nor any Subsidiary has given or received notice of any default under
any Contract, and, to the best knowledge and belief of the Selling
Group, no other party to any Contract is in default thereunder.
3.10 No Violations. The execution, delivery and performance of
this Agreement and the other agreements and documents contemplated hereby by
the Selling Group and the consummation of the transactions contemplated hereby
will not (a) violate any provision of the Articles of Association, Memorandum
of Association (or Constitution as the case may be) of the Company or any
Subsidiary, (b) violate any statute, rule, regulation, order or decree of any
public body or authority by which the Company, any Subsidiary or the Selling
Group or their respective properties or assets are bound, or (c) result in a
violation or breach of, or constitute a default under, or result in the
creation of any encumbrance upon, or create any rights of termination,
cancellation or acceleration in any person with respect to any Contract or any
material license, franchise or permit of the Company or any Subsidiary or any
other agreement, contract, indenture, mortgage or instrument to which the
Company or any Subsidiary is a party or by which any of their respective
properties or assets is bound.
3.11 Consents. Except as set forth on Schedule 3.11, no consent,
approval or other authorization of or notice to any governmental authority or
any person under any Contract or other material agreement or commitment to
which the Company, any Subsidiary or the Selling Group are a party or by which
their respective assets are bound is required as a result of or in connection
with the execution or delivery of this Agreement and the other agreements and
documents to be executed by the Company, any Subsidiary and the Selling Group
or the consummation by the Company, any Subsidiary and the Selling Group of the
transactions contemplated hereby.
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<PAGE> 22
3.12 Litigation and Related Matters. Set forth on Schedule 3.12 is
a list of all actions, suits, proceedings, investigations or grievances pending
against the Company or any Subsidiary, or, to the knowledge of the Selling
Group, threatened against the Company or any Subsidiary, the Company's or any
Subsidiary's business or any property or rights of the Company or any
Subsidiary, at law or in equity, before or by any court or federal, provincial,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign ("Agencies"). None of the actions,
suits, proceedings or investigations listed on Schedule 3.12 either (i) results
or would, if adversely determined, result in any material adverse change in the
business, operations or assets or the condition, financial or otherwise, or
results of operations or prospects of the Company or any Subsidiary or (ii)
affects or would, if adversely determined, affect the right or ability of the
Company or any Subsidiary to carry on its business substantially as now
conducted. Neither the Company nor any Subsidiary is subject to any continuing
court or Agency order, writ, injunction or decree applicable specifically to
its business, operations, assets or employees nor in default with respect to
any order, writ, injunction or decree of any court or Agency with respect to
its assets, business, operations or employees. Schedule 3.12 lists (a) all
worker's compensation claims outstanding against the Company or any Subsidiary
as of the date hereof and (b) all actions, suits or proceedings filed by or
against the Company or any Subsidiary since January 1, 1993.
3.13 Compliance with Laws. Each of the Company and the
Subsidiaries (a) is in compliance with all applicable laws, regulations
(including federal, provincial and local procurement and other regulations),
orders, judgments and decrees except where the failure to so comply would not
have an adverse effect on the business, prospects, financial condition or
results of operation or prospects of the Company or any Subsidiary and (b)
possesses all necessary licenses, franchises, permits and governmental
authorizations to conduct its business in the manner in which and in the
jurisdictions and places where such business is now conducted. To the best of
the knowledge and belief of the Selling Group, all of the provisions of the
Corporations Law of Australia, Companies Act 1955 (NZ) (or Companies Act 1993
(NZ) as the case may be) relating to the Company and the Subsidiaries have been
complied with or will be complied with on or before the Closing Date. Set
forth on Schedule 3.13 is a list of all material licenses, franchises, permits
and governmental authorizations and all applications pending before any agency
or authority for the issuance of any licenses, franchises, permits or
governmental authorizations or the renewal thereof.
3.14 Trademarks, Etc. Schedule 3.14 lists any (a) domestic and
foreign software licenses "Licenses", (b) trade names, trademarks, service
marks, trademark registrations and applications and service mark registrations
and applications and such unregistered rights as may exist through use
(including trademarks, service marks, trade dress, brand names, logos and other
names and slogans embodying goodwill) "Trademarks", (c) copyright registrations
and applications "Copyright", (d) patents (including all reissues, division,
continuations, continuations in part and extensions of any such patents) patent
applications and patent disclosures and all other patent rights whether
registered or not "Patents", (e) journals, knowhow (including proprietary
knowhow and use and application knowhow), formulas, processes, product designs,
manufacturing, engineering and other drawings, computer data bases and software
technology, technical information, safety information, engineering data and
design and engineering specifications, research records, market surveys and all
promotional literature, customer and supplier lists and similar data and all
derivatives of such material and improvements to such material "Knowhow" and
(f) other industrial and intellectual property owned by the Company and the
Subsidiaries or used in the operation of
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<PAGE> 23
the business of the Company or any Subsidiary (collectively, the "Intellectual
Property") which Schedule indicates (i) the term and exclusivity of its rights
with respect to the Intellectual Property and (ii) whether each item of
Intellectual Property is owned or licensed by the Company or any Subsidiary,
and if licensed, the licensor and the license fees therefor. Unless otherwise
indicated in Schedule 3.14, the Company and the Subsidiaries have the right to
use and license the Intellectual Property, and the consummation of the
transactions contemplated hereby will not result in the loss or material
impairment of any rights of the Company or any Subsidiary in the Intellectual
Property. Each item constituting part of the Intellectual Property has been,
to the extent indicated in Schedule 3.14, registered with, filed in or issued
by, as the case may be, such government entity, domestic or foreign, as is
indicated in Schedule 3.14; all such registrations, filings and issuances
remain in full force and effect; and all fees and other charges with respect
thereto are current. Except as stated in Schedule 3.14, there are no pending
proceedings or adverse claims made or, to the knowledge of the Selling Group,
threatened against the Company or any Subsidiary with respect to the
Intellectual Property; there has been no litigation commenced or threatened in
writing within the past five (5) years with respect to the Intellectual
Property or the rights of the Company or any Subsidiary therein; and the
Selling Group has no knowledge that (i) the Intellectual Property or the use
thereof by the Company or any Subsidiary conflicts with any trade names,
trademarks, service marks, trademark or service mark registrations or
applications or copyright registrations or applications of others ("Third Party
Intellectual Property"), or (ii) such Third Party Intellectual Property or its
use by others or any other conduct of a third party conflicts with or infringes
upon the Intellectual Property or its use by the Company or any Subsidiary.
3.15 Employee Benefit Plans.
(a) Each employee benefit plan of any type, maintained
or contributed to by the Company or any Subsidiary (collectively, the
"Plans") is listed on Schedule 3.15, and has been administered and
operated in all material respects in accordance with its terms and in
compliance with applicable laws. Neither the Company nor any
Subsidiary maintains any pension or retirement plan for its employees,
and none of the Plans are required to be registered under the Income
Tax Act or applicable provincial pension legislation. Except as set
forth in Schedule 3.15, neither the execution and delivery of this
Agreement by the Company and the Sellers or the consummation of the
transactions contemplated hereby will (A) entitle any current or
former employee of the Company or any Subsidiary to severance pay,
unemployment compensation or any similar payment, or (B) accelerate
the time of payment or vesting, or increase the amount of, any
compensation due to any such employee or former employee. Neither the
Company nor any Subsidiary has any formal plan or commitment to create
any additional Plan or to modify or amend any existing Plan that would
affect any employee. With respect to each of the Plans, the Company
has delivered to Buyer true and complete copies of each of the
following documents:
(i) a copy of the most current text of the Plan,
including all amendments made thereto;
(ii) a copy of all employee communications relating to the
Plan;
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<PAGE> 24
(iii) a copy of the trust or other funding agreement,
including all amendments made thereto in respect of
any of the Plans which are funded, and the latest
financial statements prepared in respect of such
funds; and
(iv) each contract relating to the Plan pursuant to which
the Company or any Subsidiary may have any liability,
including insurance contracts, investment management
agreements, administration or record-keeping
agreements and the like.
Except as disclosed in Schedule 3.15, none of the Plans provide
benefits, including, without limitation, life insurance or medical
benefits to employees following their retirement or other termination
of service. There are no pending, threatened or anticipated claims
against, or otherwise involving, any of the Plans by an Employee or a
beneficiary, or otherwise, other than routine claims for benefits
payable under a Plan.
(b) Other than the Plans, there are no retirement benefit
schemes, pension schemes or other pension arrangements whether legally
enforceable or not relating to the Company or any Subsidiary in
operation.
(c) If the services of all of the employees of the
Company or any Subsidiary had been terminated on the date of this
Agreement, then the amount provided for in the Financial Statements as
at that date for long- service leave and holiday pay would have been
sufficient to provide for all long-service leave and holiday pay which
would have then been due to (or properly accrued in favor of) such
employees.
(d) Except as disclosed on Schedule 3.15, since the date
of this Agreement, no emoluments, remuneration or fees have been paid
or agreed by the Company to be paid to any director save for
remuneration for the services of full time executive directors.
(e) Other than with respect to the Plans, the Company and
each Subsidiary is not under any liability whatsoever for any
superannuation payment or benefit, pension, retiring or other
allowance or deferred compensation, nor is there any contract,
agreement or arrangement whatsoever whereby or pursuant to which the
Company or any Subsidiary is liable to be or become bound now or at
any time in the future to pay any superannuation payment or benefit,
pension, retiring or other allowance or deferred compensation to any
person.
(f) There is no liability outstanding against the Company
or any Subsidiary in relation to employer contributions to the Plans.
Each Plan is fully funded by moneys on deposit sufficient to meet all
claims against such Plan for the benefit of employees of the Company
and the Subsidiaries or their dependents.
(g) The trustee of each Plan is the sole trustee of the
Plan and has at all times complied with its obligations under the deed
constituting the Plan and there are no outstanding claims or disputes
between the Company and the Subsidiaries and any of their respective
employees or any trade union with respect to such Plan.
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<PAGE> 25
(h) Each Plan and the trustee of the Plan has at all
times complied with all legislation applicable to superannuation funds
including (but without limitation) the Income Tax Assessment Act 1936
(Australia) and the Occupational Superannuation Standards Act of 1987.
(i) The deed constituting each Plan complies with all the
relevant requirements contained in the Occupational Superannuation
Standards Regulations.
(j) Each Plan has been properly constituted and any and
all amendments to the trust deed constituting such Plan are valid and
effective.
(k) Financial statements of each Plan have been properly
kept and maintained and accurately disclose all liabilities of the
such Plan.
(l) Each Plan has since July 1, 1988 been a complying
superannuation fund for the purposes of Part IX of the Income Tax
Assessment Act 1936 (Australia).
(m) The trustee of each Plan has not paid or transferred
any amount, including without limitation any excess contributions or
surplus funds, to the Company or any Subsidiary, prior to the Closing
Date.
(n) All amounts of Tax required by law to be deducted by
the Company or any Subsidiary from the salary or wages of employees
have been duly deducted and, where appropriate, duly paid.
3.16 Employees; Employee Relations.
(a) Schedule 3.16 sets forth (i) the name, date of hiring
and current annual salary (or rate of pay) and other compensation
(including, without limitation, normal bonus, profit-sharing and other
compensation) now payable by the Company or any Subsidiary, directly
or indirectly, to each person who is an employee under applicable
laws, (ii) any increase to become effective after the date of this
Agreement in the total compensation or rate of total compensation
payable by the Company or any Subsidiary to each such person, (iii)
all presently outstanding loans and advances (other than routine
travel advances to be repaid or formally accounted for within sixty
(60) days) made by the Company or any Subsidiary to, or made to the
Company or any Subsidiary by, any director, officer or employee, (iv)
all other transactions between the Company or any Subsidiary and any
director, officer or employee of the Company or any Subsidiary, (v)
all accrued but unpaid vacation pay owing to any officer or employee
which is not disclosed on the Financial Statements, and (vi)
particulars of all other material terms and conditions of employment
of such persons including benefits and positions held. None of the
advances represent amounts that, in accordance with GAAP, should have
been expended by the Company or any Subsidiary.
(b) Except as disclosed on Schedule 3.16, neither the
Company nor any Subsidiary is a party to, nor bound by, the terms of
any collective bargaining agreement, and neither the Company nor any
Subsidiary has experienced any labor difficulties during the last five
(5) years. Except as set forth on Schedule 3.16, there are no labor
disputes existing, or to the best knowledge of the Selling Group,
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<PAGE> 26
threatened involving, by way of example, strikes, work stoppages,
slowdowns, picketing, or any other interference with work or
production, or any other concerted action by employees. No grievance
or other legal action arising out of any collective bargaining
agreement or relationship exists, or to the best knowledge of the
Selling Group, is threatened. No charges or proceedings before the
Labor Relations Board, or similar agency, exist, or to the best
knowledge of the Selling Group, are threatened.
