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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
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FORM 10-K
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Mark One Annual Report Pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____.
Commission file number 0-19349
SOFTWARE SPECTRUM, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1878002
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2140 MERRITT DRIVE,
GARLAND, TEXAS
75041
(Address of principal executive offices)
(Zip Code)
972-840-6600
(Registrant's telephone number, including area code)
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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 _____
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 July 15, 1999 of the Registrant's
voting securities held by non-affiliates was $51,275,803.
At July 15, 1999, the Registrant had outstanding 4,103,180 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 certain of the information contained in the registrant's proxy
statement for its annual meeting of shareholders to be held September 23, 1999,
which will be filed by the registrant within 120 days after April 30, 1999.
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PART I
ITEM 1. BUSINESS
Software Spectrum, Inc. (the "Company") is a global business-to-business
software licensing and services provider. The Company serves Fortune 500 and
Global 500 companies, thousands of mid-sized customers from every industry
and the government and academic market segments. The Company provides its
customers with comprehensive information technology solutions including a
wide variety of third-party business software products, volume software
licensing services and technology services and assists them in the
implementation, deployment and ongoing support of their personal computing
strategies. The Company has established supply arrangements with major
personal computer software publishers, including Microsoft, IBM/Lotus,
Novell, Attachmate, Symantec, Adobe Systems and Visio. The Company markets
software titles for IBM, IBM-compatible and Macintosh personal computers,
including software for all major operating systems such as Windows 95,
Windows 98, 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 (972) 840-6600. Except where the context otherwise requires, the
term "Company" as used herein includes Software Spectrum, Inc. and its
subsidiaries.
FORWARD-LOOKING INFORMATION
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.
RELIANCE ON FINANCIAL INCENTIVES, VOLUME DISCOUNTS AND MARKETING FUNDS
As part of its supply agreements with certain publishers and distributors,
the Company receives substantial incentives in the form of rebates, volume
purchase discounts, cooperative advertising funds and market development funds.
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
personal computer business software products from a small number of vendors. For
the year ended April 30, 1999, approximately 73% of the Company's net software
sales were derived from products published by Microsoft and IBM/Lotus. 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 likely adversely affect its
financial results.
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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 personal computer software. VLM agreements are typically used by
customers seeking to standardize desktop software applications and,
consequently, typically involve significant quantities of unit sales for each
customer. Although unit volume sales are increased by the use of VLM agreements,
generally lower gross margins are realized on such sales as compared to sales of
full-packaged software products. The Company continues to experience an increase
in the percentage of sales made pursuant to VLM agreements and, consequently,
overall gross margin percentages on the sale of software products should
continue to decline. In addition, the trend toward use of enterprise-wide
licensing agreements, which typically have lower gross margins and
administrative costs than other VLM programs, has resulted in further decreases
in the Company's product gross margins.
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 operations and
geographic expansion outside the United States involve currency exchange risks,
political risks and other risks of conducting business abroad.
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, Internet
and other discount business suppliers and software publishers. Many of the
Company's competitors, particularly software publishers, have substantially
greater financial resources than the Company. Because of the intense competition
within the personal computer software channel, companies that compete in this
market, including the Company, are characterized by low gross and operating
margins. Consequently, the Company's profitability is highly dependent upon
effective cost and management controls.
NEW DEVELOPMENTS AND RAPID TECHNOLOGICAL CHANGE; RETENTION OF QUALIFIED
PERSONNEL
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. Additionally, the Company's business
results can be adversely affected by disruptions in customer ordering patterns
and the impact of new product releases.
The growth and success of the Company's professional and support services
businesses depend largely upon its ability to attract, develop, motivate and
retain highly-skilled technical employees in an industry characterized by high
employee turnover. Qualified technical employees are in great demand and are
likely to remain a limited resource for the foreseeable future. If the Company
is unable to attract and retain sufficient numbers of highly-skilled technical
employees, the Company's professional and support services businesses could be
adversely affected.
CHANGING METHODS OF SOFTWARE DISTRIBUTION
The manner in which personal computer 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
personal computer software suppliers' participation in these programs is reduced
or eliminated, or if other
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methods of distribution of software, which exclude the personal computer
software resale channel, become common, the Company's business and financial
results could be materially adversely affected.
TELEPHONE SUPPORT SERVICES AGREEMENTS
Certain of the Company's key technical support contracts generate revenues
based upon the number of support requests received by the Company or the time
spent on such requests. Consequently, the amount of revenues generated is
dependent upon the support needs of end-users. With respect to agreements that
provide for pricing on a per-call basis, the Company's profitability may be
adversely affected if the Company receives fewer support requests than expected
or the time spent in resolving inquiries is greater than anticipated.
Certain of the Company's support contracts provide that the contract may be
terminated on short notice if the Company fails to meet specified performance
criteria. Cancellation of, or a significant decrease in, the services provided
under a key support contract could have an adverse effect on the Company's
profitability. In addition, the Company may be required to rapidly expand its
support operations to meet the demands of its customers. Such rapid changes to
the size of the Company's support operations and employee base could involve
significant costs, including costs associated with employee hiring and training,
the purchase of additional workstations, equipment and technology and the
establishment of additional call center facilities.
YEAR 2000
The Company has conducted a review and assessment of its core management
information systems, desktop computers, networks and servers and software
applications and packages to determine whether or not they support Year 2000
date codes. The Company has completed testing of its critical applications and
its networks and servers and has uncovered no material date-related issues. The
Company is in the process of updating its third-party software tools, database
engines and applications to the most current releases and remediating any of its
personal computers, desktop software applications and non-IT embedded systems
that do not support Year 2000 date codes. The Company expects that any required
modifications will be made on a timely basis and that the cost of such
modifications will not have a material effect on the Company's operating
results. The Company's Year 2000 initiative also calls for contacting key
software vendors and other business partners to determine whether they have
effective plans to address their Year 2000 issues. In the event that the
Company's key vendors cannot provide the Company with software products that
meet Year 2000 requirements on a timely basis, or if customers delay, forego or
return software purchases, or delay professional services contracts based upon
Year 2000 related issues, the Company's operating results could be materially
adversely affected. In general, as a reseller of software products, the Company
only passes through to its customers the applicable vendors' warranties. The
Company's operating results could be materially adversely affected, however, if
it were held liable for the failure of software products resold by the Company
to be Year 2000 compliant despite its disclaimer of software product warranties.
With respect to the Company's professional services, the failure of client
systems or processes could subject the Company to claims. Such claims, or the
defense thereof, could have a material adverse effect on the Company's operating
results.
COMPANY OVERVIEW
The Company is a global business-to-business software licensing and
services provider that delivers comprehensive information technology solutions
to organizations throughout North America, Europe and Asia/Pacific. The Company
sells personal computer ("PC") software through volume licensing and maintenance
agreements, or right-to-copy arrangements, and full-packaged PC software
products, primarily through third-party distributors. In addition, the Company
provides infrastructure design, enterprise software management, applications
development and technical support services to help organizations maximize
business value from information technology. The Company's strategy is to
leverage its global infrastructure to provide a high level of customer service,
to maintain a cost-efficient operating structure and to grow its product and
services business around the world. The Company controls its costs by
centralizing its administrative, customer service and technical support
operations while utilizing a geographically dispersed field sales force and
professional services staff strategically located in major business markets
worldwide. The majority of the Company's revenues are derived from sales to
large organizations,
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including Fortune 500 and Global 500 companies, as well as thousands of
mid-sized customers from every industry, including the government and academic
market segments.
The Company derives revenues from three primary business lines, which
consist of product services, professional services and support services.
The largest component of the Company's business is providing third-party
personal computer software, licenses and related services to large organizations
with over 1,000 desktop computers, including companies in the Fortune 500 and
Global 500. The Company concentrates on building and expanding these
relationships through personal sales contacts made throughout major global
distributed computing technology markets. The Company maintains a sales force
which focuses on the software licensing and distribution needs of its larger
customers and serves mid-sized customers through a combined field sales and
outbound calling sales effort. Through its strategically located, centralized
operations centers in North America, Europe and Asia/Pacific, the Company
supports the global marketing efforts of its sales forces.
The Company's Internet Web site, WWW.SOFTWARESPECTRUM.COM, includes an
electronic catalog which can be used by customers to obtain pricing information,
check order status, run purchase activity reports and purchase products. For
many customers, the Company offers secure on-line customer-specific catalogs
which contain products, prices and other information unique to each customer. In
conjunction with this electronic business-to-business web tool, the Company
maintains headquarters-based sales representatives to facilitate purchases and
self-help services by the Company's customers over the Internet. See "Sales and
Marketing."
The Company's fee-based professional services are structured to meet
customers' three fundamental solution requirements: advanced network
infrastructure, including enterprise messaging and collaborative platforms;
enterprise software management to help customers track and monitor their
technology investments; and custom applications designed to meet a customer's
unique business and e-commerce needs. The Company's professional services
strategy is to focus on select technologies to allow its personnel to develop
in-depth knowledge to support complex customer requirements. Software Spectrum
provides services to assist customers in determining where and how technology
and products can be applied to reduce the cost of managing and supporting
enterprise networks, and has also demonstrated its ability to develop
business-critical e-commerce solutions for customers.
The Company markets its professional services through a dedicated field
sales force strategically located to reach the Company's major markets. As of
April 30, 1999, the Company employed over 450 professional service consultants
worldwide, which contributed approximately 5% of the Company's revenues for the
year then ended.
Software Spectrum provides technical support services through its support
centers located in North America, Europe and Asia/Pacific. These services are
primarily utilized by software publishers that desire to outsource their
technology support services as well as organizations that choose to outsource
their internal help desk function. In July 1999, the Company began providing
telephone support services for one of the leading Internet service providers in
the U.S. The Company employed over 1,100 technical support analysts and support
personnel as of April 30, 1999, including a dedicated sales force.
The Company adapts its product-related services to specific customer
requests, consults with customers on developing strategies to efficiently manage
the customer's investment in distributed computing software and hardware and
manages the 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 software 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 agreement services and support. Under VLM agreements,
the Company acts as a designated service provider to sell software licensing
rights that permit customers to make copies of a publisher's software program
from a master disk and distribute this software within a customer's organization
for a fee per copy made. Maintenance agreements entitle customers to all
upgrades of certain products during a specified period of time, typically two
years following the software purchase. 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. One of the latest trends with respect to
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VLM agreements involves enterprise-wide licensing agreements which give the
customer the right to use an entire suite of products offered by a publisher on
all desktops across its enterprise. The Company's licensing consultants can
assist customers in selecting the most advantageous form of licensing available
based on specific needs or constraints. Among its other services, the Company
offers on-site consultants for large corporations, custom 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 personal computer 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 professional
services related to those 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.
The Company has continued to experience significant growth in the sale of
software to its customers through VLM agreements. For the year ended April 30,
1999 ("fiscal 1999"), sales through VLM agreements represented approximately 83%
of software sales of the Company, compared to 77% and 61% of software sales for
the years ended April 30, 1998 ("fiscal 1998") and April 30, 1997 ("fiscal
1997"), respectively. 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, as a percent of
sales, on sales made through VLM agreements. Lower gross margins are partially
offset by lower operating costs associated with such agreements.
GLOBAL OPERATIONS
Under VLM agreements, multinational customers can consolidate their
worldwide volume software purchases under a single master agreement for a given
publisher. The Company's ability to sell software globally through these
programs was a key factor in its global expansion, which began in fiscal 1993.
The Company's North American operations are based in Dallas, Texas, with a
major product and technical support call center located in Spokane, Washington
and an additional technical support call center in Tampa, Florida, which was
added in 1999. The Company also maintains professional services offices in major
cities within the U.S. and Canada. The Company's European sales headquarters is
located in The Hague, The Netherlands and its operations center is located in
Dublin, Ireland. The Company augmented its European operations by establishing
professional services offices in London, England in 1996, Frankfurt, Germany in
early 1997 and The Hague, The Netherlands, in 1998. The Company began operations
in Australia and New Zealand in April 1996, through an acquisition that
significantly extended Software Spectrum's geographic coverage by providing an
immediate presence in the Asia/Pacific region. In fiscal 1997, the Company
established sales offices in Hong Kong and Singapore. During fiscal 1997 and
1998, the Company consolidated the administrative and support functions of its
Asia/Pacific operations in Sydney to more closely align these functions with the
centralized structure and operations of the Company's North American and
European operations. The Company also installed information systems that are
common to all of its operations centers. The Company's operations in
Asia/Pacific incurred operating losses of approximately $.7 million in the
fiscal year ended April 30, 1999, which reflects a substantial improvement over
operating losses of approximately $2.5 million in the fiscal year ended April
30, 1998.
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In fiscal 1997, the Company entered into a joint venture in Japan, named
Uchida-Spectrum, Inc., with Uchida-Yoko Co., Ltd. Through this joint venture, in
which the Company owns a 45% equity interest, the Company sells software
products and provides technology services to customers in Japan.
With centralized operations centers in North America, Europe and
Asia/Pacific, the Company is able to serve the major distributed computing
technology markets around the world. Today, Software Spectrum provides software
or fulfillment services to customers located in over 100 countries, provides
support services in 11 languages, invoices customers in many local currencies
and provides consolidated worldwide reporting to customers.
PROFESSIONAL SERVICES
Through its worldwide professional services offices, the Company provides
fee-based professional IT services structured to meet customers' three
fundamental solution requirements: infrastructure design, enterprise software
management and applications development.
The Company's professional services offerings are centered around a number
of specific technologies, including advanced networking infrastructure,
enterprise messaging and groupware, distributed client/server business
solutions, 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; (iv) to provide strategies for controlling the rising cost of
supporting distributed computing; and (v) to develop comprehensive computing
solutions to their unique business and e-commerce needs.
The Company is an industry leader in assisting customers in implementing
Microsoft's Systems Management Server ("SMS"). In 1995, the Company founded the
Software Spectrum SMS Alliance, in cooperation with Microsoft, and is its
managing member. Members of the SMS Alliance collectively represent more than 2
million desktops and meet regularly to share SMS deployment and management
solutions. Based on the success of the SMS Alliance, during fiscal 1998 the
Company created an Exchange Solutions Alliance in cooperation with Microsoft.
As of April 30, 1999, the Company had professional services offices in
Chicago, Dallas, Atlanta, New York, Houston, San Francisco, Denver, Detroit, Los
Angeles, Minneapolis, Raleigh-Durham, Toronto, Sydney, Melbourne, Wellington,
Singapore, London, Frankfurt and The Hague. Through its joint venture in Japan,
Uchida-Spectrum, Inc., the Company also offers professional services to its
customers in Japan.
The Company is a Microsoft Solutions Provider, Lotus Notes Business Partner
and IBM BESTeam Premium Partner 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
provide interfaces to many mainframes and minicomputers. The Company also
provides sophisticated 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. 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.
Building on a foundation of solid infrastructure and effective software
asset management, the Company also provides custom applications which provide
solutions to customers' unique business needs. Custom applications may be
developed using a number of third-party software tools and databases, including
use of the Internet to deliver business-critical e-commerce solutions. Custom
applications often require extended service engagements which
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solidify long-term client relationships. Applications development represented
approximately one-third of the Company's professional services business at April
30, 1999.
SUPPORT SERVICES
The Company provides fee-based telephone and Internet 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. The Company's
services cover a number of technologies, including desktop applications and
operating systems and network operating systems.
The Company provides quality technology support for organizations in four
principal areas. First, it contracts with software publishers to provide
telephone support on their behalf to customers. Second, the Company provides
technical support to large organizations to replace the customer's internal help
desk capabilities for the customer's employees. Third, in July 1999, the Company
initiated technical support for the customers of a leading Internet service
provider ("ISP"). Finally, support analysts handle support calls from the
Company's corporate customers' technical personnel for escalation services. The
staff in the Company's support centers are experienced in over 150 major
personal computer software titles and can provide support for software products
running on most major personal computer operating systems and environments,
including Windows 95, Windows 98, Macintosh, Microsoft Windows NT, Novell
NetWare and other network operating systems. The Company is designated as a
Microsoft Certified Support Center (one of nine in the United States), a
Lotus Premium Business Partner and a Novell Authorized Service Center. The
support centers include large capacity file servers, multiple CD ROM databases
and other resources that enable the Company's support personnel to recreate a
customer's individual problem, develop a solution and guide the customer through
the solution on a step-by-step basis. Customers increasingly utilize the
Internet as an electronic means to forward support questions and receive answers
from the Company.
The Company's support business grew rapidly in the 1999 fiscal year. The
growth has been primarily in providing support services under contracts with
software publishers, although the Company has also increased its support
business with end-users and organizations. The Company maintains support
facilities in Dallas, Texas; Spokane, Washington; Tampa, Florida; Dublin,
Ireland and Sydney, Australia.
PRODUCT SERVICES
LICENSING, PROCUREMENT 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
either to 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 personal computer software is likely to
be substantially less than the traditional method 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 the 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. Certain
publishers have recently introduced licensing programs that reduce the reporting
burden of customers and the Company by requiring annual payments over a two to
three year term, provided the customer agrees to standardize certain
applications within its organization. In order to address the wide range of
procurement choices available to its customers, the Company provides
information, analysis, advice and assistance to its customers relating to their
procurement decisions and negotiations through its team of licensing consultants
as well as by means of the Company's marketing and sales staff and through its
publications. See "World Wide Web Site and Publications" and "Sales and
Marketing."