(c) The Company's and each Subsidiary's relationship with
each of its employees is good and the Selling Group has no knowledge
of any facts which would indicate that the Company's or any
Subsidiary's employees will not continue in its employ on a basis
acceptable to Buyer following the Closing. Except as disclosed on
Schedule 3.16, neither the Company nor any Subsidiary is a party to
any written contracts of employment or any oral contracts of
employment which are not terminable on the giving of reasonable notice
or pay in lieu of notice in accordance with applicable law and no
inducements to accept employment with the Company or any Subsidiary
were offered to any employees which have the effect of increasing the
period of notice of termination to which any such employee is
entitled. No legal proceedings, charges, complaints, or similar
actions exist under any federal, provincial or local laws affecting
the employment relationship including, but not limited to: (i)
anti-discrimination statutes, including provincial or local laws
prohibiting discrimination because of race, sex, religion, national
origin, age and the like; (ii) the Employment Standards Act or other
federal, state, provincial or local laws regulating hours of work,
wages, overtime and other working conditions; (iii) requirements
imposed by federal, state, provincial or local governmental contracts;
(iv) provincial laws with respect to tortious employment conduct, such
as slander, false light, invasion of privacy, negligent hiring or
retention, intentional infliction of emotional distress, assault and
battery, or loss of consortium; or (v) any occupational safety and
health act, as well as any similar provincial laws, or other
regulations respecting safety in the workplace; and to the best
knowledge of the Selling Group, no proceedings, charges, or complaints
are threatened under any such laws or regulations and no facts or
circumstances exist which would give rise to any such proceedings,
charges, complaints, or claims, whether valid or not. Neither the
Company nor any Subsidiary is subject to any settlement or consent
decree with any present or former employee, employee representative or
any government or Agency relating to claims of discrimination or other
claims in respect to employment practices and policies; no government
or Agency has issued a judgment, order, decree or finding with respect
to the labor and employment practices (including practices relating to
discrimination) of the Company or any Subsidiary.
(d) With respect to each person employed by the Company
or any Subsidiary (i) the Company or such Subsidiary hired such person
in compliance with all applicable immigration and naturalization laws
and (ii) the Company and the Subsidiaries have complied with all
recordkeeping and other regulatory requirements under any immigration
and naturalization laws.
(e) Except as disclosed on Schedule 3.16, neither the
Company nor any Subsidiary has incurred any liability or obligation
under any federal, state or provincial laws relating to the closure of
facilities or the termination or lay off of employees.
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<PAGE> 27
(f) The Company and the Subsidiaries have complied with
all applicable employment legislation, regulations, programs or
policies, including, without limitation, worker's compensation
legislation, human rights legislation, health and safety legislation,
and employment equity legislation and has made all deductions and
remittances to governmental authorities under applicable laws.
(g) The Company and the Subsidiaries have complied with
all fair wages, hours of work and employment equity requirements
applicable to any contracts for work which it obtained from any
government.
(h) The Company and the Subsidiaries are in compliance
with their obligations under the Employer's Health Tax Act and there
are no unpaid taxes, penalties, interest, garnishment orders or other
court proceedings outstanding or pending pursuant to the Employer's
Health Tax Act.
3.17 Insurance. Schedule 3.17 contains a list of the policies
and contracts (including insurer, named insured, type of coverage, limits of
insurance, required deductibles or co-payments, annual premiums and expiration
date) for fire, casualty, liability and other forms of insurance maintained by,
or for the benefit of, the Company and the Subsidiaries. All such policies are
in full force and effect and are adequate for the business in which the Company
and the Subsidiaries engage. Neither the Company nor the Sellers has received
any notice of cancellation or non-renewal or of significant premium increases
with respect to any such policy. Except as disclosed on Schedule 3.17, no
pending claims made by or on behalf of the Company or any Subsidiary under such
policies have been denied or are being defended against third parties under a
reservation of rights by an insurer of the Company or any Subsidiary. All
premiums due prior to the date hereof for periods prior to the date hereof with
respect to such policies have been timely paid, and all premiums due before the
Closing Date for periods between the date hereof and the Closing Date will be
timely paid.
3.18 Accounts Receivable. The accounts receivable set forth in
the Financial Statements, the accounts receivable listed on Schedule 1.2(j) and
those accounts receivable accruing through the Closing Date represent valid and
bona fide sales to third parties incurred in the ordinary course of business,
collectible in accordance with their terms, subject to no defenses, set-offs or
counterclaims, except to the extent of any reserves for doubtful accounts
reflected in the January 31, 1996 balance sheet included in the Current
Financial Statements and the Subsidiary Financial Statements.
3.19 Inventories. The inventories reflected in the Financial
Statements and the Subsidiary Financial Statements, the inventory listed on
Schedule 1.2(k) and inventories acquired since January 31, 1996 consist of items
of a quality and quantity which are useable or saleable in the ordinary course
of business of the Company and the Subsidiaries, and inventories of below
standard quality or not useable in the business of the Company and the
Subsidiaries have been written down in value in accordance with good business
practices to estimated net realizable market values or adequate reserves have
been provided therefor in the Financial Statements and the Subsidiary Financial
Statements. Since March 31, 1995, all of the inventories have been maintained
at adequate levels for the business of the Company and the Subsidiaries in the
normal course consistent with past practice and taking into account normal
seasonality, no change has occurred in such inventories which affects or will
affect their useability or salability, no writedown of the value of such
inventories has
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occurred or is required under the Company's or any Subsidiary's normal
valuation policy or GAAP, and no additional amounts have been reserved with
respect to such inventories. Except as disclosed on Schedule 3.19, no
inventory is held by the Company or any Subsidiary pursuant to consignment,
sale or return, sale on approval or similar arrangements.
3.20 Interests in Customers, Suppliers, Etc. Except as disclosed
on Schedule 3.20, no shareholder, officer, director or affiliate of the Company
or any Subsidiary possesses, directly or indirectly, any financial interest in,
or is a director, officer, employee or affiliate of, any corporation, firm,
association or business organization which is a client, supplier, customer,
lessor, lessee, sublessor, sublessee or competitor of the Company or any
Subsidiary.
3.21 Business Relations. Except as set forth in Schedule 3.21,
to the best knowledge and belief of the Selling Group, no customer or supplier
of the Company or any Subsidiary will cease to do business with the Company or
any Subsidiary after the consummation of the transactions contemplated hereby.
Except as set forth in Schedule 3.21, neither the Company nor any Subsidiary has
experienced any difficulties in obtaining any inventory items necessary to the
operation of its business. Neither the Company nor any Subsidiary is required
to provide any bonding or other financial security arrangements in any material
amount in connection with any transactions with any of its customers or
suppliers.
3.22 Officers and Directors. Set forth on Schedule 3.22 is a list
of the current officers and directors of the Company and each Subsidiary.
3.23 Bank Accounts and Powers of Attorney. Schedule 3.23 sets
forth each bank, savings institution and other financial institution with which
the Company or any Subsidiary has an account or safe deposit box and the names
of all persons authorized to draw thereon or to have access thereto. Each person
holding a power of attorney or similar grant of authority on behalf of the
Company or any Subsidiary is identified on Schedule 3.23. Except as disclosed
on such Schedule, neither the Company nor any Subsidiary has given any revocable
or irrevocable powers of attorney to any person, firm, corporation or
organization relating to its business for any purpose whatsoever.
3.24 Accuracy of Information Furnished. Any information furnished
to Buyer by the Company or the Sellers prior to, at or after the date of this
Agreement, in the Schedules hereto, or otherwise is, or when furnished will be,
true and correct in all material respects. Such information states, or when
furnished will state, all material facts required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which the statements are made, not misleading.
3.25 Availability of Documents. The Selling Group has made
available for inspection by Buyer and its representatives true, correct, and
complete copies of the Articles of Association, Memorandum of Association (or
Constitution as the case may be) of the Company and the Subsidiaries, all
written agreements, arrangements, commitments, and documents referred to in the
Schedules attached hereto, and the corporate minute books of the Company and the
Subsidiaries. Such corporate minute books contain the minutes of all of the
meetings of shareholders, board of directors, and any committees of the Company
and the Subsidiaries that have been held preceding the date hereof and all
written consents to action executed in lieu thereof.
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<PAGE> 29
3.26 Brokerage, Financial Advisor or Finder Fees. No agent,
advisor, broker, person or firm acting on behalf of the Selling Group is, or
will be, entitled to any commission or broker's, advisor's or finder's fees from
any of the parties hereto, or from any of their respective affiliates in
connection with any of the transactions contemplated hereby.
3.27 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.27 or in another Schedule to this Agreement, or as otherwise
contemplated by this Agreement, since March 31, 1995, there has not been (a) any
damage, destruction or casualty loss to the physical properties of the Company
or any Subsidiary (whether or not covered by insurance), materially and
adversely affecting the business, operations, prospects or financial condition
of the Company or any Subsidiary, (b) any material adverse change in the
business, operations, financial condition or results of operations or prospects
of the Company or any Subsidiary, (c) any entry into any transaction, commitment
or agreement (including, without limitation, any borrowing) material to the
Company or any Subsidiary, except transactions, commitments or agreements in the
ordinary course of business consistent with past practice, and which, if
occurring after the date hereof, would be in compliance with Section 5.1, (d)
any declaration, setting aside or payment of any dividend or other distribution
in cash, stock or property with respect to the Company's or any Subsidiary's
capital stock or other securities, any repurchase, redemption or other
acquisition by the Company or any Subsidiary of any capital stock or other
securities, or any agreement, arrangement or commitment by the Company or any
Subsidiary to do so, (e) any increase in the compensation payable or to become
payable by the Company or any Subsidiary to its directors, officers, employee or
agents or any increase in the rate or terms of any bonus, pension or other
employee benefit plan, payment or arrangement made to, for or with any such
directors, officers, employees or agents, (f) any sale, transfer or other
disposition of, or the creation of any Lien upon, any part of the Company's or
any Subsidiary's assets, tangible or intangible, except for sales of inventory
and use of supplies and collections of accounts receivables in the ordinary
course of business consistent with past practice, or any cancellation or
forgiveness of any debts or claims by the Company or any Subsidiary, (g) any
change in the relations of the Company or any Subsidiary with or loss of its
customers or suppliers, or any loss of business or increase in the cost of
inventory items or change in the terms offered to customers, which would
materially and adversely affect the business, operations or financial condition
of the Company or any Subsidiary, or (h) any capital expenditure (including any
capital leases) or commitment therefor by the Company or any Subsidiary in
excess of $50,000 (New Zealand).
3.28 Security Matters.
(a) The Selling Group understands and acknowledges that
the Purchase Shares have not been registered for sale under the United
States Securities Act of 1933, as amended (the "Securities Act"), or
any applicable securities laws, and such Purchase Shares are being
offered and sold by SSI in reliance upon exemptions from the
registration requirements of such applicable acts. Accordingly, the
Selling Group recognizes that, until the Purchase Shares may be sold
pursuant to an exemption from registration (a minimum of two years
after the sale of the Purchase Shares) or are registered under the
Securities Act and any applicable securities laws as provided in
Section 5.7 hereof, the Purchase Shares will not be freely transferable
and that the Selling Group must continue to bear the economic risk of
the investment in the
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<PAGE> 30
Purchase Shares until the Purchase Shares are registered in accordance
with Section 5.7 hereof.
(b) The Selling Group further understands and agrees that
this Agreement is made with SSI in reliance upon the Selling Group's
representations to SSI, which by the Selling Group's execution of this
Agreement, the Selling Group hereby confirms, that each member of the
Selling Group is not a citizen or resident of the United States of
America, is acquiring the Purchase Shares for investment for their own
account and not with a view to the resale or distribution of the
Purchase Shares within, or to citizens or residents of, the United
States of America, and except as disclosed to SSI in writing is not
purchasing the Purchase Shares for the account or benefit of a citizen
or resident of the United States of America or any partnership or
corporation organized or incorporated under the laws of any
jurisdiction in the United States of America and at the time it is
executing this Agreement, is outside the United States of America. By
executing this Agreement, each member of the Selling Group further
represents that they have no present intention of selling,
transferring, granting any participation in, or otherwise distributing
any of the Purchase Shares otherwise than pursuant to an effective
registration statement under the Securities Act as contemplated by
Section 5.7 hereof. Each member of the Selling Group represents that
they have no contract, undertaking, agreement, arrangement or
understanding with any person to sell, transfer, grant any
participation in, or otherwise distribute any of the Purchase Shares to
any person.
(c) Each member of the Selling Group represents and
warrants to SSI that (i) such member of the Selling Group is an
"accredited investor" as that term is defined in Regulation D
promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Act and has such knowledge and
experience in financial and business matters to be capable of
evaluating the merits and risks of their prospective investment in the
Purchase Shares; (ii) such member of the Selling Group has received and
reviewed all such financial and other information and records of SSI as
they considered necessary or appropriate in deciding whether to
purchase the Purchase Shares, and SSI has made available to such member
of the Selling Group the opportunity to ask questions of, and to
receive answers and to obtain additional information from,
representatives of SSI; (iii) all such additional information has been
provided to and reviewed by such member of the Selling Group; and (iv)
such member of the Selling Group has the ability to bear the economic
risks of its investment in the Purchase Shares. Such member of the
Selling Group is not acquiring the Purchase Shares based upon any
representation, oral or written, by SSI, or any representative of SSI
with respect to the future value of, income from, or tax consequences
relating to the Purchase Shares, but rather upon an independent
examination and judgement as to the prospects of SSI. Further, such
member of the Selling Group acknowledges that no federal or state
administrative entity responsible for securities registration or
enforcement has made any recommendation or endorsement of the Purchase
Shares or any findings as to the fairness of an investment in the
Purchase Shares.
(d) Until the Purchase Shares have been registered under
the Securities Act pursuant to the registration contemplated by Section
5.7 hereof, all certificates for the Purchase Shares shall bear
substantially the following legends and any additional legend required
pursuant to applicable laws governing the Purchase Shares.
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<PAGE> 31
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), THE SECURITIES ACT OF TEXAS,
AS AMENDED (THE "TEXAS ACT"), OR ANY OTHER DOMESTIC OR FOREIGN
SECURITIES LAWS (COLLECTIVELY, THE "SECURITIES ACTS"), AND
HAVE BEEN ISSUED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACTS. THE SHARES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN ANY
MANNER, NOR MAY THEY BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF TO A NATIONAL OF THE UNITED STATES OF
AMERICA OR IN THE UNITED STATES OF AMERICA, EXCEPT (i)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE SECURITIES ACTS OR (ii) UPON
THE ISSUANCE TO THE COMPANY OR ITS TRANSFER AGENT OF AN
OPINION OF COUNSEL, BOTH OPINION AND COUNSEL SATISFACTORY TO
THE COMPANY, OR THE SUBMISSION TO THE COMPANY OR ITS TRANSFER
AGENT OF SUCH OTHER EVIDENCE, AS MAY BE SATISFACTORY TO THE
COMPANY OR ITS TRANSFER AGENT, THAT SUCH PROPOSED SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION WILL NOT BE IN VIOLATION
OF THE SECURITIES ACT OR ANY APPLICABLE SECURITIES ACTS.
Any assignment or endorsement of the certificates representing the
Purchase Shares which is in violation of the restrictions on transfer provided
above will not be recognized by SSI, nor will any assignee or endorsee of such
shares be recognized as the owner thereof by SSI.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Selling Group as follows:
4.1 Organization and Authorization. SSI is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas, United States of America, with all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Hybrid is a corporation duly organized,
validly existing and capable of suing and being sued under the laws of New
Zealand, with all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Buyer has full corporate power, capacity and authority to execute and deliver
this Agreement and all other agreements and documents contemplated hereby. The
execution and delivery of this Agreement and such other agreements and
documents by Buyer and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by Buyer and no other corporate
action on the part of Buyer is necessary to authorize the transactions
contemplated hereby. This
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<PAGE> 32
Agreement has been duly executed and delivered by Buyer and constitutes the
valid and binding obligation of Buyer, enforceable in accordance with its terms
except that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally.
4.2 No Violations. The execution and delivery of this Agreement
and the other agreements and documents contemplated hereby by Buyer and the
consummation of the transactions contemplated hereby will not (a) violate any
provision of the articles of incorporation or bylaws of SSI or the Constitution
of Hybrid, (b) violate any statute, rule, regulation, order or decree of any
public body or authority by which Buyer or its properties or assets are bound,
or (c) result in a violation or breach of, or constitute a default under or
result in the creation of any encumbrance upon, or create any rights of
termination, cancellation or acceleration in any person with respect to any
agreement, contract, indenture, mortgage or instrument to which Buyer is
a party or any of its properties or assets is bound.
4.3 Consents. Except as set forth in Schedule 4.3, no consent,
approval or other authorization of any governmental authority or third party is
required as a result of or in connection with the execution and delivery of this
Agreement and the other agreements and documents to be executed by Buyer or the
consummation by Buyer of the transactions contemplated hereby.
4.4 Brokerage, Financial Advisor or Finder Fees. No agent,
advisor, broker, person or firm acting on behalf of the Buyer is or will be
entitled to any commission or broker's, advisor's or finder's fees from any of
the parties hereto, or from any of their respective affiliates, in
connection with any of the transactions contemplated hereby.
4.5 Capitalization. The authorized capital stock of SSI consists
of (a) 10,000,000 shares of Buyer Common Stock, par value $.01 per share, of
which 4,205,035 shares were issued and outstanding at February 7, 1996 and (b)
400,000 shares of Buyer Preferred Stock, par value $.01 per share, of which no
shares were issued and outstanding at February 7, 1996.
4.6 Title to Common Stock. SSI has the requisite corporate power
and authority to issue and deliver the Purchase Shares to the Selling Group
subject to limitations imposed by state and federal securities laws. Upon
conveyance of the Australia Shares pursuant to and in accordance with the terms
of this Agreement, the Purchase Shares to be delivered to the Selling Group as
herein contemplated will be duly authorized, validly issued, fully paid and
nonassessable and upon such delivery will vest in the Selling Group good and
marketable title to such shares, free and clear of all liens, security
interests, encumbrances, preemptive rights, charges, adverse claims, options,
rights, contracts, calls or commitments whatsoever, except for limitations
imposed by state and federal securities laws. Neither this Agreement nor
consummation of the transactions contemplated hereby will trigger any
registration rights or similar obligations in favor of any person with respect
to Buyer Common Stock.
4.7 Information. SSI delivered to the Selling Group copies of the
following Commission filings and press releases of SSI: (a) Annual Report on
Form 10-K, as filed with the Commission, for the fiscal year ended March 31,
1995; (b) proxy statement, as filed with the Commission, relating to the annual
meeting of stockholders held on August 10, 1995; (c) 1995 annual report, as
filed with the Commission; (d) all other reports and registration statements
filed by SSI with the Commission since April 1, 1995; and (e) copies of all
press
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releases issued by SSI during the period from April 1, 1995 to the date of this
Agreement. All reports and proxy statements furnished to the Selling Group
pursuant to this Section 4.7 conform in all material respects to the
requirements of the rules and regulations promulgated by the Commission, and do
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.8 Financial Statements of SSI. The audited balance sheet of SSI
as of March 31, 1995 and the related statement of earnings, stockholders' equity
and cash flows for the year then ended (the "Audited Statements"), copies of
which have been furnished to the Selling Group, have been prepared in conformity
with generally accepted accounting principles ("U.S. GAAP") consistently applied
and have been certified without qualification by Grant Thornton. The Audited
Statements present fairly the financial condition, retained earnings, assets and
liabilities of SSI as of the date set forth therein and the results of
operations and cash flows of SSI for the period covered thereby in conformity
with U.S. GAAP. Except to the extent (and not in excess of the amounts)
reflected on the Audited Statements, SSI has no liabilities or obligations
whether accrued, absolute, contingent, unasserted or otherwise (including,
without limitation, taxes payable and deferred taxes and interest accrued
required to be reflected in the Audited Statements or the notes thereto) other
than accrued liabilities incurred in the ordinary course of business
consistent with past practice.
4.9 Operations of SSI. Since March 31, 1995:
(a) The operations of SSI have been conducted in the
usual and customary manner;
(b) No extraordinary losses have been sustained by SSI;
and
(c) There has been no material adverse change in the
business, financial condition or operations of SSI and its
consolidated subsidiaries taken as a whole.
4.10 Litigation or Investigation of SSI. Except as described in
the documents referred to in Section 4.7, there is no material action, suit,
proceeding or investigation pending or, to SSI's knowledge, threatened against
SSI, either at law or in equity, before or by any Agency. SSI is not the subject
of any injunction, stop order, judgment or consent decree or any kind.
ARTICLE V
COVENANTS; REGISTRATION OF SHARES
5.1 Course of Conduct by the Company and each Subsidiary. From
the date hereof through and until the Closing Date, except as approved in
writing by Buyer or as otherwise permitted or contemplated by this Agreement,
the Company's and each Subsidiary's business shall be conducted only in the
ordinary course of business consistent with past practice, and the Selling Group
shall cause the Company and each Subsidiary to comply with the following
covenants:
(a) Capital Expenditures. Neither the Company nor any
Subsidiary shall make any capital expenditures or commitments therefor
which, when combined with
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capital expenditures or commitments therefor after January 31, 1996,
would exceed $25,000 (New Zealand).
(b) Articles of Association, Etc. Neither the Company
nor any Subsidiary shall make any change in its Articles of
Association, Memorandum of Association (or Constitution as the case
may be).
(c) Stock Issuance; Redemptions; Reorganizations.
Neither the Company nor any Subsidiary shall (i) issue, grant, or
dispose of, or make any agreement, arrangement, or commitment
obligating the Company or any Subsidiary to issue, grant, or dispose
of any capital shares or other securities of the Company or any
Subsidiary, (ii) redeem or acquire, or make any agreement,
arrangement, or commitment obligating the Company or any Subsidiary to
redeem or acquire, any shares of capital stock or other securities of
the Company or any Subsidiary, or (iii) authorize or effect or make
any agreement, arrangement or commitment obligating the Company or any
Subsidiary to effect, any reorganization, recapitalization, or
split-up of such capital stock of the Company or any Subsidiary.
(d) Employee Matters. Neither the Company nor any
Subsidiary shall make any increase in the compensation payable or to
become payable to any of the officers of the Company or any
Subsidiary. Except in the ordinary course of business consistent with
past practice, neither the Company nor any Subsidiary shall (i) make
any increase in the compensation payable or to become payable to any
of the employees, or agents of the Company or any Subsidiary, or (ii)
make, amend, or enter into any employment contract or any bonus,
incentive, stock option, profit sharing, pension, retirement, stock
purchase, hospitalization, medical reimbursement, insurance, severance
benefit, or other similar plan or arrangement or make any voluntary
contribution to any such plan or arrangement.
(e) Insurance Coverage. The Company and each Subsidiary
shall maintain, or have maintained on its behalf, insurance coverage
for the benefit of the Company on the same basis as, or on a
substantially equivalent basis to, the current insurance coverage
described in Schedule 3.17.
(f) Business Organization. The Company and each
Subsidiary shall use commercially reasonable efforts to preserve
intact its business organization and to keep available the services of
its present officers and employees as a group.
(g) Maintenance of Property. The Company and each
Subsidiary shall maintain its real property, equipment and other
tangible personal property in its present operating condition and
repair, ordinary wear and tear excepted. The Company and each
Subsidiary will fully perform and pay for all maintenance, painting,
repairs, alterations and other work required to be performed by the
Company and each Subsidiary as lessee under the Real Property Leases
listed on Schedule 3.7.
(h) Relations with Suppliers, Customers, Etc. The
Company and each Subsidiary will use commercially reasonable efforts
to preserve its relationships with its material suppliers, customers
and others having material business dealings with it and shall not
change or modify or commit to change or modify any terms offered to
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customers. The Company promptly shall notify Buyer if the Company or
any Subsidiary is informed by any of its customers or suppliers that
such customer or supplier will or may cease to do business with the
Company or any Subsidiary either prior to or following the Closing.
(i) Incurrence of Debt. Neither the Company nor any
Subsidiary will voluntarily incur or assume, whether directly or by
way of guaranty or otherwise, any material obligation or liability,
except obligations and liabilities incurred in the ordinary course of
business, consistent with past practice.
(j) Liens. Neither the Company nor any Subsidiary will
mortgage, pledge, encumber, create or allow any Liens not existing on
the date hereof upon any properties or assets, tangible or intangible,
except Liens created in the ordinary course of business, consistent
with past practice.
(k) Disposition of Assets. Neither the Company nor any
Subsidiary will sell, transfer or otherwise dispose of any of its
tangible property or assets, except for inventory and supplies sold,
disposed of or consumed and accounts receivable collected or written
off in the ordinary course of business, consistent with past practice.