Increasingly, large corporate customers are electing to standardize desktop
applications and coordinate their enterprise-wide personal computer management
responsibilities. In response to this trend, publishers have developed
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enterprise-wide VLM agreements, which simplify the terms, conditions and
administration of VLM arrangements and provide the customer with more
predictable annual costs. The Company works closely with its customers to
educate them regarding the opportunities available under VLM agreements and has
developed the systems needed to provide the global integration and milestone
reporting required under these programs.
The Company's licensing consultants are software managers certified by
the Software Publishers' Association ("SPA"), a division of the Software and
Information Industry Association, that are trained to provide customers with
advice in the evaluation of the various VLM programs offered by publishers.
In addition to the Company's extensive experience in 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. The Company has developed 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.
To help customers develop or improve their personal computer software
management programs, the Company developed a software management process and
corresponding implementation services that allow customers to effectively
utilize the benefits associated with VLM programs. The Company provides its
customers with a methodology for evaluating the individual customer's personal
computer software management process and analyzing issues in implementing the
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, communicating with
end-users, reporting and compliance under VLM agreements and telephone support.
Most of the Company's products are ordered by the customer's procurement or
information systems department and may be 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. The Company has also enabled its customers to obtain this
information directly from the Company's Web site. Approximately 75% of the
Company's customers now status their orders via this Internet tool. Also,
customers can submit orders or other data to the Company from their computer
systems via the Company's electronic data interchange ("EDI") capabilities. EDI
and on-line Web order placement improve order accuracy and reduce administrative
costs for corporate customers and the Company.
MAINTENANCE AND UPGRADE SERVICES
A number of customers who have elected to purchase software licenses
through VLM agreements have also purchased software maintenance, which allows
customers to receive new versions, upgrades or updates of software products
released during the maintenance period in exchange for a specified annual fee,
which may be paid in monthly, quarterly or annual installments. Upgrades and
updates are revisions to previously published software that improve or enhance
certain features of the software and correct errors found in previous versions.
Customers that have elected not to purchase maintenance agreements are still
able to upgrade multiple units of specific products through the Company for a
separate fee.
ELECTRONIC SERVICES AND CAPABILITIES
The Company offers a number of services and is, on an ongoing basis,
implementing new and enhanced systems to support its customers' 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 a 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 packaged
and custom software to the desktop.
Through its professional services offices, 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.
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<PAGE>
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 currently delivers a limited amount of software
in this manner and intends to continue to participate in this method of
distribution as demand for this service by large organizations emerges and as
communication technology improvements enable this form of ESD to become more
widely used.
WORLD WIDE WEB SITE AND PUBLICATIONS
The Company's World Wide Web site contains an on-line catalog of thousands
of products that can be purchased over the Internet. The Internet catalog
provides information about products through a comprehensive search engine and
provides product descriptions. The Company offers customer-specific, secure
catalogs available over the Internet. Each specialized electronic catalog
contains specific products and pricing unique to that customer as well as
information particular to the VLM agreements in which that customer is enrolled.
The customer is also able to status open orders and order certain standard
reports on-line.
The Company's World Wide Web site provides customers with information
concerning the Company, its products (including third-party reviews) 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 and product catalogs, and also
provides other timely information coincident with major product releases. IN
TOUCH, a comprehensive on-line magazine, offers the latest news and
commentary on industry trends, software products, promotions and
Company-sponsored workshops, seminars and other technology-related events.
The Company prepares and distributes an 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 expressed 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.
SALES AND MARKETING
The Company sells and markets its product and professional services to
existing and potential large customers through its account executives,
professional services account managers ("PSAMs"), customer service
representatives and its marketing and support staff. The Company organizes
account management teams to serve and support each of its customer's needs for
product and professional services. Generally, each team consists of one account
executive and/or PSAM, supported by technical, marketing, customer service and
sales support personnel at the Company's operations centers or professional
services sites, as well as Web-based self-service capabilities.
The Company assigns to account executives and PSAMs specific accounts
and/or a specific territory, which generally includes major metropolitan areas
in one or more countries, states or provinces. Account executives and PSAMs
market the overall service and advantages of using the Company as the customer's
preferred software and services supplier, and they concentrate on generating new
customer relationships, maintaining and improving existing customer
relationships and increasing the volume of software and services provided to
corporate customers. For national and global accounts, several account
executives and/or PSAMs may work with the customer in different parts of North
America, Europe and Asia/Pacific, coordinated by a designated national or global
account manager. The number of accounts handled by each account executive or
PSAM depends on the relative size of the accounts and the level of service
required by each customer within the assigned territory.
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<PAGE>
Account executives work directly with senior and mid-level procurement
managers, IT 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 are responsible for 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 and
planning product presentations and seminars by representatives of the Company
and publishers.
The Company's licensing consultants work with its customers to provide
advice and consultation on VLM programs and to produce detailed customer account
analysis and reporting. The Company also assigns a team of customer service
representatives to each product account. Customer service representatives, who
are based primarily at the Company's operations centers, 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.
They also help customers perform many of these functions directly by guiding
them through the variety of options available on the Company's Web site -
WWW.SOFTWARESPECTRUM.COM. This structure enables customer service
representatives to develop close relationships with individuals within the
customer's organization and to better serve 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.
PSAMs work with senior and mid-level information technology professionals
of existing and potential customers to assist them in determining where and how
technology and products can be implemented to reduce the cost of managing and
supporting enterprise networks. They also consult with the Company's technology
specialists and product development professionals to determine how existing and
emerging technologies can best be utilized to meet the business needs of the
Company's customers.
To solicit business from mid-sized organizations, the Company utilizes a
coordinated effort from field sales and outbound calling team members. While
product price and delivery terms are key factors in mid-sized organizations, the
Company also provides a broad range of VLM agreement support and services, as
well as professional services to this category of customers. Initial contact and
sales are made typically through field sales or telephone inquiries. The Company
interfaces with smaller customers via outbound telephone inquiries as well as
Web-based self-service offerings.
The Company sells its telephone and Internet-based support services through
a dedicated sales force which focuses on the types of organizations who most
often require such services. Software publishers typically outsource some or all
of their telephone support on significant products, which allows the Company to
leverage its existing relationship with major publishers. The Company also
solicits large organizations who may desire to outsource all, or a portion of,
their internal help desk function. The Company's market for support services
also extends to a number of other technology-related organizations, including
Internet service providers and hardware manufacturers and resellers.
SUPPORT SYSTEMS
The Company has developed certain proprietary support systems that
facilitate the delivery of product and services to its customers and has
invested in technology-based systems to support the special requirements
necessary to service VLM agreements for its customers. SOLO, 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, in conjunction with the Company's contract management database,
the Company's representatives can guide a customer through the various
purchasing options and assist in administering VLM agreements. SOLO also
provides the Company's customer service representatives with a customer profile,
account status, order status and product pricing and availability details.
10
<PAGE>
PRODUCTS AND DISTRIBUTION
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 April 30, 1999, the top 20 software titles sold by the
Company represented approximately 73% of the Company's net software sales.
In April 1999, the Company adopted a virtual warehouse model for the
distribution of shrink-wrapped software in North America. The model was
facilitated through an agreement with Ingram Micro, a leading technology
distributor, to provide distribution capability for product purchased from
Ingram Micro as well as product purchased elsewhere. A three-year agreement with
Ingram Micro was signed December 24, 1998. The Company's former distribution
facility in Louisville, Kentucky was closed in April 1999. The Company continues
to operate a distribution facility in Sydney, Australia.
Generally, the Company uses the services of distributors or publishers
to ship products directly to its customers, both in the U.S. and other
countries, usually the same day the Company receives the order. As of April 30,
1999, the Company did not have a significant order backlog.
CUSTOMERS
In fiscal 1999, the Company handled more than 8,800 active customer
accounts. The Company's customer base includes corporations, government
agencies, educational institutions, non-profit institutions and other business
entities. The Company also has established a presence in the educational market,
and the Company has software resale authorizations from all major educational
product publishers. 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. In
fiscal 1999, no single customer represented more than 5% of the Company's
revenues, and the Company's customer base included 307 of the 1998 Fortune 500
companies and 216 of the Fortune Global 500 companies. The Company does not
believe that the loss of any single customer would have a material adverse
effect on its business.
VENDORS
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 publisher requirements, cost, availability, return privileges and
demand for a particular product. For fiscal 1999, approximately 84% of the
Company's sales represented products purchased from its ten largest publishers.
For each of the fiscal years ended April 30, 1999 and 1998, products from
Microsoft accounted for approximately 65% and 55% of net software sales,
respectively, and products from IBM/Lotus accounted for approximately 8% and 10%
of net software sales, respectively.
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 within certain specified time periods in exchange for credit against
future purchases in the event that a product is defective or made obsolete,
whether through the development of upgrades, new releases or otherwise.
Publisher contracts also generally permit the Company to submit adjustment
reports for licensing and maintenance transactions within a certain time period
after the
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<PAGE>
transaction is reported. The agreements 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. 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. 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.
COMPETITION
The personal computer software market is intensely competitive. The Company
faces competition from a wide variety of sources, including "software-only"
resellers, hardware resellers and aggregators and large systems integrators.
Current competitors from the software reseller category would include Corporate
Software and Technology, Inc., ASAP Corporate Express, Softmart and
Softwarehouse International. The Company believes that it possesses significant
differentiating features from this group. These features include the Company's
global presence and capabilities, extensive technology services capabilities and
offerings, VLM expertise, services and systems that support the Company's
business and knowledgeable, industry-experienced personnel.
Competitors also include hardware resellers and aggregators. These
companies compete in the large organization market with marketing efforts to
provide customers with software and hardware services. Other competitors include
Dell Computer Corporation, a hardware manufacturer that also sells software, and
systems integrators such as GE Capital Corporation, Compaq Computer Corporation,
Compucom Systems, Inc. and Microage, Inc. These companies do have a global
presence and offer technology services. The Company believes its VLM expertise
and services, software-focused solutions, custom computing systems specifically
designed to support the Company's business and knowledgeable
industry-experienced personnel are differentiating factors in this group of
competitors.
In the professional services market, there are a significant number of
competitors, ranging from small local consulting services practices to large
companies such as Whittman-Hart, Inc., Cambridge Technology Partners, Inc. and
Keane, Inc., the technology services divisions of major hardware resellers, such
as Compucom Systems, Inc., and the consulting divisions of national accounting
firms such as KPMG LLP and PricewaterhouseCoopers LLP. The Company believes that
its concentration on high-end enterprise architectural planning and consultation
covering multiple key specific technologies, as well as its global presence,
help to differentiate the Company from other competitors in the professional
services area of its business. There are a number of significant competitors in
the global technical software support services market, including Keane, Inc.,
Stream International, Inc., Sykes Enterprises Incorporated and DecisionOne
Corporation. The Company competes in this market based primarily on the quality
of services provided and cost. Many of the Company's competitors have
significantly greater financial resources than the Company. However, the Company
believes that its emphasis on training and quality programs, and its focus on
high customer satisfaction at a reasonable cost, allows the Company to compete
effectively in this highly competitive market.
The manner in which personal computer 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 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 resale
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
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<PAGE>
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. Should publishers permit others to sell VLM
agreements, 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 resale 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. The Company currently delivers a limited amount of
software in this manner and intends to continue to participate in this method of
software distribution as demand for this service by large organizations emerges
and as communications technology improvements permit electronic software
distribution to be made securely and 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. Sales
of personal computers to homes and small businesses with many popular software
application programs bundled with the hardware have continued to increase. 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 April 30, 1999, the Company had approximately 2,500 employees in
North America, Europe and Asia/Pacific. The Company has entered into
non-competition agreements and/or non-solicitation agreements with substantially
all of its sales and professional services personnel. None of the Company's
employees are represented by a union.
ITEM 2. PROPERTIES
The Company currently leases approximately 211,000 square feet of space in
Garland, Texas (a suburb of Dallas) for its corporate headquarters. The Garland
leases have current monthly payments of approximately $79,000 and remaining
terms of six to eight years. The Company leases approximately 71,000 square feet
of office space in Spokane, Washington with current monthly payments of
approximately $58,000. As of April 30, 1999, the Spokane lease had a remaining
term of two years. In 1999, the Company opened a support services center in
Tampa, Florida. This facility consists of approximately 98,500 square feet of
space which is leased for approximately $107,000 per month. The remaining term
of the lease is approximately five years. Within North America, the Company also
leases office space in various markets for its professional services sites.
With respect to its European-based operations, the Company currently leases
space for its operations center in Dublin, Ireland, and leases office space in
three other markets. In Asia/Pacific, the Company occupies leased office space
in eight markets.
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ITEM 3. LEGAL PROCEEDINGS
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 April 30, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's common stock is traded over the counter and is listed on The
Nasdaq Stock Market under the symbol SSPE. The following table sets forth the
range of high and low last reported sales prices for the Company's common stock
for the last eight fiscal quarters.
<TABLE>
<CAPTION>
FISCAL YEAR 1999 QUARTER ENDED: High Low
--------- ---------
<S> <C> <C>
July 31 $ 21.88 $ 17.13
October 31 18.50 12.00
January 31 18.19 14.13
April 30 15.88 10.88
FISCAL YEAR 1998 QUARTER ENDED:
July 31 $ 15.00 $ 10.50
October 31 19.13 12.75
January 31 15.75 11.19
April 30 22.56 15.38
</TABLE>
On July 15, 1999, the last reported sales price of the Company's common
stock as reported on The Nasdaq Stock Market was $18.50 per share. On July 15,
1999 there were 655 holders of record (representing approximately 2000
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.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company is qualified
by reference to, and should be read in conjunction with, the Company's
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this document.
STATEMENT OF OPERATIONS DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended
April 30, March 31, (1)
------------------------------------- -------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 929,965 $ 884,087 $ 796,285 $ 398,501 $ 352,141
Gross margin 111,156 100,310 94,330 54,438 48,328
Operating income 12,013 11,149 1,816 10,163 12,938
Net income (loss) 6,131 4,487 (845) 7,366 8,788
Earnings (loss) per share (2)
Basic 1.44 1.04 (.20) 1.76 2.11
Diluted 1.43 1.03 (.20) 1.73 2.08
Weighted average shares outstanding
Basic 4,244 4,318 4,314 4,196 4,169
Diluted 4,273 4,351 4,314 4,260 4,217
</TABLE>
BALANCE SHEET DATA
(In thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended
April 30, March 31,
------------------------------------- -------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Working capital $ 15,951 $ 11,908 $ 31,673 $ 59,052 $ 58,407
Total assets 236,454 258,631 270,441 150,180 124,698
Total debt 8,626 8,206 37,370 -- --
Shareholders' equity 78,925 76,270 73,939 73,363 65,834
</TABLE>
(1) In fiscal 1997, the Company changed its fiscal year-end from March 31 to
April 30.
(2) The earnings per share amounts prior to 1998 have been restated to comply
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a global business-to-business software services provider
that delivers comprehensive information technology solutions to organizations
throughout North America, Europe and Asia/Pacific. The Company sells personal
computer ("PC") software through volume licensing and maintenance ("VLM")
agreements, or right-to-copy arrangements, and full-packaged PC software
products, primarily through third-party distributors. In addition, the Company
provides infrastructure design, enterprise software management, applications
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<PAGE>
development and technical support services to help organizations maximize
business value from information technology. Sales have increased each year since
the Company's inception in 1983. Increases in sales of PC software and
technology services over that period have resulted from the Company's market
share growth, geographic expansion and strategic acquisitions. Sales increases
also reflect overall growth in the PC software and technology services
industries.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statements of Operations expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
for Year Ended April 30,
--------------------------------------------
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 88.0 88.7 88.2
------------- ------------- --------------
Gross margin 12.0 11.3 11.8
Selling, general and administrative expenses 9.5 9.0 10.6
Depreciation and amortization 1.2 1.1 1.0
------------- ------------- --------------
Operating income 1.3 1.2 .2
Interest expense, net .2 .3 .3
------------- ------------- --------------
Income (loss) before income taxes 1.1 .9 (.1)
Income tax expense .5 .4 --
------------- ------------- --------------
Net income (loss) .6% .5% (.1%)
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
Fluctuations in foreign currencies against the U.S. dollar did not have a
significant effect on the Company's operating results for the periods presented.
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales increased approximately 5% in fiscal 1999 compared to fiscal
1998. Software sales for the year ended April 30, 1999 were comparable to those
for the year ended April 30, 1998. The Company serves as a designated service
provider for VLM agreements which are frequently used by organizations 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. Sales of software through VLM agreements
represented approximately 83% of software sales for the year ended April 30,
1999 compared to 77% for the year ended April 30, 1998. The Company generally
realizes lower gross margins as a percentage of net sales on sales of software
through VLM agreements, as compared to sales of full-packaged software products.