Neither the Company nor any Subsidiary will cancel or forgive any
debts or claims except or in the ordinary course of business,
consistent with past practice.
(l) Agreements, Leases and Licenses. Neither the Company
nor any Subsidiary will amend, terminate before the end of its term,
or allow to lapse any material agreement, lease, license or permit to
which it is a party or of which it is the holder.
(m) Accounting Practices. Neither the Company nor any
Subsidiary will make any material changes in its accounting methods,
principles or practices, except as required by GAAP.
(n) Changes in Business Practice. Neither the Company
nor any Subsidiary will take any action, the purpose or effect of
which is to shift income from post-closing periods to the pre-closing
period or to defer expenses from the pre-closing period to
post-closing periods which action is not in the ordinary course of
business, consistent with past practice.
(o) Transactions with Affiliates. Neither the Company
nor any Subsidiary will enter into any agreement, arrangement or
transaction with, or make any payment, distribution, loan or advance
to, any affiliate of the Company or any Subsidiary or any officer,
director or shareholder of the Company or any Subsidiary, except for
salaries and travel advances consistent with past practices or as
otherwise specifically permitted by this Agreement.
(p) Material Transactions. Neither the Company nor any
Subsidiary will enter into any other agreement, course of action or
transaction material to it, except in the ordinary course of business,
consistent with past practice.
(q) Dividends. Neither the Company nor any Subsidiary
shall declare, make or pay any dividend or other distribution upon or
in respect of its share capital.
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(r) Name Changes. Neither the Company nor any Subsidiary
shall change its name or grant to any party the right to use the name
of Company or the Subsidiary (as the case may be).
5.2 Noncompetition. Each member of the Selling Group
acknowledges that they possess the experience and capabilities to own, manage,
operate, join, control or participate in the ownership, management, operation
or control of, a business that, or a business organization a part of which,
engages in the hardware or software reseller or technical services businesses,
and that the noncompetition provisions of Section 5.2 below will not prevent
each member of the Selling Group from earning a livelihood. Each member of the
Selling Group understands and acknowledges that (a) Buyer shall be entitled to
protect the going concern value of the Company to the full extent permitted by
law, (b) the restrictions set forth herein are reasonable given the nature of
the Company's and each Subsidiary's business, (c) the only effective fair and
reasonable manner in which the interests of the Buyer can be protected is by
the restraints set forth in this Agreement, (d) each member of the Selling
Group has received adequate consideration for the restraint obligations
undertaken in this Agreement, and (e) Buyer would not have entered into this
Agreement absent the provisions of this Section 5.2.
(a) For the purpose of protecting the Buyer in respect of
the goodwill of the Company and the Subsidiaries and for consideration
set out in this Agreement, the Selling Group covenants with Buyer that
the members of the Selling Group shall not, without first obtaining
the written consent of Buyer, do any of the following:
(i) within a period of 3 years from the Closing Date
carry on the Restricted Activities anywhere in
Australia;
(ii) within a period of 2 years from the Closing Date
carry on the Restricted Activities anywhere in
Australia;
(iii) within a period of 1 year from the Closing Date carry
on the Restricted Activities anywhere in Australia;
(iv) within a period of 3 years from the Closing Date
carry on the Restricted Activities anywhere in New
Zealand;
(v) within a period of 2 years from the Closing Date
carry on the Restricted Activities anywhere in New
Zealand;
(vi) within a period of 1 year from the Closing Date carry
on the Restricted Activities anywhere in New Zealand;
(vii) within a period of 3 years from the Closing Date
carry on the Restricted Activities anywhere in New
South Wales;
(viii) within a period of 2 years from the Closing Date
carry on the Restricted Activities anywhere in New
South Wales;
(ix) within a period of 1 year from the Closing Date carry
on the Restricted Activities anywhere in New South
Wales;
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<PAGE> 37
(x) within a period of 3 years from the Closing Date
carry on the Restricted Activities anywhere in
metropolitan Auckland;
(xi) within a period of 2 years from the Closing Date
carry on the Restricted Activities anywhere in
metropolitan Auckland;
(xii) within a period of 1 year from the Closing Date carry
on the Restricted Activities anywhere in metropolitan
Auckland;
(xiii) within a period of 3 years from the Closing Date
carry on the Restricted Activities anywhere in
metropolitan Sydney;
(xiv) within a period of 2 years from the Closing Date
carry on the Restricted Activities anywhere in
metropolitan Sydney; or
(xv) within a period of 1 year from the Closing Date carry
on the Restricted Activities anywhere in metropolitan
Sydney.
(b) During the three (3) years following the Closing
Date, the Selling Group shall not induce or attempt to induce any
employee of the Buyer, Company or any Subsidiary to leave employment
with the Company or Buyer or to enter into employment with any other
person, firm or corporation other than the Buyer.
(c) Each of the covenants contained in Section 5.2(a) is
to be construed as a separate independent covenant severable from all
other covenants contained in Section 5.2(a). If any of the separate
covenants is found to be void, invalid or otherwise unenforceable,
such unenforceability does not affect the validity of enforceability
of any of the other separate covenants.
(d) It is intended by the parties that the restraints
contained in this clause operate to the maximum extent permitted by
applicable law. Each member of the Selling Group acknowledges that
the duration, extent and application of the respective restrictions
contained in this clause are not greater than is reasonably necessary
for the protection of the interests of Buyer and the preservation of
the goodwill relating to the business of the Company and its
Subsidiaries but that, if such restriction is adduced by any court of
competent jurisdiction to be void or unenforceable but would be valid
if part of the wording of this clause was deleted and/or the period
was reduced, those restrictions apply with such modifications as may
be necessary to make this clause valid and effective.
(e) Except as set forth in the Schedules to this
Agreement, the Selling Group has not allowed or consented to:
(i) the use by any other person; or
(ii) the registration as a business name,
of a name the same or similar to any name used by the Company or any
Subsidiary, or done or failed to do anything that may affect the
continued use of any such name by the Company or any Subsidiary and
pending the Closing shall not do so.
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(f) As used in this Agreement, "Restricted Activities"
means:
(i) supplying or canvassing or soliciting orders for the
supply of any goods or services of the general
description of those supplied by the business
conducted by the Company or any Subsidiary before the
Closing Date from any person, firm or company who or
which has at any time within twelve (12) months
before the Closing Date transacted business with the
Company or any Subsidiary in connection with the
business conducted by the Company or any Subsidiary
or been identified as a prospective customer of the
business conducted by the Company or any Subsidiary;
(ii) conducting any business of a type similar to or
substitutable for the business conducted by the
Company or any Subsidiary; and
(iii) communicating or divulging any confidential, secret
or non-public information, knowledge or data relating
to the Company or any Subsidiary, their respective
customers, prospects, marketing plans or business to
any other person other than Buyer;
whether directly or indirectly and whether alone or with any other
person or party in any capacity including, without limitation, as a
consultant, a sales representative, an agent, a director or officer,
an adviser, an employee (other than as an employee of Buyer), for any
person, or a partner or jointly with any other person, or a member,
shareholder and unitholder in any company, trust or business
enterprise.
(g) The remedy at law for any breach or attempted breach by
any member of the Selling Group of the provisions of this Section 5.2
will be inadequate and Buyer shall be entitled to temporary or
permanent injunctive relief against any breach or attempted breach of
such provision without the necessity of posting bond or proving actual
damages. It is the express intention of the parties hereto to comply
with all laws that may be applicable to this Section 5.2. Should any
restriction contained in this Section 5.2 be found to exceed in
duration or scope the restriction permitted by law, it is expressly
agreed that the covenant not to compete contained in this Section 5.2
shall be reformed or modified by the final judgment of a court of
competent jurisdiction to reflect a lawful and enforceable duration or
scope.
5.3 Approvals and Consents. The Selling Group shall use their
respective best efforts (a) to cause all conditions to the obligations of Buyer
under this Agreement over which they are able to exercise influence or control
to be satisfied prior to the Closing Date and (b) to obtain promptly and to
comply with all requisite statutory, regulatory or court approvals, third party
releases and consents, and other requirements necessary for the valid and legal
consummation of the transactions contemplated hereby.
5.4 Investigations. The Selling Group shall provide Buyer, its
representatives and agents, such access to the books and records of the Company
and the Subsidiaries and furnish to Buyer, its representatives and agents, such
financial and operating data and other information with respect to the
businesses and properties of the Company and the Subsidiaries as they may
reasonably request from time to time, and permit Buyer, its representatives and
agents, to make such inspections of the Company's and each Subsidiary's
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real and personal properties as they may reasonably request. The Selling Group
shall promptly arrange for Buyer, and its representatives and agents, to meet
with such directors, officers, employees and agents of the Company and the
Subsidiaries as requested.
5.5 Tax Elections. No new elections with respect to Taxes or any
changes in current elections with respect to Taxes affecting the Company or any
Subsidiary shall be made after the date of this Agreement without prior written
consent of Buyer.
5.6 No Solicitation. Except with respect to Buyer and its
affiliates, from the date hereof and until the earlier of the Closing or
earlier termination, the Selling Group shall not, and the Selling Group shall
cause the Company, the Subsidiaries and the respective officers, directors,
employees, agents and representatives of the Selling Group, the Company and the
Subsidiaries (including, without limitation, any investment banker, attorney or
accountant retained by any of them) not to (a) initiate or solicit, directly or
indirectly, any inquiries or the making of any proposal with respect to a
merger, consolidation, sale of share capital or similar transaction involving,
or any purchase of all or any significant portion of the assets (other than in
the ordinary course of business) of, or any equity interest in, the Company or
any Subsidiary (an "Acquisition Transaction"), or (b) engage in any
negotiations concerning, or provide to any other person any information or data
relating to the Company or any Subsidiary for the purposes of or have any
discussions with any person relating to, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage any effort or
attempt by any other person to seek or effect, an Acquisition Transaction. The
Selling Group shall promptly advise Buyer of, and communicate to Buyer the
terms of, any such inquiry or proposal the Selling Group may receive.
5.7 Registration of Purchase Shares.
(a) SSI meets the requirements for use of Form S-3 under
the Securities Act and the rules and regulations of the Commission
thereunder in connection with sales of Buyer Common Stock by
shareholders of SSI.
(b) On the date the Registration Statement (as
hereinafter defined and contemplated by this Section 5.7 shall become
effective (the "Effective Date"), the Registration Statement and all
documents incorporated therein by reference pursuant to Item 12 of
Form S-3 (the "Incorporated Documents") shall conform in all material
respects with the applicable requirements of the Securities Act, the
Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder, and neither the Registration
Statement nor any Incorporated Documents will, as of the Effective
Date of the Registration Statement and any amendment thereto and as of
the applicable filing date of the prospectus included therein, contain
an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which the statements were
made, not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished to SSI by
any member of the Selling Group for use in the Registration Statement
or in Incorporated Documents.
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(c) At any time during the period commencing on June 30,
1997 and ending on June 30, 1998, the Selling Group may make a written
request to SSI for registration under the Securities Act of all of the
Purchase Shares.
(d) Upon receipt of the Selling Group's written request
for registration of the Purchase Shares, SSI shall as expeditiously as
possible:
(i) file with the Commission a registration
statement on Form S-3 (the "Registration
Statement") to register under the Securities
Act all of the Purchase Shares for sale by
the Selling Group, and thereafter shall use
its reasonable best efforts to cause such
Registration Statement to become and remain
effective as provided in this Section 5.7;
and
(ii) furnish to the Selling Group such number of
copies of the prospectus constituting a part
of the Registration Statement as the Selling
Group may reasonably request in order to
facilitate the public sale of the Purchase
Shares during the Registration Period;
(iii) use its reasonable best efforts to cause the
Purchase Shares to be listed on each
securities exchange or other securities
trading market on which similar securities
issued by SSI are then listed. Further, SSI
shall prepare and file with the Commission
such amendments and supplements to the
Registration Statement and the prospectus
used in connection therewith as may be
reasonably necessary to keep such
Registration Statement effective until the
earlier of (A) such time as the Selling Group
has sold all of the Purchase Shares or (B)
180 days after the effective date of the
Registration Statement (the period during
which SSI is obligated to keep the
Registration Statement effective hereinafter
is referred to as the "Registration Period");
and
(iv) use its reasonable best efforts to register
or qualify the Purchase Shares under such
other securities or blue sky laws of any
state or other applicable laws of such
jurisdictions as the Selling Group shall
reasonably request in writing to enable the
Selling Group to consummate the public sale
or other disposition of the Purchase Shares;
provided that SSI shall not be required in
connection therewith or as an election
thereto to qualify to do business or to file
a general consent to service of process in
any such jurisdiction and SSI shall not be
required to register such shares in any
foreign jurisdiction.