Certain publishers offer enterprise-wide licensing arrangements which simplify
the administration of VLM agreements for customers who elect to standardize
desktop applications across their organizations. These programs typically have
lower gross margins and administrative costs than traditional VLM arrangements.
Revenues derived from technology services increased by 81% during fiscal
1999 compared to fiscal 1998. The increase was primarily attributable to support
services provided under a large technical support contract that began in the
July 1998 quarter. In addition, sales from the Company's professional services
sites increased approximately 15% for the year ended April 30, 1999. Although
fee-based services only represented approximately 10% of the Company's overall
sales for the year ended April 30, 1999 and 6% for the year ended April 30,
1998, such revenue generated approximately 30% and 21%, respectively, of the
Company's gross margin dollars. The Company expects that the percentage of gross
margin dollars provided by fee-based services will increase as the Company
continues to develop and expand this aspect of its business.
For the year ended April 30, 1999, sales outside of the United States
increased 24% to $159 million, compared to sales of $128 million for the year
ended April 30, 1998. Sales in Europe increased 23% to $68 million while
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<PAGE>
sales in Asia/Pacific increased 15% to $47 million for the year ended April 30,
1999. These increases over 1998 were primarily due to increased sales of
software under VLM agreements, including enterprise-wide licensing arrangements.
Growing European licensing revenues have been subject to margin pressures
similar to that experienced in North America. In fiscal 1999, the Company's
operating loss in Asia/Pacific was approximately $737,000, a significant
reduction from the $2.5 million operating loss reported in the prior year. The
reduction is due to increased sales, including several large enterprise-wide
licensing arrangements, and changes to the Company's business model implemented
in fiscal 1998.
Overall gross margin as a percentage of net sales was 12.0% and 11.3% for
the years ended April 30, 1999 and 1998, respectively. The increase in overall
gross margin as a percentage of net sales is primarily due to the increasing
percentage of gross margin provided by fee-based services, which have higher
gross margins as a percentage of net sales than sales of software.
For the year ended April 30, 1999, gross margin on the sale of PC software
declined to 9.3% as compared to 9.5% for the year ended April 30, 1998,
reflecting the increasing percentage of sales of software through high-volume
VLM agreements. The decline in software gross margin percentages for the year
ended April 30, 1999 was offset by an increase in gross margin dollars from
technology services. Gross margin percentages on sales of technology services
were 35% and 40% for the years ended April 30, 1999 and 1998, respectively. This
decline is due primarily to the increasing percentage of sales provided by
support services, which have lower margins than the Company's consulting
services.
The Company believes that gross margin percentages on sales of software may
continue to decline if the volume of software product sales by the Company
through VLM agreements, particularly enterprise-wide agreements, continues or if
publishers respond to continued market pressures by reducing financial
incentives to resellers. However, this potential decrease in product gross
margin percentages may be offset by anticipated increases in gross margin
dollars generated by technology services.
Selling, general and administrative ("SG&A") expenses include the costs of
the Company's sales and marketing organization as well as purchasing,
distribution and administration costs. For the year ended April 30, 1999, SG&A
expenses, as a percentage of net sales, increased to 9.5% as compared to 9.0%
for the year ended April 30, 1998. The increase is due to growth in the
professional and support services business lines, which have higher levels of
SG&A expenses as a percentage of net sales than the Company's software product
business. The Company remains focused on controlling operating costs in each
of its business lines.
In December 1998, the Company signed an agreement to outsource its packaged
software distribution operations in the United States. This model, which was
implemented in April 1999, is expected to decrease the Company's distribution
costs. A significant portion of the decrease will be offset by additional
investment in the Company's services business, including a new technical support
center in Tampa, Florida.
Depreciation and amortization for the year ended April 30, 1999, increased
to $10.9 million compared to $9.7 million for the year ended April 30, 1998. The
increase reflects additional depreciation on the higher level of fixed assets
utilized in the Company's services business in 1999.
The Company's effective tax rate for the year ended April 30, 1999 was
approximately 42% as compared to approximately 45% for the year ended April 30,
1998. The decline in the Company's effective tax rate reflects the impact of
improved international operations.
FISCAL 1998 COMPARED TO FISCAL 1997
Sales of PC software increased 9% for the year ended April 30, 1998. 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 77% and 61%
of net software sales for fiscal 1998 and 1997, respectively.
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<PAGE>
For the year ended April 1998, revenue from services increased 63%. In
fiscal 1998 and 1997, fee-based technology services represented approximately 6%
and 4% of the Company's overall sales; however, such revenue generated
approximately 21% and 16% of the Company's gross margin dollars.
For fiscal 1998 and 1997, sales outside of the United States totaled $128
million and $106 million. Sales in Europe increased 100% to $55 million in
fiscal 1998 as compared to $28 million in the prior year. The increase was
primarily due to increased sales of software under VLM agreements. In fiscal
1998, the Company's operating loss in Asia/Pacific was approximately $2.5
million, a reduction from the $4.9 million operating loss reported in the prior
year. During fiscal 1998, the Company adjusted its Asia/Pacific business model
to mirror the lower-cost, more centralized structure in the Company's North
American and European operations and installed information systems that allowed
the Company to complete its consolidation into a centralized operations center
in Sydney, Australia. In addition, the Company reduced expenses by closing
smaller unprofitable offices and reducing the number of employees in the region.
Overall gross margin as a percentage of net sales was 11.3% and 11.8% in
fiscal 1998 and 1997, respectively. The decline in overall gross margin as a
percentage of net sales reflects the decline in gross margin on the sale of
PC software. In fiscal 1998, gross margins on PC software sales declined to
9.5% as compared to 10.4% in fiscal 1997. The decline in product gross
margins reflected the increasing percentage of VLM product sales and lower
levels of financial incentives available from suppliers. The decline in
software margins in fiscal 1998 was partially offset by growth in revenue
from fee-based services, which have higher gross margins as a percentage of
net sales than sales of software. The contribution from these services
represented approximately 21% of overall gross margin dollars in fiscal 1998
as compared to 16% of gross margin dollars in fiscal 1997.
For fiscal 1998 and 1997, SG&A expenses, as a percentage of net sales, were
9.0% and 10.6%, respectively. Selling, general and administrative expenses in
fiscal 1997 reflected certain transition costs, including temporary staffing,
excess travel and telephone expenses and costs associated with systems
implementation, totaling approximately $3.7 million, primarily in connection
with a business acquisition in May 1996. Excluding these identifiable transition
costs, SG&A expenses as a percentage of net sales would have been 10.2% for
fiscal 1997. The remaining decline in SG&A expenses as a percentage of net sales
was due in part to the Company's ongoing efforts to reduce its operating costs.
The increases in depreciation and amortization for fiscal 1998 as compared
to fiscal 1997 reflect depreciation on the higher level of fixed assets.
The Company's effective tax rate was approximately 45% in both fiscal 1998
and 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a secured revolving credit facility (the "Facility") which
permits the Company to borrow up to $100 million, subject to availability under
its borrowing base. At April 30, 1999, $72 million was available under the
Facility. The Facility, which expires in March 2002, bears interest at a
variable rate (6.16% at April 30, 1999) and provides for an annual commitment
fee equal to a variable percentage of the unused line of credit. The Facility,
which is secured by accounts receivable, inventory and a pledge of the stock of
certain of the Company's subsidiaries, requires the Company to maintain certain
financial covenants and ratios and places limitations on dividend payments,
capital expenditures and certain other borrowings.
Certain of the Company's foreign subsidiaries have revolving credit
facilities with local banks totaling $8 million. Borrowings bear interest at
floating rates (approximately 5.10% at April 30, 1999) and are secured by
letters of credit issued by the Company. The facilities expire in February and
March 2001. Annual maturities of long-term debt are $763,000, $63,000 and $7.8
million for the years ending April 30, 2000, 2001 and 2002, respectively.
In 1997, the Company implemented a stock repurchase program which allows
for the purchase of the Company's Common Stock from time to time in the open
market or through privately negotiated transactions. The
18
<PAGE>
Company funds such purchases with cash or borrowings under the Company's credit
facility. As of June 15, 1999 the Company had repurchased 337,900 shares of
Common Stock, for a total of $5 million, under the stock repurchase program and
has been authorized by its Board of Directors to repurchase up to an additional
$5 million of its Common Stock.
The decrease in trade accounts receivable and trade accounts payable from
April 30, 1998 to April 30, 1999 is due to collection of receivables associated
with large sales at the end of fiscal 1998 and payment of the related
liabilities. At April 30, 1999 and 1998, accounts receivable represented
approximately 55 and 61 days of historical sales, respectively.
Net cash provided by operations was $25.7 million in fiscal 1999, as
compared to $37.7 million of cash provided by operations in fiscal 1998. Cash
provided by operations in fiscal 1998 reflected large reductions in inventory
due to increased use of VLM agreements and a shift toward shipping product
directly from the Company's vendors. In addition, the Company had improved
collections on accounts receivable in fiscal 1998. During fiscal 1997, $13.1
million of cash was used in operations. The Company used a higher level of cash
in its operations in fiscal 1997 as it financed the growth in its receivables
resulting from increased sales following an acquisition in May 1996.
The increase in furniture, equipment and leasehold improvements in
fiscal 1999 reflects approximately $9.7 million of capital expenditures
relating to the ongoing upgrade of the Company's computer systems and
expansion of its support centers in Dallas, Texas, Spokane, Washington and
Tampa, Florida. The increase in furniture, equipment and leasehold
improvements in fiscal 1998 reflects approximately $8.1 million of capital
expenditures relating to upgrades of the Company's computer systems and
expansion of its operations centers in Dallas, Texas and Dublin, Ireland.
The Company's capital expenditures for fiscal 2000 are expected to be
approximately $10 million, including expenditures to further upgrade the
Company's computer systems and to expand its U.S. support facilities.
The Company expects that its cash requirements for fiscal 2000 will be
satisfied from cash flow from operations and borrowings under its credit
facility.
MARKET RISK
The Company is exposed to market risk from changes in foreign currency
exchange rates and interest rates which could affect its future results of
operations and financial condition. The Company manages its exposure to these
risks through its regular operating and financial activities. The Company does
not use derivative financial instruments for speculative or trading purposes.
The Company conducts business in many foreign currencies and is subject to
foreign currency exchange rate risk on cash flows related to sales, expenses and
financing transactions. The impacts of fluctuations in foreign currency exchange
rates on the Company's geographically diverse operations are often varied and at
times offsetting. The Company occasionally uses forward-exchange contracts to
hedge these exposures. In addition, the Company issues intercompany advances to
its foreign subsidiaries denominated in U.S. dollars, which expose the foreign
subsidiaries to the effect of changes in spot exchange rates of their local
currencies relative to the U.S. dollar. Based on the Company's foreign currency
exchange rate exposure for intercompany borrowings of approximately $11 million
at April 30, 1999, a 10% adverse change in currency rates would reduce net
income by less than $1 million.
The Company's credit arrangements expose it to fluctuations in interest
rates. At April 30, 1999, certain of the Company's subsidiaries had $7.8 million
outstanding under revolving credit facilities, which provide for interest to be
paid based on variable rates. Thus, interest rate changes would result in a
change in the amount of interest to be paid. Based upon the interest rates and
borrowings at April 30, 1999, a 10% increase in interest rates would not
materially affect the Company's financial position, results of operations or
cash flows.
19
<PAGE>
YEAR 2000
The Company has developed an overall plan outlining the tasks, resources
and target dates necessary to ensure the ongoing operation of the Company's
business through the turn of the century and beyond. Over the last three years,
the Company has replaced substantially all of the core management information
systems used in the Company's business, and the platforms upon which these
systems were developed are designed to process dates accurately beyond the Year
2000. The Company is in the process of updating its third-party software tools,
database engines and applications to the most current releases and plans to
complete these projects in the third quarter of calendar 1999. Based on the
Company's testing of these core systems and representations received from third
parties, the Company believes that following the planned updates, its Year 2000
remediation of these systems will be substantially complete. The Company has
also completed testing of its networks and servers and, based on this testing
together with information provided by the Company's vendors, has confirmed the
compliancy of this equipment.
In addition, the Company has conducted an inventory, review and assessment
of its personal computers, desktop software applications and non-IT embedded
systems to determine whether they support Year 2000 date codes. The Company is
in the process of remediating the systems that are not in compliance and plans
to complete remediation and to test all of its systems in the third quarter of
calendar 1999. Based on its review and assessment, the Company expects that any
required modifications will be made on a timely basis. In the event of an
unexpected failure in one of the Company's systems, the Company's employees
should be able to continue operations on a manual basis until such systems have
been restored to full operating capacity.
As part of its overall readiness plan, the Company constructed a systems
test lab which simulated a replica of the Company's production environment. The
lab allowed the Company to perform integrated system tests of the Company's
critical applications in a production environment. The Company has completed
testing of its critical applications and testing uncovered no material
date-related issues.
The Company's Year 2000 initiative also provides for contacting key
software vendors and other business partners to determine whether they have
effective plans to address their Year 2000 issues. In the event that the
Company's key vendors cannot provide the Company with software products and
services that meet Year 2000 requirements on a timely basis, or if customers
delay, forego or return software purchases, or delay professional services
contracts, based upon Year 2000 related issues, the Company's operating results
could be materially adversely affected.
The Company believes that its most reasonably-likely worst case scenario
involves a temporary business disruption caused by the failure of a supplier to
provide needed products or services. The most significant potential disruption
would be a telecommunications failure at one of the Company's facilities, which
could render the Company unable to accept sales orders or to perform under its
technical support contracts. To the extent that a potential failure is deemed
likely and the risk to the Company is significant, the Company's contingency
plans would include rerouting calls to alternate operations centers, securing
substitute or second-source suppliers and implementing revised business
processes. The Company is currently developing and reviewing its contingency
plans, which it plans to finalize in the fourth quarter of calendar 1999.
The Company estimates that the total cost of the Year 2000 project will not
exceed $1 million. The majority of the costs will involve reallocation of
existing resources rather than incremental costs. This reallocation of resources
is not anticipated to have a material impact on the implementation of any
significant internal systems projects.
In general, as a reseller of software products, the Company only passes
through to its customers the applicable vendors' warranties. The Company's
operating results could be materially adversely affected, however, if it were
held liable for the failure of software products resold by the Company to be
Year 2000 compliant despite its disclaimer of software product warranties. With
respect to the Company's consulting services, the failure of client systems or
processes could subject the Company to claims. Such claims, or the defense
thereof, could have a material adverse effect on the Company's operating
results.
20
<PAGE>
EURO CURRENCY ISSUES
On January 1, 1999, eleven of the fifteen member countries of the European
Union introduced a common legal currency called the Euro, which is intended to
replace the currently existing currencies of the participating countries by
January 2002. The initial introduction of the Euro did not have a significant
effect on the Company's operations or financial results. The Company believes
that its internal systems are Euro capable and does not expect increased use of
the Euro to materially impact its financial condition, operating results or use
of derivative instruments.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Other than statements of historical fact, this Management's Discussion and
Analysis of Financial Condition and Results of Operations includes certain
statements of the Company that may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include future market trends, expectations concerning the
Company's growth, estimates regarding the economy and the software industry in
general, key performance indicators that impact the Company, statements
regarding market risk and statements included in the Year 2000 and Euro Currency
discussions above. In developing any forward-looking statements, the Company
makes a number of assumptions, including expectations for continued market
growth, supplier relationships, anticipated revenue and gross margin levels, and
cost savings and efficiencies that include the ability of the Company to develop
electronic strategies. Although the Company believes these assumptions are
reasonable, no assurance can be given that they will prove correct. The
Company's ability to continue to grow product sales and develop its professional
and support services practices, improve its operating results in international
markets and improve operational efficiencies will be key to its success in the
future. 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. This report on Form 10-K for the Company's
fiscal year ended April 30, 1999 contains certain cautionary statements under
"Forward-Looking Information" that identify factors that could cause the
Company's actual results to differ materially from those in the forward-looking
statements in this discussion. All forward-looking statements in this discussion
are expressly qualified in their entirety by the cautionary statements in this
paragraph and under "Forward-Looking Information."
INFLATION
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
21
<PAGE>
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 September 23, 1999, will appear in the Company's
definitive Proxy Statement relating to the Annual Meeting of Shareholders under
the caption "Election of Directors" to be filed pursuant to Regulation 14A. 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:
<TABLE>
<CAPTION>
Officer
Name Position Since Age
---- -------- ----- ---
<S> <C> <C> <C>
Judy Odom Sims Chairman and Chief Executive Officer 1983 46
Keith R. Coogan President and Chief Operating Officer 1990 47
Roger J. King Executive Vice President of Sales
and Marketing 1990 46
James W. Brown Vice President and Chief Financial Officer 1998 42
Robert D. Graham Vice President of Strategic Relationships 1997 44
and General Counsel, Secretary
Robert B. Mercer Vice President and Chief Information Officer 1994 47
Lisa M. Stewart Vice President of Customer Operations 1996 37
Lorraine Castorina Vice President of North American Sales 1998 52
Link W. Simpson Vice President of Services 1998 44
Melissa D. Womack Vice President of Marketing 1998 40
Kelli H. Cole Vice President of Human Resources 1998 38
</TABLE>
22
<PAGE>
Judy Odom Sims has served as Chief Executive Officer of the Company since
April 1988 and Chairman of the Board since July 1992. 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, as
Vice President from April 1987 to April 1988 and as President from April 1996 to
May 1998. 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. Ms.