(e) SSI's obligations under Section 5.7 shall terminate
unless the Selling Group shall furnish to SSI such information as SSI
may reasonably request from the Selling Group for use in preparing the
Registration Statement (and the prospectus included therein) and
performing its other obligations under this Section 5.7.
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<PAGE> 41
(f) If within two (2) years following the Closing Date
SSI files a registration statement in connection with an underwritten
public offering, SSI will promptly give to each member of the Selling
Group written notice thereof (which shall include the number of shares
SSI proposes to register and, if known, the name of the proposed
underwriter). SSI will use its commercially reasonable efforts to
include in such registration all of the Purchase Shares specified in a
written request from any member of the Selling Group within twenty
(20) days after the date of delivery of written notice from SSI of the
proposed offering. The Selling Group shall have no right to
participate in the selection of an underwriter for an offering made by
SSI.
(g) Subject to the satisfaction by SSI of its obligations
pursuant to Section 5.7(d)(i) hereof, the refusal of the Commission to
declare effective a Registration Statement on Form S-3 with respect to
the Purchase Shares shall not in any way affect the validity or
enforceability of any other provision of this Agreement.
(h) Except as set forth below, SSI will pay all
reasonable and customary expenses of a registrant in connection with
the registration of the Purchase Shares, including fees and expenses
of counsel to SSI and of its independent public accountants, filing
fees and other expenses charged by the Commission or by the securities
regulatory authority of any state or other jurisdiction in which
Purchase Shares are to be qualified and which are attributable to the
registration or qualification of such shares, and printing expenses.
Notwithstanding the foregoing, the Selling Group shall bear their own
expenses in connection with the registration and sale of the Purchase
Shares, including, without limitation, expenses of their own counsel,
broker or dealer fees, discounts and expenses, and all transfer and
other taxes on the sale of Purchase Shares.
5.8 Information in Registration Statement. To the extent that
any statements or omissions made in the Registration Statement or any
Incorporated Documents are made in reliance upon and in conformity with
information furnished to SSI by the Selling Group (including, without
limitation, information concerning the method of sale of Purchase Shares), such
Registration Statement, Incorporated Documents and amendments or supplements
thereto will, when they become effective or are filed with the Commission,
conform in all material respects to the requirements of the Securities Act and
the rules and regulations of the Commission thereunder, and will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were or are made, not misleading.
5.9 Holding the Purchase Shares. Each member of the Selling
Group covenants and agrees that the Purchase Shares may not be offered for
sale, sold or otherwise disposed of within the United States of America or to
United States citizens or residents unless the Purchase Shares are subsequently
registered under the Securities Act or an exemption from registration is
available.
5.10 Public Announcements. Without consent of all parties hereto,
prior to the Closing, no party shall make any press release or public
announcement with respect to the transactions contemplated by this Agreement.
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5.11 Release from Guarantees. After the Closing, Buyer will use
its commercially reasonable best efforts to obtain the release of any member of
the Selling Group from any outstanding guaranties which any such member of the
Selling Group has provided to trade suppliers or lessors and will indemnify any
member of the Selling Group from any liability relating thereto arising after
the Closing Date.
5.12 Employees. On the Closing Date, Buyer shall offer to employ
all employees of the Sellers in New Zealand, engaged in the business of Sellers
at the date hereof, at the wages or salaries paid by the Sellers as set forth
in the Schedules to this Agreement on similar terms and conditions to those on
which the employees are presently employed and with the same benefits (so far
as reasonably possible); provided that the Sellers have made a full, fair and
accurate disclosure of all such matters to the Buyer in writing prior to the
date hereof. Buyer hereby acknowledges and covenants with the Sellers that in
respect of those employees in New Zealand who accept the Buyer's offer, each of
the employee's periods of service shall be deemed to have commenced on the date
of employment by the Sellers and shall, notwithstanding the sale of the
business evidenced by this Agreement, be deemed to be a continuous period of
service which is not broken by the transfer of the business from the Sellers to
the Buyer.
The parties agree to cooperate and arrange such offers, the offers to
be subject only to the condition that this sale and purchase is settled on the
Closing Date in accordance with its terms and such offers shall become
effective from Closing Date.
Except as expressly provided elsewhere in this Agreement, other than
in respect of the Sellers' employees who accept any offer made under this
Section, Buyer shall have no liability or responsibility in respect of the
Seller's employees whether for redundancy, holiday pay, or otherwise in respect
of matters due or to become due to any such employee.
5.13 Access to Books and Records. Buyer agrees to provide
Sellers, and Sellers agree to provide Buyer, their respective accountants,
counsel and other representatives during normal business hours and upon
reasonable notice, for a period of six (6) years after the Closing Date, access
to the books, records, tax returns, contracts and other underlying data and
documentation relating to the Assets and the Australia Shares relating to the
period prior to the Closing Date and to make available to the other party,
personnel reasonably necessary for the purpose of enabling such party to review
any records for such period. Buyer and Sellers agree that, for such six (6)
year period, it will preserve and keep intact all such books and records.
5.14 Change of Name. Within ten (10) days following the Closing
Date, Sellers agree to file an amendment to their respective organizational
documents in order to change the name of the Sellers to one that does not use
the word "Essentially Group" or "Essentially Solutions" or any name similar to
the foregoing names. Sellers shall do or cause to be done all other acts,
including without limitation the payment of any fees required in connection
with such change of names, to cause such amendments to become effective in New
Zealand and all other jurisdictions in which Sellers transact business. After
the Closing Date, Sellers shall not transact business as, or use in the conduct
of its businesses or otherwise, the name "Essentially Group" or "Essentially
Solutions" or any other similar name. None of the Sellers shall take any
action to liquidate, wind up or dissolve until on or after September 1, 1997.
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5.15 Assignment of Contracts and Rights. Notwithstanding anything
in this Agreement to the contrary, this Agreement shall not constitute an
agreement to assign any claim, contract, license, real property lease, personal
property lease, commitment, sales order or purchase order or any claim, right
or benefit arising thereunder or resulting therefrom if the agreement to assign
or attempt to assign, without the consent of a third party, would constitute a
breach thereof or in any way adversely affect the rights of Buyer thereunder
(the "Nonassignable Assets"). Sellers will use their best efforts to obtain
consents to assignment of the Nonassignable Assets from all such third parties
prior to the Closing Date, and following the Closing Date, will cooperate with
Buyer and take all such other action as Buyer may reasonably request to obtain
consents to assignment. Until such consent is obtained, or if an attempted
assignment thereof would be ineffective or would adversely affect the rights of
Sellers or Buyer thereunder so that Buyer would not in fact receive all such
rights, Buyer and Sellers will cooperate with each other in any arrangement
designed to provide for Buyer the benefits of any such claim, contract,
license, lease, commitment, sales order or purchase order. Such arrangements,
to the extent provided in Section 1.5 in respect of liabilities or obligations
thereunder arising or to be performed after the Closing Date, shall be subject
to Buyer's obligation to undertake and perform Sellers' obligations under the
Nonassignable Assets, arising or to be performed after the Closing Date. To
the extent permitted by applicable law, in the event consents to the assignment
thereof cannot be obtained, such Nonassignable Assets shall be held, as of and
from the Closing Date, by Sellers in trust for Buyer, and the covenants and
obligations thereunder shall be performed by Buyer in Sellers' name and all
benefits and obligations existing thereunder shall be for Buyer's account. At
all times prior to and following the Closing, Sellers shall take or cause to be
taken such action in its name or otherwise as Buyer may reasonably request so
as to provide Buyer the benefits of the Nonassignable Assets and to effect
collection of money or other consideration to become due and payable under the
Nonassignable Assets, and Sellers shall promptly pay over to Buyer all money or
other consideration received by it in respect to all Nonassignable Assets. As
of and from the Closing Date, Sellers authorize Buyer, to the extent permitted
by applicable law and the terms of the Nonassignable Assets, at Buyer's
expense, to perform all the obligations and receive all of Seller's benefits
under the Nonassignable Assets, and appoints Buyer its attorney-in-fact to act
in its name and on its behalf with respect thereto.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to purchase the Assets and the Australia
Shares, and to cause the other transactions contemplated hereby to occur at the
Closing, shall be subject to the satisfaction of each of the following
conditions at or prior to the Closing:
6.1 Representations and Warranties. Each representation and
warranty of the Selling Group contained in this Agreement and in any Schedule
or other disclosure in writing from the Selling Group shall be true and correct
when made, and shall be true and correct in all material respects on and as of
the Closing Date with the same effect as though such representation and
warranty had been made on and as of the Closing Date.
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6.2 Covenants. All of the covenants and agreements herein on the
part of the Selling Group to be complied with or performed on or before the
Closing Date shall have been fully complied with and performed.
6.3 Certificate. There shall be delivered to Buyer a certificate
dated the Closing Date and signed by each member of the Selling Group to the
effect set forth in Sections 6.1 and 6.2, which certificate shall have the
effect of a representation and warranty made by the Selling Group on and as of
the Closing Date.
6.4 Absence of Litigation. No inquiry, action, suit, or
proceeding shall have been asserted, threatened, or instituted (a) in which it
is sought to restrain or prohibit the carrying out of the transactions
contemplated by this Agreement or to challenge the validity of such
transactions or any part thereof, (b) which could, if adversely determined,
result in any material adverse change in the business, operations or assets or
the condition, financial or otherwise, or results of operations or prospects of
the Company or any Subsidiary, or (c) which could, if adversely determined,
have a material adverse effect on the right or ability of the Company or any
Subsidiary to carry on its business as now conducted.
6.5 Consents and Approvals. All material authorizations,
consents, approvals, waivers and releases, if any, necessary for the Company,
any Subsidiary and the Selling Group to consummate the transactions
contemplated hereby shall have been obtained (including, without limitation,
those consents and approvals set forth on Schedule 3.11 hereto) and copies
thereof shall be delivered to Buyer.
6.6 Certificates. The Selling Group shall have delivered to
Buyer (a) an original or certified copy of the Certificate of Incorporation of
the Company and each Subsidiary; and (b) a copy certified by the respective
directors of the Company and each Subsidiary, dated the Closing Date, of the
respective Articles of Association and Memorandum of Association (or
Constitution as the case may be) of the Company and each Subsidiary.
6.7 No Material Adverse Change. There shall not have been any
material adverse change since March 31, 1995 in respect of the financial
condition, results of operations, business, assets or prospects of the Company
or any Subsidiary and neither the Company nor any Subsidiary shall have
suffered any loss (whether or not insured) by reason of physical damage caused
by fire, earthquake, flood, wind, accident or other calamity which could have a
material adverse effect on the condition, financial or otherwise, results of
operations or business, assets or prospects of the Company or any Subsidiary.
6.8 No Transfers to Affiliates. Except as otherwise expressly
contemplated by this Agreement, neither the Company nor any Subsidiary shall
have distributed or transferred any of its assets or properties, or made any
payments, to or for the benefit of any of its affiliates.
6.9 Compliance with Section 5.1. Neither the Company nor any
Subsidiary shall have entered into any agreement, commitment or transaction nor
shall have taken any other action which would not be in compliance with each
provision of Section 5.1.
6.10 Deliveries Relating to Stock. The Company shall have
tendered to SSI:
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(a) Duly executed share transfers in respect of the
Australia Shares, effecting the transfer of the same to SSI and/or the
nominee of SSI.
(b) A resolution signed by the directors of Australia
approving the said share transfers in terms of the Articles of
Association (if the same shall be required) and directing that the
same be registered by the Company forthwith upon the same being duly
lodged at the registered office of the Company.
(c) A duly signed waiver by the Selling Group and any
necessary other parties in respect of all rights of pre-emption
conferred by the Constitution of Australia in respect of the Australia
Shares.
(d) A duly signed withdrawal by any officers of Australia
or any of its subsidiaries which officers have been appointed by the
Selling Group revoking all existing authorities to banks in respect of
the operation of any bank account or accounts in the name of Australia
relating to the affairs of Australia or any of its subsidiaries in
respect of any such officers appointed by the Selling Group.
(e) Duly signed resignations by any directors and
secretary of Australia or any of its subsidiaries and confirmation
that none of them have any claim upon any of such companies in respect
of directors' fees, reimbursements of expenses, or remuneration or
emoluments of any nature either relating to such resignation or in
respect of any matter antecedent to the date of such resignations;
provided that the directors of Australia serving immediately prior to
the Closing Date shall agree to certify to any matters required in
connection with the audit of the Company on a consolidated basis for
the fiscal year ended March 31, 1996.
(f) The share certificates for the Australia Shares (or,
if there are no certificates, written confirmation from the directors
of the Company to that effect).