Sims is a Certified Public Accountant.
Keith R. Coogan was named President in May 1998 and has been Chief
Operating Officer since April 1996. Mr. Coogan has served as a director of the
Company since August 1998. Mr. Coogan served as Executive Vice President of the
Company from April 1996 to May 1998 and had been a Vice President of the Company
since October 1990. Mr. Coogan served as Secretary of the Company from May 1991
through July 1992 and as Treasurer from October 1990 to March 1992. 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 was named Executive Vice President of Sales and Marketing in
May 1998, having held the title of 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, Inc., a software development
company. Prior thereto, he spent nine years with IBM in various sales and sales
management positions.
James W. Brown joined the Company in February 1998 as Vice President and
Chief Financial Officer. From November 1991 until joining the Company, Mr. Brown
served as Vice President of Corporate Accounting for Affiliated Computer
Services, Inc., a publicly-held information technology outsourcing provider. Mr.
Brown is a Certified Public Accountant.
Robert D. Graham has served as Vice President of Strategic Relationships
and General Counsel since January 1997 and Secretary since February 1997. Mr.
Graham served on the Board of Directors of the Company from 1991 until February
1997. From 1980 through January 1997, Mr. Graham was in the private practice of
law with the law firm of Locke Liddell & Sapp LLP and its predecessor, in
Dallas, Texas.
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.
Lisa M. Stewart has been Vice President of Customer Operations since 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, sales
management and operations positions. Prior to joining the Company in 1988, Ms.
Stewart was employed by Fox T.V. and Hilton Services Corporation.
Lorraine Castorina was promoted to Vice President of North American Sales
in May 1998. Ms. Castorina joined the Company in February 1987 and has served in
various sales and sales management positions, most recently as Director of North
American Sales West.
23
<PAGE>
Link W. Simpson was promoted to Vice President of Services in May 1998. Mr.
Simpson also serves as President of the Company's professional services
subsidiary, a position he has held since February 1992. From 1985 until February
1992, Mr. Simpson managed Info-Pro, Inc., a network integration and applications
development services company, which was acquired by the Company in February
1992. Before forming Info-Pro, Mr. Simpson was employed by Rockwell
International for nine years, where he held various positions in systems
engineering and business development.
Melissa D. Womack was promoted to Vice President of Marketing in May 1998.
From May 1997 through April 1998, Ms. Womack served as Director of Marketing for
the Company. Ms. Womack was previously Director of Sales and Marketing for SABRE
Interactive and served in other marketing and sales positions for the SABRE
Group since 1987.
Kelli H. Cole joined the Company in November 1998 as Vice President of
Human Resources. From September 1995 through July 1998, Ms. Cole served as Vice
President - Global Human Resources Operations for Mary Kay Inc., a
privately-held global cosmetics company. From June 1994 through August 1995, she
served as Vice President - Office of Development for Morgan Stanley Inc. From
December 1990 through June 1994, Ms. Cole was Vice President of Human Resources
for Bankers Trust.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will appear in the Company's Proxy
Statement for its Annual Meeting of Shareholders to be held on September 23,
1999, 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 will appear in the Company's Proxy
Statement for its Annual Meeting of Shareholders to be held on September 23,
1999, under the captions "Stock Ownership of Principal Shareholders" and "Stock
Ownership of Management," which information is incorporated herein by reference.
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:
<TABLE>
<S> <C>
3.1(a) 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).
3.1(b) Statement of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference to the Company's
Current Report on Form 8-K dated December 13, 1996).
3.1(c) Articles of Amendment to Restated Articles of
Incorporation, filed with the Secretary of State of Texas
on November 25, 1996 (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 1997).
24
<PAGE>
3.1(d) Statement of Cancellation of Treasury Shares, filed with
the Secretary of State of Texas on March 21, 1997
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 1997).
3.2(a) Restated Bylaws of the Company, as amended (incorporated by
reference to the Company's Registration Statement No.
33-40794 on Form S-1).
3.2(b) Articles of Amendment to Article 8 of the Company's Amended
and Restated Bylaws effective September 17, 1998
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended October
31, 1998).
3.3 Rights Agreement between the Company and KeyCorp
Shareholder Services, Inc., (the "Rights Agreement") dated
December 13, 1996, (incorporated by reference to the
Company's Current Report on Form 8-K dated December 13,
1996).
3.4 Letter of Substitution of Rights Agent under Rights
Agreement, dated June 7, 1997 (appointing ChaseMellon
Shareholders Services, L.L.C. as successor rights agent)
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 1998).
10.1 IBM Business Partner Agreement between the Company, IBM
Corporation and Lotus Development Corporation, dated June
30, 1997 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30,
1997).
10.2 Microsoft Corporation Channel Agreement, dated July 1, 1998
between Microsoft Corporation and the Company, including
Addendum dated July 1, 1998 (Appointment as a Large Account
Reseller).
10.3 Intentionally omitted.
10.4(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).
10.4(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).
10.4(c) Third Amendment to Lease Agreement, dated effective as of
April 20, 1998 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 April 30, 1998).
10.4(d) Fourth Amendment to Lease Agreement, dated effective as of
October 1, 1998 between CIIF Associates II Limited
Partnership and the Company.
10.5(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).
10.5(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).
25
<PAGE>
10.5(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).
10.5(d) Fourth Amendment to Commercial Lease Agreement, dated
effective as November 25, 1996 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 April 30,
1997).
10.5(e) Fifth Amendment to Commercial Lease Agreement, dated
effective as of March 9, 1998 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 April 30,
1998).
10.6 Lease Agreement between Spokane Teachers Credit Union and
the Company, dated May 1, 1998 (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1998).
10.7 Lease Agreement, dated March 8, 1996 by and between
Riverport Commerce Center, Inc. and the Company
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996).
10.8 Lease Agreement, dated April 26, 1996 by and between
Beneficiaries of American National Bank Trust Number
104601-03 and the Company (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996).
10.9 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).
10.10 Software Spectrum, Inc. Employee Stock Purchase Plan, as
amended (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30,
1997).
10.11 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).
10.12 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).
10.13 Management Continuity Agreement ("Continuity Agreement")
between the Company and James W. Brown, dated March 1,
1998, together with schedule identifying additional
executive officers that are parties to Continuity
Agreements.
10.14 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).
10.15 Second Amended and Restated Limited Waiver Agreement, dated
March 29, 1999 between the Company and Private Capital
Management, Inc.
10.16 Amended and Restated Credit Agreement, dated
March 11, 1998 among the Company, the Chase Manhattan Bank,
as Administrative Agent, Chase Bank of Texas, National
Association, as Collateral Agent and other participating
financial institutions (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended January 31, 1998).
10.17 The Software Spectrum, Inc. 1998 Long Term Incentive Plan
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended October
31, 1998).
26
<PAGE>
10.18 First Amendment to Amended and Restated Credit Agreement,
dated as of August 15, 1998 among the Company, the Chase
Manhattan Bank, as Administrative Agent, Chase Bank of
Texas, National Association, as Collateral Agent, and other
participating financial institutions (incorporated by
reference to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 31, 1998).
10.19 Lease Agreement, dated October 19, 1998 between
Highwoods/Florida Holdings, L.P. and the Company, together
with First Amendment thereto, dated April 16, 1999.
21 Subsidiaries of the Company.
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.
</TABLE>
(B) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended April 30,
1999.
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F - 1
Financial Statements (Item 14(a) (1))
Consolidated Balance Sheets as of April 30, 1999 and 1998 F - 2
Consolidated Statements of Operations for the three years ended April 30, 1999 F - 3
Consolidated Statements of Shareholders' Equity for the three years ended April 30, 1999 F - 4
Consolidated Statements of Cash Flows for the three years ended April 30, 1999 F - 5
Consolidated Statements of Comprehensive Income (Loss) for the three years ended April 30, 1999 F - 6
Notes to Consolidated Financial Statements F - 7
Financial Statement Schedule (Item 14 (a) (2))
Report of Independent Certified Public Accountants on Schedules S - 1
Schedule II - Valuation and Qualifying Accounts for the three years ended April 30, 1999 S - 2
</TABLE>
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.
<PAGE>
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 April 30, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, cash flows and
comprehensive income (loss) for each of the three years in the period ended
April 30, 1999. 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 April 30, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended April 30, 1999 in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
- --------------------------
Grant Thornton LLP
Dallas, Texas
June 15, 1999
F-1
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
April 30,
---------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 20,084 $ 7,129
Trade accounts receivable, net of allowance for doubtful
accounts of $2,687 in 1999 and $3,050 in 1998 142,714 171,460
Inventories 370 4,564
Prepaid expenses 1,753 2,279
Other current assets 696 1,024
----------- -----------
Total current assets 165,617 186,456
Furniture, equipment and leasehold improvements, at cost 47,448 37,951
Less accumulated depreciation and amortization 25,410 17,538
----------- -----------
22,038 20,413
Other assets, consisting primarily of goodwill, net of accumulated
amortization of $8,431 in 1999 and $5,661 in 1998 48,799 51,762
----------- -----------
$ 236,454 $ 258,631
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 763 $ 393
Trade accounts payable 134,353 160,331
Other current liabilities 14,550 13,824
----------- -----------
Total current liabilities 149,666 174,548
Long-term debt, less current maturities 7,863 7,813
Shareholders' equity
Preferred stock, par value $.01; authorized, 1,000,000 shares;
issued and outstanding, none -- --
Common stock, par value $.01; authorized, 20,000,000 shares;
issued, 4,491,542 shares in 1999 and 4,397,678 shares in 1998 45 44
Additional paid-in capital 40,833 39,496
Retained earnings 46,896 40,765
Currency translation adjustments (3,092) (2,627)
----------- -----------
84,682 77,678
Less treasury stock at cost - 384,901 shares in 1999
and 92,111 shares in 1998 5,757 1,408
----------- -----------
Total shareholders' equity 78,925 76,270
----------- -----------
$ 236,454 $ 258,631
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
April 30,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales
Software $ 833,667 $ 830,792 $ 763,519
Technology services 96,298 53,295 32,766
----------- ----------- -----------
929,965 884,087 796,285
Cost of sales
Software 755,758 751,581 683,835
Technology services 63,051 32,196 18,120
----------- ----------- -----------
818,809 783,777 701,955
----------- ----------- -----------
Gross margin 111,156 100,310 94,330
Selling, general and administrative expenses 88,257 79,510 84,734
Depreciation and amortization 10,886 9,651 7,780
----------- ----------- -----------
Operating income 12,013 11,149 1,816
Interest expense (income)
Interest expense 1,956 3,279 2,956
Interest income (519) (332) (358)
----------- ----------- -----------
1,437 2,947 2,598
----------- ----------- -----------
Income (loss) before income taxes 10,576 8,202 (782)
Income tax expense 4,445 3,715 63
----------- ----------- -----------
Net income (loss) $ 6,131 $ 4,487 $ (845)
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss) per share
Basic $ 1.44 $ 1.04 $ (.20)
----------- ----------- -----------
----------- ----------- -----------
Diluted $ 1.43 $ 1.03 $ (.20)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding
Basic 4,244 4,318 4,314
----------- ----------- -----------
----------- ----------- -----------
Diluted 4,273 4,351 4,314
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Common Stock Additional Currency Treasury Stock
---------------- Paid-in Retained Translation -----------------
Shares Amount Capital Earnings Adjustments Shares Amount Total
------ ------ ------- -------- ----------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at May 1, 1996 4,297,523 $ 43 $ 37,544 $37,123 $ (153) (34,026) $ (538) $ 74,019
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $103 66,000 1 1,496 -- -- -- -- 1,497
Purchase of treasury stock -- -- -- -- -- (285) (8) (8)
Net loss -- -- -- (845) -- -- -- (845)
Currency translation adjustments -- -- -- -- (724) -- -- (724)
---------- ------- --------- ------- ------- -------- ------- --------
Balances at April 30, 1997 4,363,523 44 39,040 36,278 (877) (34,311) (546) 73,939
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $5 34,155 -- 456 -- -- -- -- 456
Purchase of treasury stock -- -- -- -- -- (57,800) (862) (862)
Net income -- -- -- 4,487 -- -- -- 4,487
Currency translation adjustments -- -- -- -- (1,750) -- -- (1,750)
--------- ------- --------- ------- ------- -------- ------- --------
Balances at April 30, 1998 4,397,678 44 39,496 40,765 (2,627) (92,111) (1,408) 76,270
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $105 93,864 1 1,337 -- -- -- -- 1,338
Purchase of treasury stock -- -- -- -- -- (292,790) (4,349) (4,349)
Net income -- -- -- 6,131 -- -- -- 6,131
Currency translation adjustments -- -- -- -- (465) -- -- (465)
--------- ------- --------- ------- ------- -------- ------- --------
Balances at April 30, 1999 4,491,542 $ 45 $ 40,833 $46,896 $(3,092) (384,901) $(5,757) $ 78,925
--------- ------- --------- ------- ------- -------- ------- --------
--------- ------- --------- ------- ------- -------- ------- --------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended
April 30,
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 6,131 $ 4,487 $ (845)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Provision for bad debts 1,456 1,747 2,001
Depreciation and amortization 10,886 9,651 7,780
Deferred income taxes 830 (140) (1,402)
Changes in operating assets and liabilities
Trade accounts receivable 27,113 (13,040) (90,065)
Inventories 4,183 13,705 (1,324)
Prepaid expenses and other assets 1,238 4,357 7,164
Trade accounts payable and other
current liabilities (26,093) 16,980 63,585
----------- ----------- -----------
Net cash provided by (used in) operating activities 25,744 37,747 (13,106)
----------- ----------- -----------
Investing activities
Sales of short-term investments, net -- -- 7,370
Purchase of furniture, equipment and
leasehold improvements (9,739) (8,091) (12,726)
Purchase of subsidiaries, net of cash acquired -- -- (41,188)
----------- ----------- -----------
Net cash used in investing activities (9,739) (8,091) (46,544)
----------- ----------- -----------
Financing activities
Borrowings on long-term debt 205,366 266,381 257,985
Repayments of long-term debt (204,898) (295,663) (220,615)
Proceeds from stock issuance, including tax benefit
related to stock options exercised 1,338 456 1,497
Purchase of treasury stock (4,349) (862) (8)
----------- ----------- -----------
Net cash provided by (used in) financing activities (2,543) (29,688) 38,859
----------- ----------- -----------
Effect of exchange rate changes on cash (507) (279) (725)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 12,955 (311) (21,516)
Cash and cash equivalents at beginning of year 7,129 7,440 28,956
----------- ----------- -----------
Cash and cash equivalents at end of year $ 20,084 $ 7,129 $ 7,440
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash paid during the year
Income taxes $ 5,070 $ 2,004 $ 2,020
Interest 1,673 3,730 2,459
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
<TABLE>
<CAPTION>
Year Ended
April 30,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) $ 6,131 $ 4,487 $ (845)
Currency translation adjustments (465) (1,750) (724)
----------- ----------- -----------
Comprehensive income (loss) $ 5,666 $ 2,737 $ (1,569)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a global business-to-business software services provider
that delivers comprehensive information technology solutions to organizations
throughout North America, Europe and Asia/Pacific. The Company sells personal
computer ("PC") software through volume licensing and maintenance ("VLM")
agreements, or right-to-copy arrangements, and full-packaged PC software
products, primarily through third-party distributors. In addition, the Company
provides infrastructure design, enterprise software management, applications
development and technical support services to help organizations maximize
business value from information technology.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation. Certain prior period amounts have been reclassified
to conform to the current period presentation.
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 the disclosure of
contingent assets and liabilities 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.
CREDIT RISK
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 values of the Company's financial instruments, consisting of cash
and cash equivalents, accounts receivable, accounts payable and long-term debt,
approximate their carrying values.
INVENTORIES
Inventories, which consist primarily of purchased personal computer
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 shorter of the useful lives of the assets or the terms of the
corresponding leases.
F-7
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
GOODWILL
Goodwill represents the excess of acquisition costs over the fair value of
the net assets of businesses purchased and is amortized on the straight-line
method over periods up to twenty years. The Company periodically evaluates the
possible impairment of goodwill based on the undiscounted projected cash flows
of the related business unit.
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 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 software sales at the time of product
shipment, or in accordance with terms of licensing contracts. Historically, the
Company has recognized maintenance revenue ratably over the terms of the related
contracts. While the contracts provide for cancellation by the customer, the
Company has experienced limited refunds of maintenance payments. Since the
Company has no material costs associated with future performance under these
contracts, the Company began recognizing this revenue when invoiced in fiscal
1998. The impact of this policy change was not material. Service revenue is
recognized as the services are provided. Advance billings are recorded as
deferred revenue.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 (SFAS 123), ACCOUNTING
FOR STOCK-BASED COMPENSATION, encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25
(APB 25), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations
and to apply SFAS 123 on a disclosure basis only.
EARNINGS PER SHARE
The Company computes basic earnings per share based on the weighed average
number of common shares outstanding. Diluted earnings per share is computed
based on the weighted average number of shares outstanding, plus the number of
additional common shares that would have been outstanding if dilutive potential
common shares had been issued.
COMPREHENSIVE INCOME
Effective May 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130 (SFAS 130), REPORTING COMPREHENSIVE
INCOME, which addresses the manner in which certain adjustments to shareholders'
equity are displayed in the financial statements. In accordance with SFAS 130, a
Consolidated Statement of Comprehensive Income (Loss) is included in the
consolidated financial statements. Adoption of SFAS 130 did not affect the
Company's reported assets or net income.
F-8
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133 (SFAS 133), ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This standard, which is effective for fiscal
years beginning after June 15, 2000, requires that all derivatives be recognized
as either assets or liabilities at estimated fair value. The adoption of SFAS
133 is not expected to have a material effect on the Company's financial
position or results of operations.
NOTE B - LONG-TERM DEBT
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
April 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Secured $100 million revolving credit facility $ -- $ --
Floating rate term loan due August 1999 -- --
Notes payable to foreign banks 7,800 7,300
Other 826 906
----------- -----------
8,626 8,206
Less current maturities 763 393
----------- -----------
$ 7,863 $ 7,813
----------- -----------
----------- -----------
</TABLE>
The Company has a secured revolving credit facility (the "Facility") which
permits the Company to borrow up to $100 million, subject to availability under
its borrowing base. At April 30, 1999, $72 million was available under the
Facility. The Facility, which expires in March 2002, bears interest at a
variable rate (6.16% at April 30, 1999) and provides for an annual commitment
fee equal to a variable percentage of the unused line of credit. The Facility,
which is secured by accounts receivable, inventory and a pledge of the stock of
certain of the Company's subsidiaries, requires the Company to maintain certain
financial covenants and ratios and places limitations on dividend payments,
capital expenditures and certain other borrowings.
Certain of the Company's foreign subsidiaries have revolving credit
facilities with local banks totaling $8 million. Borrowings bear interest at
floating rates (approximately 5.10% at April 30, 1999) and are secured by
letters of credit issued by the Company. The facilities expire in February and
March 2001.
Annual maturities of long-term debt are $763,000, $63,000 and $7.8 million
for the years ending April 30, 2000, 2001 and 2002, respectively.
F-9
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE C - INCOME TAXES
The Company's provision for income taxes is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Federal Foreign State Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended April 30, 1999
Current $ 2,837 $ 483 $ 295 $ 3,615
Deferred 496 334 -- 830
----------- ----------- ----------- -----------
$ 3,333 $ 817 $ 295 $ 4,445
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year ended April 30, 1998
Current $ 3,531 $ (87) $ 411 $ 3,855
Deferred (282) 142 -- (140)
----------- ----------- ----------- -----------
$ 3,249 $ 55 $ 411 $ 3,715
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year ended April 30, 1997
Current $ 1,234 $ 78 $ 153 $ 1,465
Deferred (523) (879) -- (1,402)
----------- ----------- ----------- -----------
$ 711 $ (801) $ 153 $ 63
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
A reconciliation of income tax expense (benefit) using the statutory
federal income tax rate of 34% to the actual income tax expense follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
April 30,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at statutory rate $ 3,596 $ 2,789 $ (266)
State and local income
taxes, net of federal benefit 195 271 101
Differences between foreign and U.S. tax rates,
including foreign losses without tax benefits 234 327 7
Non-deductible goodwill amortization 144 165 137
Other 276 163 84
----------- ----------- -----------
Income tax expense $ 4,445 $ 3,715 $ 63
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-10
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE C - INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities as of April 30, 1999 and 1998, which
are included in other assets and other current liabilities, consist of the
following (in thousands):
<TABLE>
<CAPTION>
April 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Accounts receivable $ 291 $ 561
Inventories -- 541
Accrued expenses 524 586
Foreign net operating loss carryforward 233 569
Other 177 11
----------- -----------
Deferred tax assets 1,225 2,268
----------- -----------
Depreciation and amortization (517) (603)
Other (2) (110)
----------- -----------
Deferred tax liabilities (519) (713)
----------- -----------
$ 706 $ 1,555
----------- -----------
----------- -----------
</TABLE>
At April 30, 1999, the Company's foreign subsidiaries had net operating
loss carryforwards of approximately $2.6 million. Utilization of these
carryforwards is limited to income of the respective subsidiaries.
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. In September 1998,
the shareholders approved the adoption of the 1998 Long Term Incentive Plan.
Under the terms of the 1998 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 the quoted market price of the Company's stock at the date of
grant, become exercisable over periods of up to five years and expire on various
dates from 1999 through 2005. At April 30, 1999, 146,750 and 89,390 shares of
common stock were reserved for future grant under the 1998 and 1993 Long Term
Incentive Plans, respectively.
F-11
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE D - EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company has adopted only the disclosure provisions of SFAS 123 for
employee stock options and continues to apply APB 25 for recording stock options
granted. If the Company had elected to recognize compensation expense based upon
the fair value at the grant date for options granted subsequent to March 31,
1995, consistent with the methodology prescribed by SFAS 123, net income (loss)
and earnings (loss) per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended
April 30,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) - as reported $ 6,131 $ 4,487 $ (845)
Net income (loss) - pro forma 5,646 4,069 (1,127)
Earnings (loss) per share - as reported
Basic 1.44 1.04 (.20)
Diluted 1.43 1.03 (.20)
Earnings (loss) per share - pro forma
Basic 1.33 .94 (.26)
Diluted 1.32 .94 (.26)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before fiscal 1996. The fair value of these options was estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in fiscal 1999, 1998 and
1997, respectively: dividend yield of 0% for all periods; volatility of 49%, 45%
and 42%; risk-free interest rates of 5.75%, 6.2% and 6.2% and expected lives of
four years for all periods. The weighted average fair values of options granted
were $8.34, $5.76 and $9.55 per share during fiscal 1999, 1998 and 1997,
respectively.
F-12
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE D - EMPLOYEE BENEFIT PLANS (CONTINUED)
Option activity for the three years ended April 1999 is summarized as
follows:
<TABLE>
<CAPTION>
Number of Shares Weighted Average
Underlying Options Exercise Price
------------------ ----------------
<S> <C> <C>
Outstanding at May 1, 1996 410,190 $19.21
Granted 159,550 23.56
Exercised (54,850) 21.25
Canceled/forfeited (31,350) 20.47
-----------
Outstanding at April 30, 1997 483,540 20.34
Granted 222,000 13.48
Exercised (2,600) 12.34
Canceled/forfeited (220,000) 21.48
-----------
Outstanding at April 30, 1998 482,940 16.65
Granted 174,850 18.69
Exercised (53,800) 13.06
Canceled/forfeited (80,900) 18.99
-----------
Outstanding at April 30, 1999 523,090 17.28
-----------
-----------
Exercisable at April 30, 1997 146,560 20.02
-----------
-----------
Exercisable at April 30, 1998 211,650 18.84
-----------
-----------
Exercisable at April 30, 1999 208,430 18.37
-----------
-----------
</TABLE>
Further information regarding options outstanding and options exercisable
at April 30, 1999 is summarized below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of of Remaining Exercise of Exercise
Exercise Prices Shares Life Price Shares Price
---------------------- ----------- ---------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 10.00 to 15.00 188,290 3.62 $ 12.78 74,450 $ 12.62
15.01 to 20.00 149,350 3.59 16.68 59,080 17.25
20.01 to 25.00 144,950 4.04 21.33 34,400 23.91
25.01 TO 30.00 40,500 .40 25.89 40,500 25.89
---------------------- ----------- ---------------- ----------- ----------- ---------
$ 10.00 to 30.00 523,090 3.48 $ 17.28 208,430 $ 18.37
---------------------- ----------- ---------------- ----------- ----------- ---------
---------------------- ----------- ---------------- ----------- ----------- ---------
</TABLE>
F-13
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
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 April 30,
1999, a total of 56,000 shares of common stock were reserved for issuance under
the plan. For the years ended April 30, 1999, 1998 and 1997, 40,196, 30,929 and
10,656 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 six months of service with the Company. The plan
includes an employee savings plan component, which allows participants to make
voluntary pre-tax 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 April 30, 1999 and 1998, net of reductions for forfeitures,
were $320,000 and $202,000, respectively. No contributions were made for the
year ended April 30, 1997.
NOTE E - EARNINGS PER SHARE
The following table (in thousands, except per share amounts) sets forth the
computation of basic and diluted earnings per share. Outstanding options that
were not included in the computation of diluted earnings per share because their
effect would be antidilutive totaled approximately 293,000, 119,000 and 483,000
shares for the years ended April 30, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Year Ended
April 30,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) $ 6,131 $ 4,487 $ (845)
----------- ----------- -----------
Weighted average shares outstanding (basic) 4,244 4,318 4,314
Effect of dilutive employee and director stock options 29 33 --
----------- ----------- -----------
Weighted average shares outstanding (diluted) 4,273 4,351 4,314
----------- ----------- -----------
Earnings (loss) per share (basic) $ 1.44 $ 1.04 $ (.20)
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss) per share (diluted) $ 1.43 $ 1.03 $ (.20)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE F - LEASES
The Company leases various office facilities as well as certain office and
computer equipment under leases classified as operating leases. Future minimum
rental payments under all long-term, noncancelable operating leases at April 30,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending April 30:
- ---------------------
<S> <C> <C>
2000 $ 4,767
2001 4,588
2002 3,516
2003 3,146
2004 2,855
Thereafter 7,460
----------
$ 26,332
----------
----------
</TABLE>
Rent expense for operating leases totaled $4.8 million, $4.2 million and
$3.3 million for fiscal 1999, fiscal 1998 and fiscal 1997, respectively.
F-14
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE G - BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company's reportable segments are strategic business units that
offer diverse products and services. The Company has three reportable
segments: software services, professional services and support services. The
software segment sells PC software applications through volume licensing
maintenance agreements and full-packaged PC software products. The
professional services segment provides fee-based services for a number of
specific technologies to corporate and government clients. The support
segment provides fee-based telephone and Internet support services to
software publishers and organizations. The segments interact to provide the
Company's customers with comprehensive information technology solutions.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based upon income or loss from operations prior to allocation of
corporate overhead. Unallocated corporate overhead includes the costs of the
Company's support functions, such as accounting, human resources, credit and
information systems, as well as the compensation of the Company's officers.
Information for the Company's reportable segments for the years ended April 30,
1999, 1998 and 1997 is presented below (in thousands). Note that the Company
does not allocate expenditures for assets on a segment basis for internal
management reporting and, therefore, such information is not presented.
<TABLE>
<CAPTION>
Year Ended
April 30,
--------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales
Software $ 833,667 $ 830,792 $ 763,519
Professional services 42,657 37,096 24,592
Support 53,641 16,199 8,174
----------- ----------- -----------
$ 929,965 $ 884,087 $ 796,285
----------- ----------- -----------
----------- ----------- -----------
Operating income
Software $ 44,855 $ 38,697 $ 34,117
Professional services (3,126) 1,937 (2,468)
Support 6,613 1,285 1,103
Unallocated corporate overhead (36,329) (30,770) (30,936)
----------- ----------- -----------
$ 12,013 $ 11,149 $ 1,816
----------- ----------- -----------
----------- ----------- -----------
Depreciation and amortization
Software $ 1,078 $ 873 $ 810
Professional services 1,869 1,575 985
Support 2,351 562 280
Unallocated corporate overhead 5,588 6,641 5,705
----------- ----------- -----------
$ 10,886 $ 9,651 $ 7,780
----------- ----------- -----------
----------- ----------- -----------
Assets
Software $ 126,472 $ 174,576
Professional services 19,280 8,273
Support 12,064 5,641
Unallocated corporate assets 78,638 70,141
----------- -----------
$ 236,454 $ 258,631
----------- -----------
----------- -----------
</TABLE>
F-15
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Information regarding foreign operations for the years ended April 30, 1999,
1998 and 1997 follows (in thousands). Sales are attributed to countries based
upon the location of the customer.
<TABLE>
<CAPTION>
Year Ended
April 30,
--------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales
United States $ 771,017 $ 756,155 $ 690,641
Foreign 158,948 127,932 105,644
----------- ----------- -----------
$ 929,965 $ 884,087 $ 796,285
----------- ----------- -----------
----------- ----------- -----------
Long-lived assets
United States $ 58,773 $ 59,671
Foreign 9,636 10,107
----------- -----------
$ 68,409 $ 69,778
----------- -----------
----------- -----------
</TABLE>
NOTE H - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited quarterly financial data for
the years ended April 30, 1999 and 1998 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------
Fiscal 1999 Fiscal 1998
------------------------------------------ -----------------------------------------
April 30, Jan. 31, Oct. 31, July 31, April 30, Jan. 31, Oct. 31, July 31,
1999 1999 1998 1998 1998 1998 1997 1997
---------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $243,802 $261,922 $199,975 $224,266 $230,509 $246,595 $195,025 $211,958
Gross margin 29,247 29,264 27,445 25,200 25,792 27,077 23,729 23,712
Net income 1,432 2,111 1,288 1,300 1,380 1,938 628 541
Earnings per share
Basic .34 .50 .30 .30 .32 .45 .14 .12
Diluted .34 .49 .30 .30 .32 .45 .14 .12
</TABLE>
F-16
<PAGE>
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 Odom 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 Odom Sims
-------------------------------------------------
Judy Odom Sims, Chairman and Chief Executive
Officer
Date: July 28, 1999
<PAGE>
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>
/s/ Judy Odom Sims Chief Executive Officer and July 28, 1999
- ------------------------------------ Chairman of the Board
Judy Odom Sims (Principal Executive Officer)
/s/ Keith R. Coogan President, Chief Operating Officer July 28, 1999
- ------------------------------------ and Director
Keith R. Coogan
/s/ James W. Brown Vice President and Chief Financial Officer July 28, 1999
- ------------------------------------ (Principal Financial Officer and
James W. Brown Principal Accounting Officer)
/s/ Mellon C. Baird Director July 28, 1999
- ------------------------------------
Mellon C. Baird
/s/ Brian N. Dickie Director July 28, 1999
- ------------------------------------
Brian N. Dickie
/s/ Carl S. Ledbetter Director July 28, 1999
- ------------------------------------
Carl S. Ledbetter
/s/ Frank Tindle Director July 28, 1999
- ------------------------------------
Frank Tindle
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants on Schedules
Shareholders and 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
15, 1999, we have also audited Schedule II for each of the three years in the
period ended April 30, 1999. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set forth therein.
/s/ Grant Thornton LLP
- --------------------------
Grant Thornton LLP
Dallas, Texas
June 15, 1999
S-1
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE AT CHARGED TO WRITE-OFFS BALANCE
BEGINNING COSTS AND NET OF AT END
OF YEAR EXPENSES RECOVERIES OF YEAR
------- -------- ---------- --------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended April 30, 1999: $ 3,050,000 $ 1,456,000 $ (1,819,000) $ 2,687,000
Year ended April 30, 1998: 2,421,000 1,747,000 (1,118,000) 3,050,000
Year ended April 30, 1997: 1,247,000 2,001,000 (827,000) 2,421,000
INVENTORY VALUATION ACCOUNT:
Year ended April 30, 1999: $ 2,189,000 $ 801,000 $ (2,954,000) $ 36,000
Year ended April 30, 1998: 1,903,000 2,158,000 (1,872,000) 2,189,000
Year ended April 30, 1997: 805,000 2,219,000 (1,121,000) 1,903,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
3.1(a) 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).
3.1(b) Statement of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference to the Company's
Current Report on Form 8-K dated December 13, 1996).
3.1(c) Articles of Amendment to Restated Articles of
Incorporation, filed with the Secretary of State of Texas
on November 25, 1996 (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 1997).
3.1(d) Statement of Cancellation of Treasury Shares, filed with
the Secretary of State of Texas on March 21, 1997
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 1997).
3.2(a) Restated Bylaws of the Company, as amended (incorporated by
reference to the Company's Registration Statement No.
33-40794 on Form S-1).
3.2(b) Articles of Amendment to Article 8 of the Company's Amended
and Restated Bylaws effective September 17, 1998
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended October 31, 1998).
3.3 Rights Agreement between the Company and KeyCorp Shareholder
Services, Inc., (the "Rights Agreement") dated December 13,
1996, (incorporated by reference to the Company's Current
Report on Form 8-K dated December 13, 1996).
3.4 Letter of Substitution of Rights Agent under Rights
Agreement, dated June 7, 1997 (appointing ChaseMellon
Shareholders Services, L.L.C. as successor rights agent)
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 1998).
10.1 IBM Business Partner Agreement between the Company, IBM
Corporation and Lotus Development Corporation, dated June
30, 1997 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30,
1997).
10.2 Microsoft Corporation Channel Agreement, dated July 1, 1998
between Microsoft Corporation and the Company, including
Addendum dated July 1, 1998 (Appointment as a Large Account
Reseller).