(g) In respect of Australia and each of its subsidiaries,
originals or copies of each of the documents required to be held by
Australia pursuant to section 189 of the Companies Act 1993,
Australia's annual report and annual return (or, in each case, the
equivalent documents under the Corporations Law of Australia) last
income tax return, share certificates (if any), insurance policies in
respect of unencumbered assets, accounting and taxation records, bank
statements and check books, all correspondence and files and other
records of the company, motor vehicle authorities and registration
papers and all industrial, intellectual and commercial property rights
including all trade names and agencies and all other industrial or
technical know how with all appurtenant rights, and all books or
records, documents of title and other documents pertaining to the
affairs of Australia and its subsidiaries.
6.11 Additional Deliveries Relating to the Assets. The Sellers
shall have executed and delivered to Hybrid the conveyance documents,
assignments, endorsements and instruments described in Section 8.3.
6.12 Escrow Agreement. The Selling Group shall have executed and
delivered to Buyer the Escrow Agreement in the form attached hereto as Exhibit
B.
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6.13 Employment Agreements. Gary McNabb and David Colvin shall
have executed and delivered to Buyer the employment agreements in the forms
attached hereto and Exhibit C and Exhibit D, respectively (the "Employment
Agreements").
6.14 Satisfaction of Indebtedness; Repayment of Advances. The
Selling Group shall have delivered to Buyer or shall be caused to be delivered
to Buyer:
(a) evidence satisfactory to Buyer in its sole discretion
regarding (i) the satisfaction in full of all indebtedness owed by the
Company to Bancorp Investments Limited under that certain Loan and
Debenture Agreement in the original principal amount of $2.4 million
(New Zealand) dated August 18, 1995 and (ii) the complete release by
Bancorp Investments Limited and its related parties (including but not
limited to Bancorp Advisory Services Limited) of all of their right,
title and interest in and to any shareholders agreement, contract,
option or other agreement relating to the acquisition by Bancorp of
any interest in any share capital or assets of the Company or any
Subsidiary or any other right to compensation.
(b) evidence of the repayment of all advances included in
the Assets that were made by Sellers to affiliates or associates of
the Selling Group (other than Tony Clement), including those advances
set forth in Schedules 3.16(4) and 3.16(5) and Buyer shall have
received good funds representing all such payments at Closing.
6.15 Government Filings. Buyer shall obtain on terms acceptable
to the parties (reasonable conditions normally imposed will be deemed
acceptable) all requisite consents under the Overseas Investment Regulations
1995 (New Zealand) for the implementation of this Agreement prior to 4:00 p.m.
on April 2, 1996. Buyer shall use its commercially reasonable best endeavors
to satisfy the foregoing condition by its due date. The Selling Group shall
use their best commercially reasonable endeavors to comply with all requests
for information or assistance which Buyer may reasonably require to enable it
to satisfy the foregoing condition by the specified time.
6.16 Bank Account Reconciliation. The Selling Group shall have
delivered documentation satisfactory to Buyer verifying the outstanding balance
on a date immediately prior to the Closing Date of each of the accounts in any
bank or other depository institution or similar entity in which any of the
Sellers or their subsidiaries maintain any deposits or securities, together
with a listing of all checks or drafts outstanding and a reconciliation of the
balances in such accounts as of the Closing Date.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE SELLING GROUP
The obligations of the Selling Group to cause the transactions
contemplated hereby to occur at the Closing shall be subject, except as the
Selling Group may waive in writing, to the satisfaction of each of the
following conditions at or prior to the Closing:
7.1 Representations and Warranties. Each representation and
warranty of Buyer contained in this Agreement and in any Schedule or other
disclosure in writing from Buyer shall be true and correct when made, and shall
be true and correct in all material respects
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on and as of the Closing Date with the same effect as though such
representation and warranty had been made on and as of the Closing Date.
7.2 Covenants of Buyer. All of the covenants and agreements
herein on the part of Buyer to be complied with or performed on or before the
Closing Date shall have been fully complied with and performed.
7.3 Certificate of Buyer. Buyer shall have delivered to the
Selling Group a certificate dated the Closing Date and signed by the Chief
Executive Officer, President or a Vice President of Buyer to the effect set
forth in Sections 7.1 and 7.2, which certificate shall have the effect of a
representation and warranty made by Buyer on and as of the Closing Date.
7.4 Absence of Litigation. No inquiry, action, suit or
proceeding shall have been asserted, threatened, or instituted in which it is
sought to restrain or prohibit the carrying out of the transactions
contemplated by this Agreement or to challenge the validity of such
transactions or any part thereof.
7.5 Consents and Approvals. All material authorizations,
consents, approvals, waivers and releases, if any, necessary for Buyer to
consummate the transactions contemplated hereby shall have been obtained
(including, without limitation, those set forth in Schedule 4.3) and delivered
to the Selling Group.
7.6 Certificates. Buyer shall have delivered to the Selling
Group (a) a certificate of the appropriate governmental authority, dated as of
a date not more than ten (10) days prior to the Closing Date, attesting to the
existence and good standing of SSI in the State of Texas; (b) copies, certified
by the Secretary of SSI, of the articles of incorporation and all amendments
thereto of SSI; (c) a copy, certified by the Secretary of SSI, dated the
Closing Date, of the bylaws of SSI; (iv) a certificate, dated the Closing Date,
of the Secretary of SSI relating to the incumbency and corporate proceedings in
connection with the consummation of the transactions contemplated hereby; (v)
an original or certified copy of the Certificate of Incorporation of Hybrid;
and (vi) a copy certified by a director of Hybrid, dated the Closing Date, of
the Articles of Association, Memorandum of Association (or Constitution as the
case may be) of Hybrid.
7.7 Bill of Sale, Assignment and Assumption Agreement. Hybrid
shall have executed and delivered to the Sellers the Bill of Sale, Assignment
and Assumption Agreement in the form attached hereto as Exhibit A.
7.8 Escrow Agreement. Buyer shall have executed and delivered to
the Selling Group the Escrow Agreement in the form attached hereto as Exhibit
B.
7.9 Employment Agreements. Buyer shall have executed and
delivered to Gary McNabb and David Colvin the Employment Agreements in the
forms attached hereto as Exhibits C and D, respectively.
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7.10 Total Consideration. Buyer shall deliver the Total
Consideration to the Sellers and the Escrow Agent in the manner provided by
Section 2.1 of this Agreement.
ARTICLE VIII
CLOSING
8.1 Closing. Unless this Agreement is first terminated as
provided in Section 9.1, and subject to the satisfaction or waiver of all the
conditions set forth in Articles VI and VII, the closing of the transactions
contemplated hereby (the "Closing") shall occur simultaneously as follows: the
consummation of the purchase and sale of the Australia Shares and the Assets
shall take place at the offices of Buddle Findlay, Auckland, New Zealand, or at
such other location as is agreed to by Buyer and the Selling Group, on (i)
April 2, 1996, or (ii) such other date as the parties may agree upon in writing
(the "Closing Date").
8.2 Delivery of the Shares. At the Closing, the Company shall
deliver or cause to be delivered to SSI the stock certificate(s), if any,
evidencing all of the Australia Shares, duly endorsed or accompanied by duly
executed stock powers assigning all such Shares to SSI and otherwise in good
form for transfer.
8.3 Conveyance of the Assets. At the Closing, the Company, NZ
and Wgtn shall execute and deliver to Hybrid, in form and substance acceptable
to Hybrid (a) appropriate forms of assignments of the Real Property Leases,
together with any consents to such assignment required under the terms of the
Real Property Leases, (b) a Bill of Sale, Assignment and Assumption Agreement
in the form attached hereto as Exhibit A conveying to Hybrid all items of
personalty included among the Assets, (c) assignments of each of the Personal
Property Leases listed on Schedule 1.2(c) and the licenses, agreements and
instruments listed on Schedule 1.2(d) and Schedule 1.2(f) and (d) all other
assignments, endorsements and instruments of transfer as shall be necessary or
appropriate to carry out the intent of this Agreement and as shall be
sufficient to vest in Hybrid title to all of the Assets and all right, title
and interest of the Company, NZ and Wgtn thereto. If requested by Hybrid, such
documents shall be in a form suitable for recording.
8.4 Payments to the Selling Group. At the Closing, Buyer shall
deliver the Total Consideration in accordance with Section 2.1 of this
Agreement.
8.5 Prorations. All expenses and outgoings and incomings of a
periodical or recurring nature in respect of the Assets, (including lease
rentals and rates for the current year and utility charges for the billing
periods including the Closing Date) shall be apportioned pro rata among the
Company, NZ and Wgtn, on the one hand, and Hybrid, on the other hand, as of the
Closing Date. If the amount of real estate taxes for the current year and the
amount of utility charges for the billing periods including the Closing Date
are not ascertainable on the Closing Date, such taxes and utility charges shall
be apportioned based on the immediately preceding tax year and billing periods;
provided, however, that such taxes and utility charges shall be reapportioned
based on actual taxes and charges promptly after such amounts are ascertained.
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ARTICLE IX
TERMINATION PRIOR TO CLOSING
9.1 Termination.
(a) This Agreement may be terminated and abandoned at any
time prior to the Closing Date;
(i) By the written mutual consent of Buyer and
the Selling Group;
(ii) By Buyer on the Closing Date if any of the
conditions set forth in Article VI shall
not have been fulfilled on or prior to the
Closing Date;
(iii) By the Selling Group on the Closing Date if
any of the conditions set forth in Article
VII shall not have been fulfilled on or
prior to the Closing Date;
(iv) By either Buyer or the Selling Group if the
Closing shall not have occurred on or
before June 30, 1996; and
(v) By Buyer, upon written notice to Selling
Group, if the examination of the Company
and the Subsidiaries, including its assets,
liabilities, operations, business and
prospects, by Buyer, or its representatives
or agents, discloses the existence or
nonexistence of any matters or things that,
in the sole judgment of Buyer, would be
reasonably likely to result in a material
loss or damage to Buyer, the Company or any
Subsidiary or a material diminution in
value of the Company or any Subsidiary.
(b) Any termination pursuant to this Article IX shall not
affect the obligations of the parties under Section 5.10 hereof and
shall be without prejudice to the terminating party's rights and
remedies under this Agreement by reason of any violation of this
Agreement occurring prior to such termination. In the event of a
termination pursuant to this Article IX, each party shall bear its own
costs and expenses incurred with respect to the transactions
contemplated hereby.
ARTICLE X
INDEMNIFICATION
10.1 Buyer's Losses.
(a) Each member of the Selling Group jointly and
severally agrees to indemnify and hold harmless Buyer and Australia
and their respective directors, officers, employees, representatives,
agents, and attorneys from, against, for and in respect of any and all
Buyer's Losses (as defined below) suffered, sustained, incurred or
required to be paid by any of them by reason of (i) any representation
or warranty made by the Selling Group in or pursuant to this Agreement
(including, without limitation, the representations and warranties
contained in any certificate delivered
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<PAGE> 50
pursuant to Section 6.3) being untrue or incorrect in any respect;
(ii) any failure by the Selling Group to observe or perform their
covenants and agreements set forth in this Agreement or any other
agreement or document executed by them in connection with the
transactions contemplated hereby; (iii) the violation of any law prior
to the Closing; (iv) the presence on the Closing Date of any Hazardous
Substances in, on, under, at, or emanating from, any property
currently or formerly owned or operated by the Company or any
Subsidiary; (v) any violation of Environmental Requirements by the
Company or any Subsidiary or any other third party in connection with
any property owned or operated by the Company occurring prior to the
Closing Date; or (vi) any on-site or off-site transport or disposal of
Hazardous Substances by or on behalf of the Company or any Subsidiary
occurring prior to the Closing Date. Buyer's Losses associated with
any matter described in subsections (v)-(vi) or under subsection (i)
in connection with a breach of the representation and warranty
contained in Section 3.8 shall include, without limitation, any and
all costs incurred due to any investigation of any property or any
remediation, response, cleanup, removal, or restoration required by a
federal, provincial, or local agency or political subdivision or by
Environmental Requirements (collectively referred to as
"Remediation"); any claim for damages or personal injury or death
arising from the handling, storage, treatment, incineration, release,
spill, or disposal of Hazardous Substances or the environmental
condition of any such property; and the costs of repairing or
restoring any damaged property after the performance of any
Remediation. The term "Buyer's Losses" expressly includes those
Buyer's Losses that arise as a result of strict liability, whether
arising under Environmental Requirements or otherwise. This
indemnification thus is intended to include, and does include any
Buyer's Losses arising as a result of any strict liability imposed or
threatened to be imposed on the parties covered by this
indemnification in connection with any of the indemnified events
described in Section 10.1(a).