10.3 Intentionally omitted.
<PAGE>
10.4(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).
10.4(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).
10.4(c) Third Amendment to Lease Agreement, dated effective as of
April 20, 1998 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 April 30, 1998).
10.4(d) Fourth Amendment to Lease Agreement, dated effective as of
October 1, 1998 between CIIF Associates II Limited
Partnership and the Company.
10.5(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).
10.5(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).
10.5(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).
10.5(d) Fourth Amendment to Commercial Lease Agreement, dated
effective as November 25, 1996 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
April 30, 1997).
10.5(e) Fifth Amendment to Commercial Lease Agreement, dated
effective as of March 9, 1998 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
April 30, 1998).
10.6 Lease Agreement between Spokane Teachers Credit Union and
the Company, dated May 1, 1998 (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1998).
10.7 Lease Agreement, dated March 8, 1996 by and between
Riverport Commerce Center, Inc. and the Company
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996).
10.8 Lease Agreement, dated April 26, 1996 by and between
Beneficiaries of American National Bank Trust Number
104601-03 and the Company (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996).
<PAGE>
10.9 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).
10.10 Software Spectrum, Inc. Employee Stock Purchase Plan, as
amended (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30,
1997).
10.11 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).
10.12 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).
10.13 Management Continuity Agreement ("Continuity Agreement")
between the Company and James W. Brown, dated March 1, 1998,
together with schedule identifying additional executive
officers that are parties to Continuity Agreements.
10.14 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).
10.15 Second Amended and Restated Limited Waiver Agreement, dated
March 29, 1999 between the Company and Private Capital
Management, Inc.
10.16 Amended and Restated Credit Agreement, dated March 11, 1998
among the Company, the Chase Manhattan Bank, as
Administrative Agent, Chase Bank of Texas, National
Association, as Collateral Agent and other participating
financial institutions (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended January 31, 1998).
10.17 The Software Spectrum, Inc. 1998 Long Term Incentive Plan
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended October 31, 1998).
10.18 First Amendment to Amended and Restated Credit Agreement,
dated as of August 15, 1998 among the Company, the Chase
Manhattan Bank, as Administrative Agent, Chase Bank of
Texas, National Association, as Collateral Agent, and other
participating financial institutions (incorporated by
reference to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 31, 1998).
10.19 Lease Agreement, dated October 19, 1998 between
Highwoods/Florida Holdings, L.P. and the Company, together
with First Amendment thereto, dated April 16, 1999.
21 Subsidiaries of the Company.
23 Consent of Grant Thornton LLP, Independent Accountants.
<PAGE>
24 Power of Attorney (included on the signature page of this
Form 10-K).
27 Financial Data Schedule.
</TABLE>
<PAGE>
Exhibit 10.2
MICROSOFT CORPORATION
CHANNEL AGREEMENT
This Microsoft Corporation Channel Agreement ("Agreement") is entered into as
of the 1st day of July, 1998 (the "Effective Date") between MICROSOFT
CORPORATION ("MS"), having its principal place of business at One Microsoft
Way, Redmond, WA 98052-6399 and SOFTWARE SPECTRUM, INC. ("COMPANY"), having
its principal place of business at 2140 Merritt Drive, Garland, TX 75041.
1. DEFINITIONS
Except as set forth above, all capitalized terms included in this Agreement
are as defined in Schedule A attached hereto and incorporated herein by
reference.
2. ADDENDUM TO THE AGREEMENT
COMPANY'S rights and obligations with respect to the distribution of Product
under this Agreement are subject to the terms of any Addendum which the
parties have signed. Each Addendum is incorporated into and made a part of
this Agreement. In the event of inconsistency, the terms of any applicable
Addendum shall prevail over this Agreement. The terms of this Agreement,
including any Addenda, shall prevail over any provisions in purchase orders
or set-up forms.
3. TERM AND TERMINATION
3.1 TERM
This Agreement shall take effect on the Effective Date and shall continue
until June 30, 1999.
3.2 TERMINATION
Either MS or COMPANY may terminate this Agreement in its entirety and/or any
individual Addendum at any time, with or without cause, upon thirty (30)
calendar days prior written notice. If this Agreement is terminated without
cause, neither party shall be responsible to the other for any costs or
damages resulting from such termination.
3.3 RIGHTS UPON EXPIRATION OR TERMINATION
Any amounts which have accrued prior to termination or expiration shall
become immediately due and payable. Any Product acquired by COMPANY pursuant
to this Agreement as of the termination of this Agreement may be distributed
in accordance with the terms of this Agreement until fully liquidated. All
orders received from COMPANY but not shipped by MS prior to the effective
date of any expiration or termination, at MS' option, may be shipped or
canceled. COMPANY shall make a final report to MS within ninety (90) days of
termination of this Agreement.
4. COMPANY RIGHTS AND OBLIGATIONS
4.1 AUTHORIZED DISTRIBUTION
Product acquired under this Agreement shall be distributed within the
Territory only and only in accordance with the terms of this Agreement and
any applicable Addendum. COMPANY 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.
1
<PAGE>
4.2 NO OTHER PRODUCT WARRANTIES BY COMPANY
Neither COMPANY 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. COMPANY
may, however, 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.
4.3 NO ALTERATIONS OF PRODUCT
COMPANY shall not alter the Product or Product packaging, and shall have no
authority to make copies of MS diskettes or documentation without the prior
written consent of MS. COMPANY shall distribute Product to its customers in
unopened packages.
4.4 USE OF TRADEMARKS
This Agreement does not constitute a trademark or service mark license.
COMPANY acknowledges and agrees that the Trademarks are the exclusive
property of MS or one of its affiliated companies and that COMPANY is not
entitled either by implication or otherwise to any title in the Trademarks.
COMPANY shall not use any Trademarks other than in accordance with this
Agreement (including but not limited to the guidelines set out in the TM Web
Site) or as otherwise permitted in writing from time to time by MS. With
respect to the distribution of Product, COMPANY shall use the appropriate
trademark symbol "-TM-" or "-Registered Trademark-" in a superscript and
clearly indicate MS' ownership of the Trademark(s) whenever the Product name
is first mentioned in any advertisement, brochure, or other manner in
connection with Products.
4.5 FINANCIAL STATEMENT
COMPANY will provide to MS' credit management, quarterly Financial Statements
within forty-five (45) days after the end of each calendar quarter. COMPANY
Financial Statements will be used by MS' credit department solely for the
purpose of establishing and reviewing COMPANY's credit.
4.6 TAXES
4.6(a) COMPANY TAXES
All amounts to be paid by COMPANY to MS herein are exclusive of any federal,
state, municipal or other governmental taxes, including income, franchise,
excise, sales, use, gross receipts, value added, goods and services, property
or similar tax, now or hereafter imposed on COMPANY. Such charges shall be
the responsibility of COMPANY and may not be passed on to MS, unless they are
owed solely as a result of entering into this Agreement and are required to
be collected from MS under applicable law.
4.6(b) BILLING AND COLLECTION
COMPANY will bill, collect and remit sales, use, value added, and other
comparable taxes determined by COMPANY to be due with respect to the
distribution of the Product. MS is not liable for any taxes, including
without limitation, income taxes, withholding taxes, value added, franchise,
gross receipt, sales, use, property or similar taxes, duties, levies, fees,
excises or tariffs incurred in connection with or related to the distribution
of the Product. COMPANY takes full responsibility for all such taxes,
including penalties, interest and other additions thereon.
2
<PAGE>
4.6(c) WITHHELD TAXES
If, after a determination by foreign tax authorities, any taxes are required
to be withheld, on payments made by COMPANY to MS, COMPANY may deduct such
taxes from the amount owed MS and pay them to the appropriate taxing
authority, provided however, that COMPANY 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 U.S. Foreign Tax Credit. COMPANY will make
certain that any taxes withheld are minimized to the extent possible under
applicable law.
COMPANY shall indemnify, defend and hold MS harmless from any claims or
liabilities arising from or related to any failure by COMPANY to comply with
Subsection 4.6.
4.7 ANTI-PIRACY
COMPANY shall take all commercially reasonable steps to prevent unauthorized
distribution, duplication or pirating of the Product.
4.8 COMPLIANCE WITH APPLICABLE LAWS
COMPANY shall ensure that its distribution of Product complies with any and
all applicable laws and regulations in the Territory.
5. MS OBLIGATIONS
5.1 ASSISTANCE WITH REPORTING
Upon COMPANY's written request, MS shall use reasonable efforts to assist
COMPANY in data reporting, and will work with COMPANY's Information
Management department to facilitate the data reporting process.
5.2 NO WARRANTIES FOR PRODUCT NOT MANUFACTURED BY MS
MS makes no warranties as to items distributed under a third party name,
copyright, trademark or tradename which may be included within the retail
package of a Product sold hereunder.
5.3 REPORTING/ELECTRONIC DATA INTERCHANGE
COMPANY shall provide weekly sales and inventory reporting in a timely and
accurate manner during the Term. Such sales reporting shall be submitted to
MS in accordance with the Electronic Data Interchange (EDI) Guidelines as
provided to COMPANY by MS, from time to time.
5.4 AUDITS
During the term of this Agreement and for a period of two (2) years following
its termination or expiration, MS or its designated representative, at its
own cost, may audit the applicable books, records and operations of COMPANY
as is reasonable to verify COMPANY's compliance with the terms of this
Agreement. COMPANY shall promptly correct any errors and omissions disclosed
by such audit. Any audit will be conducted during COMPANY's normal business
hours in such a manner as not to unreasonably interfere with COMPANY's normal
business activities. If any complete financial audit uncovers material
discrepancies COMPANY shall bear the out of pocket costs for the audit. For
purposes of this Section, "material discrepancies" shall mean a discrepancy
of five hundred thousand U.S. dollars (US$500,000) or more in monthly revenue
or sales reporting. Additionally, MS or its designated representative, at its
own cost, may audit any portion of COMPANY's books, records, and operations
as is reasonable to verify COMPANY's compliance with the specific terms,
policies and procedures of any addenda to this Agreement.
3
<PAGE>
6. COMPANY AND MS OBLIGATIONS
6.1 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 OR ANY OTHER
OBLIGATIONS OR LIABILITIES ON MS' PART.
(b) NEITHER MS NOR ANY THIRD PARTIES WHO HAVE BEEN INVOLVED IN THE
CREATION, PRODUCTION, OR DELIVERY TO THE COMPANY OF ANY MICROSOFT PRODUCT
WHICH IS 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 ANY PRODUCT EVEN IF MS HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(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 COMPANY 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 DISTRIBUTED UNDER
THIS AGREEMENT WILL NOT ENLARGE OR EXTEND THE LIMIT. COMPANY RELEASES MS FROM
ALL OBLIGATIONS, LIABILITY, CLAIMS OR DEMANDS IN EXCESS OF THE LIMITATION.
6.2 SEMESTER PROGRAMS
(a) MARKETING FUNDS
Each Semester, MS may allow COMPANY to participate in programs which provide
the opportunity to earn marketing funds. COMPANY's participation in such
programs shall be governed by COMPANY's then current Microsoft Rebate and
Marketing Fund Offer Letter, 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 COMPANY to participate in programs which provide
the opportunity to earn rebates as described in COMPANY's current Microsoft
Rebate and Marketing Fund Rebate Letter, and COMPANY's Rebate Program
Guidelines, as such may be promulgated and modified by MS, in its sole
discretion, from time to time.
4
<PAGE>
7. INDEMNIFICATION
7.1 BY MS
(a) If a third cause of action, claim, or demand is brought under
United States laws against COMPANY for an Infringement Claim, COMPANY shall
promptly notify MS in writing of the Infringement Claim, specify the nature
of such claim and the relief sought. COMPANY shall tender the defense of the
Infringement Claim to MS. Within thirty (30) calendar days of MS' receipt of
such notice, MS shall notify COMPANY in writing of MS' acceptance or
rejection of the defense of the Infringement Claim. If MS accepts the defense
of the Infringement Claim, then MS shall pay any settlement to which MS
consents or shall pay the amount of any adverse final judgment. As soon as MS
determines that it may reject defense of the Infringement Claim, MS and
COMPANY shall engage in good faith discussions with respect to MS' intention.
MS' acceptance or rejection of any Infringement Claim shall be based on MS'
discretion which shall be reasonable. As a clarification of the foregoing,
the parties understand and agree that MS will accept the defense of legitimate
and valid Infringement Claims. MS shall have sole control over the defense
and/or settlement of Infringement Claims. COMPANY shall provide reasonable
assistance of the same.
(b) In the event MS receives information concerning an
intellectual property infringement claim (including an Infringement Claim)
under United States laws and related to the Product(s) or the Marks, MS may
at its expense, without obligation to do so, either (i) procure for COMPANY
the right to continue to distribute the alleged infringing Product or Mark,
or (ii) replace or modify the Product or Mark to make it non-infringing, and
in which case, COMPANY shall thereupon cease distribution of the alleged
infringing Product or Mark.
(c) MS shall have no liability for any intellectual property
infringement claim (including an Infringement Claim) based on COMPANY's (i)
distribution or use of any Product or Mark after receipt of MS' notice that
COMPANY should cease distribution, or use of such Product or Mark due to such
a claim; or (ii) combination of a Product with any other product, program or
data; or (iii) adaptation or modification of any Product.
(d) MS shall defend COMPANY, its subsidiaries, and affiliated
companies from and against any claims, losses, and damages relating to any
default, breach or alleged breach of MS' obligations, promises,
representations, warranties or agreements hereunder. MS' obligation to defend
COMPANY shall only apply provided that MS is immediately notified in writing
of any such claim. COMPANY shall provide reasonable assistance in the defense
of any claim. At COMPANY's sole option, and at MS's cost, COMPANY may
participate in the selection of counsel, defense and settlement of any claims
covered by this Section 7.2, or may tender sole control over the defense or
settlement of the claim to MS. If COMPANY chooses to participate in the
selection of counsel, defense and settlement of such claims, the parties
shall work together in good faith to reach decisions which are mutually
acceptable to both parties. COMPANY shall provide reasonable assistance in
the defense of any claim.
7.2 BY COMPANY
COMPANY shall defend MS, its subsidiaries, and affiliated companies from and
against any claims, losses, and damages relating to any default, breach or
alleged breach of COMPANY's obligations, promises, representations,
warranties or agreements hereunder. COMPANY's obligation to defend MS shall
only apply provided that COMPANY is immediately notified in writing of any
such claim. MS shall provide reasonable assistance in the defense of any
claim. At MS's sole option, and at COMPANY's cost, MS may participate in the
selection of counsel, defense and settlement of any claims covered by this
Section 7.2, or may tender sole control over the defense or settlement of the
claim to COMPANY. If MS chooses to participate in the selection of counsel,
defense and settlement of such claims, the parties shall work together in
good faith to reach decisions which are mutually acceptable to both parties.
MS shall provide reasonable assistance in the defense of any claim.
5
<PAGE>
8. INSURANCE
8.1 COMPANY
Throughout the Term and for thirty (30) days thereafter, COMPANY shall
maintain, at its sole expense, Commercial General Liability Insurance written
on an Occurrence Form, with policy limits of not less than three million
dollars (US$3,000,000) combined single limit each occurrence for personal
injury (including bodily injury and death) and property damage which may
arise from or in connection with the performance of COMPANY's obligations
hereunder or out of any negligent act or omission of COMPANY, its officers,
directors, agents, or employees. Upon MS' request, COMPANY shall provide
proof of its compliance with this section. Notwithstanding the foregoing,
COMPANY shall have the right to self-insure.
8.2 MS
Throughout the Term and for thirty (30) days thereafter, MS shall maintain,
at its sole expense, Commercial General Liability Insurance written on an
Occurrence Form, with policy limits of not less than three million dollars
(US$3,000,000) combined single limit each occurrence for personal injury
(including bodily injury and death) and property damage which may arise from
or in connection with the performance of MS's obligations hereunder or out of
any negligent act or omission of MS, its officers, directors, agents, or
employees. Upon COMPANY's request, MS shall provide proof of its compliance
with this section. Notwithstanding the foregoing, MS shall have the right to
self-insure.
9. EXPORT RESTRICTIONS
COMPANY agrees that COMPANY and, as applicable, its Resellers will not export
or re-export Product to any country, person, or entity subject to U.S. export
restrictions. COMPANY specifically agrees not to export or re-export Product
(i) to any country to which the U.S. embargoes or restricts the export of
goods or services, which as of March 31, 1998, includes, but is not
necessarily limited to, Cuba, Iran, Iraq, Libya, North Korea, Sudan and
Syria, or to any national of any such country who COMPANY knows intends to
transmit or transport the products back to such country; (ii) to any person
or entity that COMPANY or, as applicable, its Resellers know will utilize
Product in the design, development or production of nuclear, chemical or
biological weapons; or (iii) to any person or entity that has been prohibited
from participating in U.S. export transactions by any federal agency of the
U.S. government.