(b) "Buyer's Losses" shall mean all damages (including,
without limitation, amounts paid in settlement with the Selling
Group's consent, which consent may not be unreasonably withheld),
losses, obligations, liabilities, liens, deficiencies, costs
(including, without limitation, reasonable attorneys' fees),
penalties, fines, interest, monetary sanctions and expenses,
including, without limitation, reasonable attorneys' fees and costs
incurred to comply with injunctions and other court and agency orders,
and other costs and expenses incident to any suit, action,
investigation, claim or proceeding or to establish or enforce Buyer's
or such other persons' right to indemnification hereunder.
THE FOREGOING INDEMNIFICATION OF BUYER SHALL APPLY WHETHER OR
NOT ANY NEGLIGENCE OF BUYER IS ALLEGED OR PROVEN.
10.2 Selling Group's Losses.
(a) Buyer agrees to indemnify and hold harmless the
Selling Group, and their respective directors, officers, employees,
representatives, agents, and attorneys from, against, for and in
respect of any and all Selling Group's Losses (as defined below)
suffered, sustained, incurred or required to be paid by the Selling
Group by reason of (i) any representation or warranty made by Buyer in
or pursuant to this Agreement (including, without limitation, the
representations and warranties contained
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<PAGE> 51
in any certificate delivered pursuant to Section 7.3) being untrue or
incorrect in any respect; or (ii) any failure by Buyer to observe or
perform its covenants and agreements set forth in this Agreement or
any other agreement or document executed by it in connection with the
transactions contemplated hereby.
(b) "Selling Group's Losses" shall mean all damages
(including, without limitation, amounts paid in settlement with
Buyer's consent, which consent may not be reasonably withheld),
losses, obligations, liabilities, claims, deficiencies, costs
(including, without limitation, reasonable attorneys' fees) and
expenses, including, without limitation, reasonable attorneys' fees
and costs incurred to comply with injunctions and other court and
agency orders, and other costs and expenses incident to any suit,
action, investigation, claim or proceeding or to establish or enforce
the Selling Group's or such other persons' right to indemnification
hereunder.
THE FOREGOING INDEMNIFICATION OF THE SELLING GROUP SHALL APPLY
WHETHER OR NOT ANY NEGLIGENCE OF THE SELLERS IS ALLEGED OR PROVEN.
(c) Notwithstanding any other provision of this Agreement
to the contrary:
(i) Buyer hereby agrees to indemnify the Sellers, and each of
them against (A) any income taxes required to be paid by Sellers which
directly relate to the structure of this transaction as a
purchase of the Assets in New Zealand rather than the acquisition of
the shares of capital stock of Sellers, and which would not have
otherwise been incurred or paid if shares of stock of Sellers had been
sold to Buyer, and in connection therewith, Buyer agrees that the
value of the intangible assets included in the Assets will be
allocated by Buyer only to goodwill and customer lists (the "Structure
Losses") and (B) all direct costs and expenses incurred and paid by
Sellers within six (6) months following the Closing Date arising out
of any claims by employees of Sellers for technical redundancy caused
by the transactions contemplated hereby. Sellers shall immediately
notify Buyer of the pendency of any such claims as soon as Sellers
become aware of any such claims;
(ii) Buyer agrees that if the value of inventory included in
the Assets as reflected in the Audit is equal to or less than
$1,500,000 (New Zealand) Buyer will not write-up the value of the
inventory acquired, and if the value of the inventory reflected in the
Audit is greater than $1,500,000 (New Zealand), and Buyer elects to
write-up such inventory, Buyer agrees to indemnify the Sellers, and
each of them against any income taxes required to be paid by Sellers
that relate directly to the write-up of such inventory ("Inventory
Losses").
(iii) Buyer acknowledges and agrees that the indemnity
provided in this Section 10.2(c) is in addition to any other remedies
in favor of the Sellers contained in this Agreement; provided,
however, that the indemnification by Buyer with respect to Structure
Losses and Inventory Losses, respectively, shall not exceed in total
for each of Structure Losses and Inventory Losses, respectively, the
sum of the first $50,000 (New Zealand) of either Structure Losses or
Inventory Losses plus 50% of the next $150,000 (New Zealand) of either
Structure Losses or Inventory Losses. Any claim for indemnification
relating to Structure Losses or Inventory Losses shall not be made or
asserted after August 31, 1998.
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10.3 Notice of Loss. Except to the extent set forth in the next
sentence, Buyer and the Selling Group will not have any liability under the
indemnity provisions of this Agreement with respect to a particular matter
unless a notice setting forth in reasonable detail the breach or other matter
which is asserted has been given to the Indemnifying Party (as defined below)
and, in addition, if such matter arises out of a suit, action, investigation,
proceeding or claim, such notice is given promptly, but in any event within
thirty (30) days after the Indemnified Party (as defined below) is given notice
of the claim or the commencement of the suit, action, investigation or
proceeding. Notwithstanding the preceding sentence, failure of the Indemnified
Party to give notice hereunder shall not release the Indemnifying Party from
its obligations under this Article X, except to the extent the Indemnifying
Party is actually prejudiced by such failure to give notice. With respect to
Buyer's Losses and Remediation, the Selling Group shall be the Indemnifying
Party and Buyer, Australia and their respective directors, officers, employees,
representatives, agents and attorneys shall be the Indemnified Parties. With
respect to the Selling Group's Losses, Buyer shall be the Indemnifying Party
and the Selling Group and their respective directors, officers, employees,
representatives, agents and attorneys shall be the Indemnified Party.
10.4 Right to Defend. Upon receipt of notice of any suit, action,
investigation, claim or proceeding for which indemnification might be claimed
by an Indemnified Party, the Indemnifying Party shall be entitled to defend,
contest or otherwise protect against any such suit, action, investigation,
claim or proceeding at its own cost and expense, and the Indemnified Party must
cooperate in any such defense or other action. The Indemnified Party shall
have the right, but not the obligation, to participate at its own expense in
defense thereof by counsel of its own choosing, but the Indemnifying Party
shall be entitled to control the defense unless the Indemnified Party has
relieved the Indemnifying Party from liability with respect to the particular
matter or the Indemnifying Party fails to assume defense of the matter. In the
event the Indemnifying Party shall fail to defend, contest or otherwise protect
in a timely manner against any such suit, action, investigation, claim or
proceeding, the Indemnified Party shall have the right, but not the obligation,
thereafter to defend, contest or otherwise protect against the same and make
any compromise or settlement thereof and recover the entire cost thereof from
the Indemnifying Party including, without limitation, reasonable attorneys'
fees, disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or the compromise or settlement thereof;
provided, however, that the Indemnified Party must send a written notice to the
Indemnifying Party of any such proposed settlement or compromise, which
settlement or compromise the Indemnifying Party may reject, in its reasonable
judgment, within thirty (30) days of receipt of such notice. Failure to reject
such notice within such thirty (30) day period shall be deemed an acceptance of
such settlement or compromise. The Indemnified Party shall have the right to
effect a settlement or compromise over the objection of the Indemnifying Party;
provided, that if (a) the Indemnifying Party is contesting such claim in good
faith or (b) the Indemnifying Party has assumed the defense from the
Indemnified Party, the Indemnified Party waives any right to indemnity
therefor. If the Indemnifying Party undertakes the defense of such matters,
the Indemnified Party shall not, so long as the Indemnifying Party does not
abandon the defense thereof, be entitled to recover from the Indemnifying Party
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than the reasonable costs of
investigation undertaken by the Indemnified Party with the prior written
consent of the Indemnifying Party.
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<PAGE> 53
10.5 Cooperation. The Selling Group, Buyer and each of their
affiliates, successors and assigns shall cooperate with each other in the
defense of any suit, action, investigation, proceeding or claim by a third
party and, during normal business hours, shall afford each other access to
their books and records and employees relating to such suit, action,
investigation, proceeding or claim and shall furnish each other all such
further information that they have the right and power to furnish as may
reasonably be necessary to defend such suit, action, investigation, proceeding
or claim, including, without limitation, reports, studies, correspondence and
other documentation relating to any governmental agency or administrative
matters.
10.6 Survival. All representations and warranties and all
covenants, agreements and obligations made by the Selling Group or Buyer in
this Agreement, or in any instrument or document furnished in connection with
this Agreement or the transactions contemplated hereby, shall survive the
Closing and any investigation at any time made by or on behalf of any
Indemnified Party.
10.7 Satisfaction of Claims from Escrow. Buyer shall have the
right and option of recovering amounts owed pursuant to Section 10.1 for
Buyer's Losses and Remediation from the Selling Group or from the funds held in
escrow in accordance with the Escrow Agreement.
10.8 Waiver of Contribution and Indemnification. Each member of
the Selling Group hereby waives and releases any rights of indemnification or
contribution such member of the Selling Group may have against the Australia as
a result of any payment made by the member of the Selling Group under this
Article X.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Agreement (including the exhibits and
schedules hereto) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof, and no party shall be liable or bound
to the other in any manner by any representations or warranties not set forth
herein.
11.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Neither this Agreement
nor any rights, interests, or obligations hereunder may be assigned by any
party hereto without the prior written consent of all other parties hereto, and
any purported assignment in violation of this Section 11.2 shall be null and
void, provided, however, that Buyer may assign, in its sole discretion, without
consent of the other parties hereto, any or all of its rights, interests and
obligations hereunder to any direct or indirect parent or majority owned
subsidiary of Buyer.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
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<PAGE> 54
11.4 Headings. The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
11.5 Construction. As used in this Agreement, the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular article, section, paragraph, or
other subdivision.
11.6 Modification and Waiver. Any of the terms or conditions of
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or amended
by a written instrument executed by Buyer and the Selling Group. No
supplement, modification, or amendment of this Agreement shall be binding
unless executed in writing by all of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
11.7 Schedules, Etc. All exhibits and schedules annexed hereto are
expressly made a part of this Agreement as though fully set forth herein, and
all references to this Agreement herein or in any such exhibits or schedules
shall refer to and include all such exhibits and schedules.
11.8 Notices. Any notice, request, instruction, document or other
communication to be given hereunder by any party hereto to any other party
hereto shall be in writing and validly given if (a) delivered personally, (b)
sent by facsimile, (c) delivered by overnight express, or (d) sent by
registered or certified mail, postage prepaid, as follows:
If to Buyer:
Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas U.S.A. 75041
Attention: President
Facsimile No.: (214) 864-7889
If to the Selling Group:
The Essentially Group Limited
33 College Hill
Ponsonby
Auckland, New Zealand
Facsimile No.: 0064 9 3074 097
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally, or sent by telecopy or overnight express
in the manner provided herein shall be deemed to have been duly given to the
party to whom it is directed upon actual receipt by such party. Any notice
which is addressed and mailed in the manner herein provided shall be
conclusively presumed to have been given to the party to whom it is addressed
at the close of business, local time of the recipient, on the third day after
the day it is so placed in the mail.
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<PAGE> 55
11.9 GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF NEW ZEALAND.
(b) IF A DISPUTE ARISES OUT OF THIS AGREEMENT AND IF THE
DISPUTE CANNOT BE RESOLVED THROUGH NEGOTIATION, THE PARTIES AGREE TO
SUBMIT ANY SUCH DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT
TO NON- BINDING MEDIATION PRIOR TO BRINGING SUCH CLAIM, CONTROVERSY OR
DISPUTE IN AN ARBITRAL TRIBUNAL, COURT OR ANY OTHER TRIBUNAL. THE
MEDIATION SHALL BE CONDUCTED IN AUCKLAND, NEW ZEALAND THROUGH EITHER
AN INDIVIDUAL MEDIATOR OR A MEDIATOR APPOINTED BY A MEDIATION SERVICES
ORGANIZATION, THE AUCKLAND DISTRICT LAW SOCIETY OR OTHER BODY
EXPERIENCED IN THE MEDIATION OF GENERAL BUSINESS DISPUTES, AGREED UPON
BY SELLERS' REPRESENTATIVE AND BUYER AND, FAILING SUCH AGREEMENT
WITHIN A REASONABLE PERIOD OF TIME AFTER EITHER PARTY HAS NOTIFIED THE
OTHER OF ITS DESIRE TO SEEK MEDIATION OF ANY CLAIM, CONTROVERSY OR
DISPUTE (NOT TO EXCEED FIFTEEN (15) DAYS), BY THE AMERICAN ARBITRATION
ASSOCIATION IN ACCORDANCE WITH ITS RULES GOVERNING MEDIATION. THE
COSTS AND EXPENSES OF MEDIATION, INCLUDING COMPENSATION AND EXPENSES
OF THE MEDIATOR (AND EXCEPT FOR THE ATTORNEYS' FEES INCURRED BY EITHER
PARTY), SHALL BE BORNE BY THE PARTIES EQUALLY.