10. DELAY IN PERFORMANCE
If as a result of fire, casualty, act of God, riot, war, labor dispute,
government regulation, or decree of any court or any other event beyond the
control of COMPANY or MS, either of the parties shall be unable to perform
its obligations hereunder, such inability shall not constitute a breach of
this agreement, and such obligations shall be performed as soon as the cause
of the inability ceases or is removed. 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.
11. 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, COMPANY 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.
12. 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 COMPANY.
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13. ATTORNEY'S FEES; GOVERNING LAW
In the event an action is commenced to enforce a party's rights under this
Agreement, the prevailing parry 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. COMPANY
consents to jurisdiction and venue in King County, Washington.
14. ENTIRE AGREEMENT
This Agreement and all attached Amendments and Addenda constitute the entire
agreement between MS and COMPANY, 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.
15. U.S. GOVERNMENT RIGHTS
All Products provided to the U.S. Government pursuant to solicitations
issued on or after December 1, 1995, are provided with commercial license
rights only. All Products provided to the U.S. Government pursuant to
solicitations issued prior to December 1, 1995 are provided with RESTRICTED
RIGHTS as provided for in FAR, 48 C.F.R. 52.227-14 (June 1987) or FAR, 48 CFR
252.227-7013 (OCT 1988), as applicable. COMPANY shall be responsible for
ensuring that all Products are marked with the "Restrictive Rights" legend.
Manufacturer is Microsoft Corporation, One Microsoft Way, Redmond, WA
98052-6399.
16. CONFIDENTIALITY
COMPANY expressly undertakes to retain in confidence the terms and conditions
of this Agreement and any applicable Addenda 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. COMPANY
shall guarantee and ensure its employees' compliance with this paragraph.
COMPANY'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. This Section shall not prohibit the parties from disclosing
such information as is specifically required by any Federal or state
authorities. Notwithstanding the foregoing, COMPANY may disclose confidential
information in accordance with any judicial or other governmental order or
request, provided that COMPANY shall immediately notify MS in writing upon
its receipt of such order or request and shall assist MS as is reasonable in
seeking any protective order or its equivalent or in limiting the scope of
disclosure of any Confidential Information.
17. 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 COMPANY
may not assign its rights or obligations under this Agreement in any way
without the prior written consent of MS. MS may assign this Agreement or any
portions thereof, to any MS related company.
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18. NOTICES
All notices required or contemplated by this Agreement shall be in writing,
delivered by U.S. certified main (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.: Channel Policies
Write cc to: Law and Corporate Affairs
If to COMPANY:
Software Spectrum, Inc.
2140 Merritt Drive
Garland, TX 75041
Attn: Robert D. Graham
Such notices shall be deemed given three (3) business days after being
deposited in the United States mail or one business day after being delivered
with an overnight carrier.
19. SURVIVAL
Sections 3.3, 4.6, 5.4, 6.1, 7, 8.1, 8.2, 14, 15 and 18 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.
("COMPANY")
By: By: /s/ Robert D. Graham
----------------------------------- ---------------------------------
Bill Henningsgaard Robert D. Graham
- --------------------------------------- -------------------------------------
Name (please print) Name (please print)
General Manager, U.S. Headquarter Sales Vice President
- --------------------------------------- -------------------------------------
Title Title
July 1, 1998
- --------------------------------------- -------------------------------------
Date Date
8
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SCHEDULE A
DEFINED TERMS
"DISTRIBUTOR" shall mean any business entity which purchases MS Product
directly from MS, and is authorized by MS to distribute said Product to
Resellers.
"ELECTRONIC DATA INTERCHANGE" or "EDI" shall mean the ANSI-ASCII X.12
standard, adopted by CompTTA by which COMPANY shall subject sales reporting to
MS.
"END USER" shall mean the ultimate consumer of Product.
"FINANCIAL STATEMENT" shall mean 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 COMPANY as being representative of the books and accounts of
COMPANY.
"INFRINGEMENT CLAIM" shall mean any allegation against the COMPANY that
the Products or Marks infringes any copyright, patent, or trademark of a
third party, or misappropriates a third party trade secret.
"MARKS" shall mean the Trademarks (defined below) or any and all
copyrights MS may own.
"PRODUCT" shall mean any MS Stock Keeping Unit ("SKU") listed on
COMPANY's then current Price List.
"RESELLER" shall mean any software retailer which purchases Product from
MS or a MS authorized Distributor.
"SEMESTER" shall mean a six month period. During the Term there shall be
two (2) Semesters, one running from July 1 through December 31, and the
second Semester running from January 1 through June 30.
"TERM" shall mean the term of this Agreement which is specified in
Section 3.1 of this Agreement.
"TERRITORY" shall mean the geographic boundaries of the United States of
America, excluding all United States territories, possessions, or
protectorates. The parties agree that if this Agreement includes a Large
Account Reseller Addendum, then for that Addendum only, Territory shall mean
both Canada and the United States, excluding all United States territories,
possessions, or protectorates.
"TM WEB SITE" shall mean the web site located at
http://www microsoft.com/permission.
"TRADEMARKS" shall mean the trademark and trade name "Microsoft", and
all trademarks and tradenames derived therefrom, and the trademarks used in
association with all Products or which are set out at the TM Web site, as may
be amended from time to time by MS.
9
<PAGE>
LARGE ACCOUNT RESELLER
ADDENDUM TO THE MICROSOFT
CHANNEL AGREEMENT
This Addendum ("ADDENDUM") entered into this 1st day of July, 1998
supplements that certain Channel Agreement ("Agreement") between MICROSOFT
CORPORATION ("MS") having its principal place of business at One Microsoft
Way, Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("COMPANY") 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 COMPANY as a non-exclusive Large Account Reseller in the Territory
with the rights 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 COMPANY in their Enrollment Form as
their Large Account Reseller. For purposes of this Addendum only, the parties
agree that "Territory" shall mean Canada and the United States, excluding all
United States territories, possessions, or protectorates.
2. DEFINITIONS
For purposes of this Addendum, capitalized terms are as defined in Schedule A
attached hereto and incorporated herein by reference. Any capitalized terms
not otherwise defined herein, shall have the same meaning as set forth in the
Agreement.
3. COMPANY RIGHTS AND OBLIGATIONS
3.1 DISTRIBUTION OF SELECT SOFTWARE PRODUCTS
COMPANY may only distribute Select Software Products to Select Customers
located in the Territory, and in accordance with Subsection 3.1(a) below, at
the direction of any Select Customer, outside of the Territory. However,
should a Select Customer desire 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.
3.1(a): If the Select Customer is a business entity established
under the laws of the United States or Canada and existing in the Territory,
it may designate the COMPANY on an Enrollment Form as its Large Account
Reseller for itself and other related companies which may exist outside of
the Territory. COMPANY shall distribute Select Software Products outside the
Territory in accordance with the terms and conditions of this Agreement and
in accordance with applicable laws.
3.1(b): If the Select Customer is a business entity established
under the laws of a foreign country and existing outside of the Territory,
then it must designate a Large Account Reseller in the same country on an
Enrollment Form. In this case, COMPANY is not authorized to distribute Select
Software Products for such Select Customer. 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.
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3.2 DOCUMENTATION
COMPANY shall be authorized to purchase Documentation Components from MS
Worldwide Fulfillment for resale to MS volume license customers only. A
validation process must be implemented by COMPANY to ensure that only MS
volume license customers receive Documentation Components. This validation
process must include, at a minimum, verification of the Select or Open
Licensee Authorization number, as applicable, of the customer. The validation
process must be documented in writing, which documentation will be made
available to Microsoft upon request. Price protection is not available for
Documentation Components purchased from MS Worldwide Fulfillment.
COMPANY may request authorization to return Documentation Components
purchased from MS Worldwide Fulfillment within sixty (60) calendar days from
the date of invoice. Upon request, MS will provide COMPANY with a Return
Authorization Form which COMPANY must complete and return to MS. MS will
issue a return authorization number for Documentation Components meeting
return criteria. Documentation Components must be returned within thirty (30)
calendar days of the issuance of the return authorization number. Freight
costs shall be paid by COMPANY. MS shall issue COMPANY a purchase credit in
the amount of the authorized return.
3.3 DISTRIBUTION RESTRICTIONS
Nothing in this Addendum authorizes the Large Account Reseller to use Select
Software Products internally or to distribute or otherwise transfer Select
Software Products to any Large Account Reseller Affiliate without the prior
written consent of MS.
3.5 COMPANY ACCEPTANCE OF ENROLLMENT AGREEMENTS
In order to remain authorized to purchase Select Software Products and
Documentation Components from MS for resale to Select Customers, an authorized
representative of COMPANY must review and acknowledge the Select Customer's
Enrollment Agreement. COMPANY's signature on the Enrollment Agreement shall
constitute COMPANY'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 Select License Agreement.
3.5 COMPANY SELECT PRICE SCHEDULE
COMPANY's prices are set forth on the COMPANY Select Price Schedule, a sample
of which is attached hereto and incorporate herein by reference as Schedule
B. MS may modify the COMPANY Select Price Schedule at any time by providing
thirty (30) days written notice to COMPANY.
3.6 COMPANY'S REPORTING AND/OR ORDERING AND PAYMENT TO MS
(a) MICROSOFT SELECT 2.X ENROLLMENT AGREEMENT REPORTING
For each executed Microsoft Select 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
COMPANY pursuant to the terms of this Agreement. Following receipt of a
report from a given Select Customer, MS shall invoice COMPANY and COMPANY
shall be obligated to pay MS the fees set forth on Schedule B for each unit
reported by the Select Customer. If the Select Customer delivers written
verified reports at intervals shorter than the quarterly requirement, MS
shall invoice COMPANY immediately following receipt of such report, and
COMPANY shall be obligated to pay MS pursuant to the terms of this Section
3.6. In the event COMPANY wants to receive copies of its Select Customers'
quarterly reports, COMPANY shall negotiate with its Select Customers for the
right to receive such copies.
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(b) MICROSOFT SELECT CONSUMPTION REPORT
For each of its executed Microsoft Select version 3.0 and 4.0 Enrollment
Agreements, COMPANY 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 in the
previous month from COMPANY by the Select Customer pursuant to the terms of
this Addendum. Following receipt of such purchase order, MS shall invoice
COMPANY and COMPANY shall be obligated to pay MS according to the Schedule B
prices, along with any applicable quarterly Maintenance fees. If the Select
Customer elects to pre-pay any or all of its Maintenance commitment. COMPANY
shall immediately report such pre-payment to MS, MS shall invoice COMPANY
immediately following receipt of such report, and COMPANY shall be obligated
to pay MS pursuant to the terms of this Section 3.6.
(c) PAYMENT TERMS
All amounts are due and owing net thirty (30) days of date of invoice. All
payments not received by MS from COMPANY within the required time frame may
be assessed a finance charge of two percent (2%) of the invoice amount per
month or the legal maximum, which ever is less. COMPANY shall be obligated to
pay MS any and all amounts due regardless of whether COMPANY has received
payment from the Select Customer. COMPANY shall use its best efforts to
collect any and all amounts due from any Select Customer. Notwithstanding the
foregoing, if any Enterprise Customer defaults on its payment obligation to
COMPANY for more than ninety (90) calendar days, COMPANY will provide MS with
written notice identifying the Enterprise Customer and the amount of the
delinquency. COMPANY shall deliver such notice to MS at the address set forth
in Section 17 of the Channel Agreement. Provided that the Enterprise Customer
is unable or willing to pay the amounts due, then COMPANY shall be released
from any payment obligation arising from the delinquent Enterprise Customer's
account.
All payments shall be in the form of bank wire transfer or electronic funds
transfer through an Automated Clearinghouse ("ACH") with electronic
remittance detail attached.
Payments shall be remitted to:
Microsoft North American Collections #844505
Account #3750771767
ABA: #11100001-2
NationsBank of Texas, N.A.
All payments must be sent to NationsBank at the address indicated above using
the 820 Remittance EDI transaction set or other form of ACH payment with
electronic remittance detail attached. Remittance detail must be received by
NationsBank by 10:00 AM Central time/8:00 AM Pacific time to ensure same-day
credit to COMPANY's account. COMPANY may not withhold payment or take
deductions prior to MS issuing credit for rebates, price adjustments, billing
errors or any other credit memo issued by MS.
(d) REPORT REVISIONS
COMPANY shall use its best efforts to process all adjustments of Microsoft
Select Software Products within ninety (90) days from the original invoice
date. All revised reports must provide detailed back-up as required by MS. MS
reserves the right to review the circumstance of all claims submitted more
than one hundred eighty (180) days from the original invoice date, and may
determine whether such revised report is eligible for credit.
3
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(e) EDI TRANSACTION SETS
COMPANY shall utilize EDI transaction sets Purchase Order Acknowledgment
(855), Advance Ship Notice (856), Price Catalog (832), Purchase Order
Transmission (850), and - Invoices (810). MS may elect, during the term of
this Addendum, to require COMPANY to implement Backorder Reports using EDI
transaction set 870 and/or other EDI transaction sets or forms of electronic
commerce. Should MS require such transaction sets, MS shall provide COMPANY
with no less than one hundred twenty (120) days prior written notice. All
required EDI transaction shall be submitted in accordance with the EDI
Guidelines as provided to COMPANY by MS.
3.7 SALES TAXES
COMPANY shall either provide MS with a bona fide resale certificate for all
Select Software Products delivered to COMPANY 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. COMPANY shall indemnify, defend
and hold harmless MS from any tax liabilities arising from or related to any
failure by COMPANY to comply with this Section 3.7 to the Addendum.
3.8 AGREEMENTS BETWEEN COMPANY AND 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, COMPANY
shall have complete discretion to establish with each Select Customer the
pricing and all other terms and conditions regarding COMPANY's provision of
Select Software Products and their associated license rights to COMPANY's
Select Customers. The negotiation of these terms between COMPANY and its
Select Customers shall not be subject to approval or review by MS in any way.
3.9 ROLE OF THE SELECT PROGRAM ADMINISTRATOR
COMPANY agrees to appoint a representative to serve as COMPANY's Select
Program Administrator. COMPANY agrees to promptly make that individual, as
well as COMPANY'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 COMPANY as its Select Program Administrator shall be an
individual generally knowledgeable of MS products and of Microsoft's Select
Program. The Select Program Administrator shall be responsible for
administering all of COMPANY's Select Customer billings and transactions,
contract compliance, for general administration of COMPANY's Select
Customers, disseminating all program information as necessary within
COMPANY's organization, and for working with the Microsoft Select Account
Manager (or local MS Contact) in regard to any problems relevant to a given
Select Customer. COMPANY's Select Program Administrator shall be:
Tonya Gonzales
-------------------------
Software Spectrum, Inc.
-------------------------
2140 Merritt Drive
-------------------------
Garland, TX 75041
-------------------------
(972) 864-5336
-------------------------
COMPANY 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
COMPANY'S solicitation of new Select 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.
4
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3.11 COMPANY'S REPRESENTATIONS AND WARRANTIES
COMPANY hereby represents and warrants that COMPANY shall:
(a) Have email availability, Internet access, and an active VLOR
account as is necessary to perform COMPANY's obligations pursuant to this
Addendum;
(b) 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;
(c) Not alter in any way or form the Select Software Products or
their packaging;
(d) Deliver the Select Software Products only to the Select
Customer specified on the outside of the Select Software Product packaging
and will deliver CD-ROMs and program materials and information only to the
Select Customer named on each such CD-ROM or materials; and
(e) Promptly inform MS of any known or suspected violations by a
Select Customer of the items and conditions of the Master Agreement,
Enrollment Agreement, enrollment Form, or its Select Software Products and/or
the applicable License Agreement.
3.12 CONFIDENTIALITY
COMPANY 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 COMPANY.
Should COMPANY disclose the terms and conditions of any executed Select
Master Agreement or Select Enrollment Form, this Addendum shall immediately
terminate. COMPANY shall guarantee and ensure its employees' compliance with
this paragraph. COMPANY'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. This section shall not prohibit COMPANY from
disclosing such information as is specifically required by any Federal or
state authorities. Notwithstanding the foregoing, COMPANY may disclose
confidential information in accordance with any judicial or other
governmental order or request, provided that COMPANY shall immediately notify
MS in writing upon its receipt of such order or request and shall assist MS
as is reasonable in seeking any protective order or its equivalent or in
limiting the scope of disclosure of any confidential information.
3.13 COMPANY TERMINATION OF ENROLLMENT AGREEMENT/FORM
At anytime during the Term, COMPANY shall be able to terminate its rights and
obligations related to any Enrollment Agreement/Form currently administered
by COMPANY. In order for such termination to be effective, COMPANY must notify
MS in writing of its desire to terminate its rights and obligations. Such
notification shall include the Select Customer's name and current contact
information, Select Agreement Number, and date of execution. All notification
shall be sent via a courier service able to track package delivery. COMPANY's
rights and obligations shall terminate thirty (30) days upon receipt of the
required notice.