(c) IF THE SELLERS' REPRESENTATIVE AND BUYER ARE UNABLE
TO RESOLVE THE CLAIM, CONTROVERSY OR DISPUTE WITHIN SIXTY (60) DAYS
AFTER THE MEDIATOR HAS BEEN CHOSEN, THEN ANY SUCH CONTROVERSY OR
DISPUTE SHALL BE FINALLY SETTLED BY ARBITRATION IN ACCORDANCE WITH THE
TERMS HEREOF. SUCH ARBITRATION MAY BE INITIATED BY EITHER PARTY
SERVING UPON THE OTHER NOTICE (I) STATING THAT THE NOTIFYING PARTY
DESIRES TO HAVE SUCH CONTROVERSY REVIEWED BY A BOARD OF THREE
ARBITRATORS, AND (II) NAMING ONE PERSON WHOM SUCH PARTY CHOOSES TO ACT
AS ONE OF THE THREE ARBITRATORS. WITHIN FIFTEEN (15) DAYS AFTER
RECEIPT OF SUCH A NOTICE, THE OTHER PARTY SHALL DESIGNATE ONE PERSON
TO ACT AS ARBITRATOR AND SHALL NOTIFY THE PARTY REQUESTING ARBITRATION
OF SUCH DESIGNATION AND THE NAME OF THE PERSON SO DESIGNATED. IF THE
PARTY UPON WHOM A REQUEST FOR ARBITRATION IS SERVED SHALL FAIL TO
DESIGNATE ITS ARBITRATOR WITHIN FIFTEEN (15) DAYS AFTER RECEIPT OF
SUCH A NOTICE, THEN THE ARBITRATOR DESIGNATED BY THE PARTY REQUESTING
ARBITRATION SHALL ACT AS THE SOLE ARBITRATOR TO RESOLVE THE
CONTROVERSY AT HAND.
(d) IF BOTH PARTIES HAVE DESIGNATED AN ARBITRATOR, THE
TWO ARBITRATORS DESIGNATED AS AFORESAID SHALL PROMPTLY SELECT A THIRD
ARBITRATOR. IF THE TWO ARBITRATORS CHOSEN BY THE PARTIES HERETO ARE
NOT ABLE TO AGREE ON SUCH THIRD
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<PAGE> 56
ARBITRATOR WITHIN THIRTY (30) DAYS AFTER THE SECOND ARBITRATOR IS
DESIGNATED, UNLESS SUCH TIME IS EXTENDED BY THE PARTIES, THEN EITHER
ARBITRATOR, ON FIVE (5) DAYS' NOTICE TO THE OTHER, SHALL APPLY TO THE
AMERICAN ARBITRATION ASSOCIATION TO DESIGNATE AND APPOINT SUCH THIRD
ARBITRATOR AS PROMPTLY AS PRACTICABLE.
(e) THE PARTIES AGREE THAT ALL ARBITRATORS CHOSEN
PURSUANT TO SECTION 11.9(c) AND (d) ABOVE SHALL NOT IN ANY MANNER BE
RELATED TO OR AFFILIATED WITH BUYER OR SELLERS.
(f) EXCEPT AS OTHERWISE SET FORTH HEREIN, THE ARBITRAL
PROCEEDINGS SHALL BE CONDUCTED IN AUCKLAND, NEW ZEALAND IN THE ENGLISH
LANGUAGE AND IN ACCORDANCE WITH AND SUBJECT TO THE INTERNATIONAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN EFFECT
FROM TIME TO TIME.
(g) THE DECISION IN WRITING OF THE ARBITRATOR(S) SO
SELECTED OR APPOINTED SHALL BE FINAL AND CONCLUSIVE UPON BOTH PARTIES.
THE COSTS AND EXPENSES OF ARBITRATION, INCLUDING THE COMPENSATION AND
EXPENSES OF THE ARBITRATOR(S), SHALL BE BORNE BY THE PARTIES AS THE
ARBITRATOR(S) MAY DETERMINE. EITHER PARTY MAY APPLY TO ANY COURT
WHICH HAS JURISDICTION FOR AN ORDER CONFIRMING THE AWARD. ANY RIGHT
OF EITHER PARTY TO JUDICIAL ACTION ON ANY MATTER SUBJECT TO
ARBITRATION HEREUNDER IS HEREBY WAIVED, EXCEPT SUIT TO ENFORCE THE
ARBITRATION AWARD.
11.10 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws,
such provision shall be fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance from this
Agreement.
11.11 Expenses and Finders' Fees. The Selling Group and Buyer will
bear their own costs and expenses associated with the transactions contemplated
hereby, including the payment of any agents' or finders' fees due in connection
with the transactions contemplated hereby.
11.12 Third Party Beneficiaries. Except as otherwise specifically
provided in the Agreement, no individual or firm, corporation, partnership, or
other entity shall be a third-party beneficiary of the representations,
warranties, covenants, and agreements made by any party hereto.
11.13 Number and Gender of Words. Whenever the singular number is
used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.
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<PAGE> 57
11.14 New Zealand Currency. All currency amounts set forth herein,
or in any document executed in connection with this Agreement, except as
otherwise noted, shall refer to New Zealand currency.
11.15 Further Assurances. From time to time after the Closing, at
the request of any other party but at the expense of the requesting party,
Buyer or the Selling Group, as the case may be, will execute and deliver any
such other instruments of conveyance, assignment and transfer, and take such
other action as the other party may reasonably request in order to consummate
the transactions contemplated hereby.
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<PAGE> 58
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ESSENTIALLY GROUP LIMITED
By: /s/ Gary McNabb
------------------------------------
Name: Gary McNabb
----------------------------------
Title: Director
---------------------------------
By: /s/ R. Parkinson
------------------------------------
Name: R. Parkinson
----------------------------------
Title: Director
---------------------------------
ESSENTIALLY GROUP (NZ) LIMITED
By: /s/ Gary McNabb
------------------------------------
Name: Gary McNabb
----------------------------------
Title: Director
---------------------------------
By: /s/ R. Parkinson
------------------------------------
Name: R. Parkinson
----------------------------------
Title: Director
---------------------------------
ESSENTIALLY SOFTWARE
(WELLINGTON)
LIMITED
By: /s/ Gary McNabb
------------------------------------
Name: Gary McNabb
----------------------------------
Title: Director
---------------------------------
By: /s/ R. Parkinson
------------------------------------
Name: R. Parkinson
----------------------------------
Title: Director
---------------------------------
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<PAGE> 59
THE MCNABB FAMILY TRUST
By: /s/ R. Parkinson
------------------------------------
Robert Parkinson, Trustee
By: /s/ Gary John McNabb
------------------------------------
Gary John McNabb, Trustee
MCNABB NO. 2 FAMILY TRUST
By: /s/ A. L. McNabb
------------------------------------
Anna Louise McNabb, Trustee
By: /s/ R. Parkinson
------------------------------------
Robert Parkinson, Trustee
By: /s/ Gary John McNabb
-------------------------------------
Gary John McNabb, Trustee
MCNABB NO. 3 FAMILY TRUST
By: /s/ A. L. McNabb
------------------------------------
Anna Louise McNabb, Trustee
By: /s/ Gary John McNabb
------------------------------------
Gary John McNabb, Trustee
By: /s/ R. Parkinson
------------------------------------
Robert Parkinson, Trustee
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<PAGE> 60
RMAD TRUST
By: /s/ Gary John McNabb
------------------------------------
Gary John McNabb, Trustee
By: /s/ R. Parkinson
------------------------------------
Robert Parkinson, Trustee
/s/ David Colvin
---------------------------------------
David Colvin, Individually
/s/ Gary John McNabb
---------------------------------------
Gary John McNabb, Individually
SOFTWARE SPECTRUM, INC.
By: /s/ Richard Sims
------------------------------------
Name: Richard Sims
----------------------------------
Title: President
---------------------------------
SOFTWARE SPECTRUM (NZ) LIMITED
By: /s/ Richard Sims
------------------------------------
Name: Richard Sims
----------------------------------
Title: Director
---------------------------------
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<PAGE> 61
<TABLE>
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE NUMBER:
MARSH & MOLENNAN, INC. CERTIFICATE OF INSURANCE BAM #8139
- - ------------------------------------------------------------------------------------------------------------------------------------
PRODUCER
Marsh & McLennan, Incorporated THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO
2200 Ross Avenue RIGHTS UPON THE CERTIFICATE HOLDER OTHER THAN THOSE PROVIDED IN THE POLICY.
3300 Texas Commerce Tower THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE
Dallas, TX 75201-7988 POLICIES LISTED HEREIN.
Sally Dillenback ------------------------------------------------------------------------------
COMPANIES AFFORDING COVERAGE
------------------------------------------------------------------------------
COMPANY A VIGILANT INSURANCE CO
LETTER
- - ------------------------------------------------------------------------------------------------------------------------------------
INSURED COMPANY B TEXAS PACIFIC INDEMNITY CO
LETTER
Software Spectrum, Inc. ------------------------------------------------------------------------------
Attn: Karen Meador COMPANY C
2140 Merritt Drive LETTER
Garland, TX 75041 ------------------------------------------------------------------------------
COMPANY
LETTER D
- - ------------------------------------------------------------------------------------------------------------------------------------
COVERAGES
- - ------------------------------------------------------------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT POLICIES OF INSURANCE LISTED HEREIN HAVE BEEN ISSUED TO THE INSURED NAMED HEREIN FOR THE POLICY PERIOD
INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THE
CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES LISTED HEREIN IS SUBJECT TO ALL THE TERMS,
CONDITIONS AND EXCLUSIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
- - ------------------------------------------------------------------------------------------------------------------------------------
CO TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION LIMITS
LTR DATE (MM/DD/YY) DATE (MM/DD/YY)
- - ------------------------------------------------------------------------------------------------------------------------------------
A GENERAL LIABILITY (96)3531-14-59 4/30/95 4/30/96 GENERAL AGGREGATE $ 2000000
/X/ COMMERCIAL GENERAL LIABILTY PRODUCTS-COMP/OP AGG $ 2000000
/ / / / CLAIMS MADE /X/ OCCUR. PERSONAL & ADV INJURY $ 1000000
/ / OWNER'S CONTRACTOR'S PROT. EACH OCCURRENCE $ 1000000
/ / __________________________ FIRE DAMAGE (ANY ONE FIRE) $ 100000
/ / __________________________ MED. EXPENSE (ANY ONE PERSON) $ 10000
- - ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY
/ / ANY AUTO COMBINED SINGLE LIMIT $
/ / ALL OWNED AUTOS BODILY INJURY (PER PERSON) $
/ / SCHEDULED AUTOS BODILY INJURY (PER ACCIDENT) $
/ / HIRED AUTOS PROPERTY DAMAGE $
/ / NON-OWNED AUTOS
- - ------------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY
/ / ANY AUTO AUTO ONLY - EA ACCIDENT $
/ / OTHER THAN AUTO ONLY $
/ / EACH ACCIDENT $
/ / AGGREGATE $
/ /
- - ------------------------------------------------------------------------------------------------------------------------------------
B EXCESS LIABILITY (96)7972-04-17 4/30/95 4/30/96 EACH OCCURRENCE $ 5000000
/X/ UMBRELLA FORM AGGREGATE $ 5000000
/ / OTHER THAN UMBRELLA FORM
- - ------------------------------------------------------------------------------------------------------------------------------------
WORKERS' COMPENSATION AND STATUTORY LIMITS $
EMPLOYERS LIABILITY EACH ACCIDENT $
DISEASE - POLICY LIMIT $
DISEASE - EACH EMPLOYEE $
- - ------------------------------------------------------------------------------------------------------------------------------------
OTHER
- - ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
- - ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CACELLATION
Riverport Commerce Center, Inc SHOULD ANY OF THE POLICIES LISTED HEREIN BE CANCELLED BEFORE THE
Attn: Reed Boone EXPIRATION DATE THEREOF, THE INSURER AFFORDING COVERAGE WILL ENDEAVOR TO
P.O. Box 58098 MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED HEREIN, BUT
Louisville, KY 40258 FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF
ANY KIND UPON THE INSURER AFFORDING COVERAGE, ITS AGENTS OR
REPRESENTATIVES, OR THE ISSUER OF THIS CERTIFICATE.
--------------------------------------------------------------------------
MARSH & MCLENNAN, INCORPORATED
BY: /s/ RONALD J. BROTHERS
--------------------------------------------------------------------------
MMI 1 (8/95) VALID AS OF: 3/07/96
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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