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4. COMPANY 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 Agreement or
Form, MS agrees to deliver to COMPANY the Select Software Products identified
on such Enrollment. Each Select Software Product delivered to COMPANY 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
COMPANY 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 COMPANY and the Select Customer agree. COMPANY 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 COMPANY with CD-ROMs
containing upgraded copies of the Select Software Products covered by a
Select Customer's Select Agreement. COMPANY 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 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 COMPANY of the termination of any Select Customer to whom COMPANY has
distributed Select Software Products. Following such a notice COMPANY shall
immediately cease the distribution of any Select Software products, licenses,
CD-ROMs or any additional program information and materials to the terminated
Select Customer. Termination shall not, however, affect the Select Customer's
obligation to file the next due order/report and MS's right to invoice
COMPANY in regard to such order. If MS terminates a given Select Customer,
COMPANY shall not have any claim against MS or the Select Customer for
damages or lost profits resulting from such termination. COMPANY 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
Select Customer's final order, such invoice to be on the terms and conditions
previously agreed to between COMPANY and the Select Customer.
4.3 OBLIGATIONS ON TERMINATION
In the event this Addendum is terminated for cause, MS shall be entitled to
direct all of COMPANY's Select Customers to report/order and pay to MS or the
Select Customer's newly designated Select Large Account Reseller any and all
payments due after termination. In such an event, COMPANY 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.
Termination or expiration shall not affect COMPANY's ability to perform its
obligations pursuant to this Addendum as it relates to any of COMPANY's
existing Enrollment Agreements. However, COMPANY shall have no right to enter
into additional Enrollment Agreements, or to present itself as a Large
Account Reseller.
4.4 ESSENTIAL ELEMENT
Both COMPANY 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 COMPANY's right to collect any outstanding
payment following termination of this Addendum, COMPANY's rights to acquire
and/or distribute Select Software Products, Select CD-ROM's and/or any
additional program information and materials, and to collect payment from its
Select Customers are conditional upon this Addendum being in full force and
effect. COMPANY 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.
6
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5. AGREEMENT AND ADDENDUM TERMS
If any terms and conditions in this Addendum conflict with the term and
conditions in the Agreement, with respect to COMPANY's authorization as a
Large Account Reseller only, the terms and conditions of this Addendum shall
control.
6. SURVIVAL
Sections 3.6, 3.7, 3.12, 4.3, and 6 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
full force and effect. This Addendum is not binding until executed by MS.
MICROSOFT CORPORATION SOFTWARE-SPECTRUM, INC.
("MS") ("COMPANY")
By: By: /s/ Robert D. Graham
----------------------------------- -----------------------------------
Bill Henningsgaard Robert D. Graham
- -------------------------------------- --------------------------------------
Name (please print) Name (please print)
General Manager, US Headquarter Sales Vice President
- -------------------------------------- --------------------------------------
Title Title
- -------------------------------------- --------------------------------------
Date Date
7
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SCHEDULE A
DEFINITIONS
"DOCUMENTATION COMPONENTS" shall mean the supplemental disk sets and
Product documentation available from Microsoft World Wide Fulfillment.
"ENROLLMENT AGREEMENT" shall mean the Microsoft Select Enrollment
Agreement in the form provided by MS to be signed by each Select Customer and
MS, and approved by COMPANY.
"ENROLLMENT AGREEMENT NUMBER" shall mean the number assigned by MS to a
given Enrollment Agreement.
"ENROLLMENT FORM" shall mean the Microsoft Select Enrollment Form in the
form provided by MS to be signed by each Select Customer and MS.
"ENTERPRISE CUSTOMER" shall mean any company having a valid Enterprise
Enrollment Agreement under MS's Select volume licensing program.
"LARGE ACCOUNT RESELLER" shall mean any reseller which MS has authorized
to distribute licenses to Select Customers.
"LARGE ACCOUNT RESELLER AFFILIATE" shall mean any entity which owns,
controls, is owned or controlled by, or under common ownership or control
with the Large Account Reseller. 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.
"LEAD CUSTOMER" shall mean the company or entity signing a Master
Agreement.
"LEAD CUSTOMER AFFILIATE" shall mean 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)" shall mean the license agreement attached to the
Enrollment Form.
"MASTER AGREEMENT" shall mean 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" shall mean the number assigned by MS to a
given Master Agreement.
"SELECT CUSTOMER" shall mean the Lead Customer, any Lead Customer
Affiliate and/or identifiable division, business unit or office location of
the Lead Customer or Lead Customer Affiliate identified as the Select
Customer on an Enrollment Form or identified as an "Enrollment Customer", as
that term is defined in the Microsoft Select version 4.0 or in any Enrollment
Agreement. This definition shall also include "Enrollment Customers" as such
terms are defined in the Microsoft Select version 4.0.
"SELECT PROGRAM ADMINISTRATOR" shall mean the individual appointed by
COMPANY to act as COMPANY's primary contact with respect to the Microsoft
Select Program.
"SELECT SOFTWARE PRODUCT" shall mean the MS software as designated from
time to time by Microsoft which may be reproduced pursuant to an Enrollment
Form, excluding Documentation Components.
8
<PAGE>
SCHEDULE B
COMPANY SELECT PRICE SCHEDULE
[Schedule B to this document
contains no information.]
9
<PAGE>
FOURTH AMENDMENT TO LEASE AGREEMENT
This Fourth Amendment to Lease Agreement (this "Fourth Amendment") is
entered into by and between CIIF ASSOCIATES II LIMITED PARTNERSHIP, a
Delaware limited partnership (hereinafter called "Landlord") and SOFTWARE
SPECTRUM, INC., a Texas corporation formerly known as The Software Store,
Inc. (hereinafter called "Tenant").
W I T N E S S E T H :
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
dated May 1, 1990 (the "Original Lease"), wherein Landlord leased to Tenant
approximately fifty-one thousand one hundred forty-five (51,145) square feet
of rentable area in the building known as 2140 Merritt Drive, Garland, Texas
(the "Building"), all as more fully described in the Lease (the "Premises");
and
WHEREAS, Landlord and Tenant amended the Original Lease pursuant to the
terms and provisions of that certain First Amendment to Lease Agreement dated
March 31, 1995 (the "First Amendment") executed by Landlord and Tenant; and
WHEREAS, Landlord and Tenant further amended the Original Lease
pursuant to the terms and provisions of that certain First Addendum to Lease
Agreement dated July 31, 1996 (the "Second Amendment") executed by Landlord
and Tenant; and
WHEREAS, Landlord and Tenant further amended the Original Lease
pursuant to the terms and provisions of that certain Third Amendment to Lease
Agreement dated effective April 20, 1998 (the "Third Amendment") executed by
Landlord and Tenant (the Original Lease, as amended by the First Amendment,
the Second Amendment and the Third Amendment, is herein referred to as the
"Lease"); and
WHEREAS, desire to further amend the Lease in accordance with the terms
and conditions set forth below;
NOW, THEREFORE, for and in consideration, of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows (capitalized terms used herein having the meanings ascribed
to them in the Lease unless specifically defined herein):
1. Tenant shall have the right to lease additional parking area in
accordance with the terms and conditions of EXHIBIT A attached hereto.
2. By its execution of this Fourth Amendment, Tenant acknowledges and
agrees that all leasehold improvements and tenant finish in the Premises are
in good and satisfactory condition
<PAGE>
acceptable to Tenant. Tenant acknowledges that it accepts the Premises in
their present condition, I.E. "AS IS" and "WITH ALL FAULTS," subject to any
latent defects of which Tenant is unaware as of the date of Tenant's
execution of this Fourth Amendment. Notwithstanding the foregoing, Landlord
shall remain responsible for any subsequent repairs required to portions of
the Building for which Landlord is responsible under the terms of the Lease.
3. Landlord agrees to pay to The Industrial Group ("Landlord's Broker")
a real estate brokerage commission as set forth in a separate listing
agreement between Landlord and Landlords' Broker and agrees to pay The
Staubach Company ("Tenant's Broker") a real estate brokerage commission as
set forth in a separate commission agreement between Landlord and Tenant's
Broker. Tenant hereby represents and warrants to Landlord that it has not
employed any other agents, brokers or other such parties in connection with
the extension of the lease term pursuant to the terms and conditions of this
Fourth Amendment, and Tenant agrees that it shall hold Landlord harmless from
and against any and all claims of all agents, brokers or other such parties
claiming by, through or under Tenant.
4. The Lease, as amended by this Fourth Amendment, is hereby ratified
and affirmed and, except as expressly amended hereby, all other items and
provisions of the Lease remain unchanged and continue to be in full force and
effect. The terms of this Fourth Amendment shall control over any conflicts
between the terms of the Lease and the terms of this Fourth Amendment.
5. The Lease, as amended by this Fourth Amendment, constitutes the
entire agreement and understanding between the parties hereto relating to the
subject matter hereof and all prior agreements, proposals, negotiations,
understandings and correspondence between the parties in this regard, whether
written or oral, are hereby superseded and merged herewith.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, this Fourth Amendment may be executed by the parties
hereto on separate multiple counterparts, each of which shall be deemed to be
an original, executed to be effective as of the 1st day of October, 1998.
"Landlord"
CIIF ASSOCIATES II LIMITED PARTNERSHIP,
a Delaware limited partnership
By: AEW Advisors, Inc., a Massachusetts
corporation, its managing general partner
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
"Tenant"
SOFTWARE SPECTRUM, INC.,
a Texas corporation
By: /s/ Robert D. Graham
----------------------------------
Name: Robert D. Graham
----------------------------------
Title: Vice President and General Counsel
----------------------------------
-3-
<PAGE>
EXHIBIT A
SECOND EXPANSION PARKING OPTION
1. Subject to the terms and conditions of this EXHIBIT A, Tenant shall
have the additional option ("Second Expansion Parking Option"), by providing
written notice thereof to Landlord (the "Second Expansion Parking Election
Notice"), at any time on or before September 1, 2000, to include under the
Lease all or any portion of the land identified on EXHIBIT A-1 attached
hereto (the "Second Expansion Parking Area"). The amount of the Second
Expansion Parking Area to be included under the Lease pursuant to the Second
Expansion Parking Option shall be identified by Tenant in the Second
Expansion Parking Election Notice. The actual portion of the EXHIBIT A-1 land
to be included under the Lease pursuant to the Second Expansion Parking
Option shall be designated by Landlord, provided, however, it shall have a
reasonable configuration (the "Second Expansion Parking Space"). If Tenant
timely delivers the Second Expansion Parking Election Notice, then (a)
Landlord shall promptly pave the Second Expansion Parking Area so that it may
be used for the parking of motor vehicles and (b) Tenant and Landlord shall
execute an amendment to the Lease acknowledging Tenant's leasing of the
Second Expansion Parking Area on the terms and conditions of the Lease,
except as follows:
(a) the monthly Base Rent for the Second Expansion Parking Space
shall equal the sum of (1) the product of the number of square feet in
the Second Expansion Parking Space and $.235 divided by 12 and (2) the
amount of the monthly installment of principal and interest that would
be payable on a hypothetical loan whose principal balance equaled all
hard and soft costs incurred by Landlord in paving the Second Expansion
Parking Space (including, without limitation, geotechnical studies,
survey costs, and consultant costs), whose interest rate is 12%, and
which is payable in equal monthly installments for purposes of making
such calculation, the number monthly installments of the hypothetical
loan shall equal the number of full calendar months remaining in the
Term after the Second Expansion Parking Space Commencement Date (as
hereinafter defined). Tenant's obligation to commence paying monthly
Base Rent on such Second Expansion Parking Space shall commence upon
substantial completion of Landlord's paving of the Second Expansion
Parking Space (the "Second Expansion Parking Space Commencement Date").
(b) After completion of the paving to the Second Expansion
Parking Space, Landlord shall maintain the Second Expansion Parking
Space in good condition; however Landlord shall have no obligation to
make any repairs with respect to the Second Expansion Parking Space
unless and until Tenant has delivered to Landlord notice of the need
therefor.
(c) Tenant shall pay all Taxes, utility costs, insurance costs,
and maintenance costs regarding the Second Expansion Parking Space;
accordingly, Tenant's proportionate share for purposes of calculating
Tenant's obligations under Paragraph 2.C under the Lease as to the
Second Expansion Parking Space shall be 100%.
A-1
<PAGE>
(d) Tenant shall defend, indemnify, and hold Landlord harmless
from and against all liabilities, claims, and expenses (including,
without limitation, reasonable attorney's fees and expenses), except for
those arising from Landlord's negligence or wilful misconduct.
(e) Tenant may not construct any alteration or place any signs on
the Second Expansion Parking Space without Landlord's prior written
consent, which consent shall not be unreasonably withheld; provided,
however, Tenant may install signage on the portion of the Second
Expansion Parking Space then being leased by Tenant to the extent such
signage is reasonably necessary to identify Tenant's use of such Second
Expansion Parking Space and provided such signage is approved by
Landlord and complies with all applicable laws, ordinances and
restrictions affecting the Second Expansion Parking Space.
(f) The Second Expansion Parking Space shall only be used for the
parking of motor vehicles by Tenant, Tenant's employees, customers and
visitors. In no event will any boat, camper, trailer, truck larger than
a one-ton pickup or any other vehicle be parked or stored on the Second
Expansion Parking Spaces. The Second Expansion Parking Space shall not
be used for the repair or restoration of any motor vehicle, boat,
camper, trailer or other vehicle, except for emergency repairs, and then
only to the extent necessary to enable its movement to a proper repair
facility. Tenant's use of the Second Expansion Parking Space shall
comply at all times with all deed restrictions, zoning ordinances and
other laws applicable to Tenant's use of the Second Expansion Parking
Space.
(g) The term for the Second Expansion Parking Space shall be
coterminous with the Term.
(h) Tenant may not assign its right to use the Second Expansion
Parking Space or assign its rights under this Exhibit, other than in
connection with an assignment of the entire Lease.
2. The Second Expansion Parking Option of Tenant as provided for
herein can be exercised only if, at the time of such exercise of the Second
Expansion Parking Option, Tenant is not in default under the Lease beyond any
applicable grace period. In the event that such condition is not satisfied
and is not waived by Landlord in its sole and absolute discretion, Tenant's
Second Expansion Option shall be terminated and of no further force and
effect. Tenant's Second Expansion Option shall terminate if (a) the Lease or
Tenant's right to possession of the Premises is terminated, or (b) Tenant
fails to timely exercise its Second Expansion Parking Option under this
EXHIBIT A, time being of the essence with respect to Tenant's exercise
thereof. Tenant shall not have the right to assign its Second Expansion
Parking Option to any sublessee of the Premises, nor may any such sublessee
exercise such Second Expansion Parking Option.
3. Tenant may exercise its Second Expansion Parking Option on one or
more occasions, provided that any Second Expansion Parking Election Notice
must be delivered to Landlord on or before September 1, 2000. Each exercise
of Tenant's Second Expansion Parking Option shall be
A-2
<PAGE>
treated independently of any previous exercise by Tenant of the Second
Expansion Parking Option for all purposes hereunder, including, without
limitation, the determination of the monthly Base Rent and the Second
Expansion Parking Space Commencement Date attributable to the portion of the
Second Expansion Parking Area identified in the applicable Second Expansion
Parking Election Notice.
4. Notwithstanding anything else contained herein to the contrary, at any
time prior to September 1, 2000, if Landlord desires to accept an offer (a
"Third Party Offer"), to sell to any third party all or any portion of the
real property upon which the Second Expansion Parking Area is located,
Landlord shall give Tenant written notice thereof (the "Offer Notice"), and
Tenant shall have ten (10) days from the date of receipt of the Offer
Notice to either (i) elect to exercise its Second Expansion Parking Option
by delivering written notice thereof to Landlord prior to the expiration of
such ten (10) day period, or (ii) notify Landlord that it does not desire to
exercise its Second Expansion Parking Option, in which case Tenant's Second
Expansion Parking Option shall be deemed to be terminated and of no further
force and effect. In the event Tenant fails to respond within said ten (10)
day period, Tenant shall be deemed to have elected not to exercise its Second
Expansion Parking Option, in which case Tenant's Second Expansion Parking
Option shall be deemed to be terminated and of no further force and effect.
A-3
<PAGE>
EXHIBIT A-1
DESCRIPTION OF SECOND EXPANSION PARKING AREA
A-1-1
<PAGE>
EXHIBIT A-1
Second Expansion Parking Area
SOFTWARE SPECTRUM, INC.
2140 Merritt Drive
Garland, Texas 75041
[Map]
<PAGE>
SOFTWARE SPECTRUM, INC.
MANAGEMENT CONTINUITY AGREEMENT
This Agreement (the "Agreement") is entered into by and between Software
Spectrum, Inc., a Texas corporation (the "Company"), and JAMES W. BROWN (the
"Executive"), dated as of the 1st day of March, 1998.
The Board of Directors of the Company (the "Board"), has determined that
it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined in Section 2) of the Company. The Board believes it is imperative
to diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of
Control occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to
effect the Change of Control or (ii) otherwise arose in connection
with or anticipation of the Change of Control, then for all purposes
of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the second anniversary of such date;
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and
each annual anniversary thereof shall be hereinafter referred to as
the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal
Date, unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Change of Control Period
shall not be so extended.
<PAGE>
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control"
shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise of a
conversion privilege), (ii) any acquisition by the company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i) and (ii) of subsection (c) of this Section 2 are
satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 60% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be and (ii) at least a
majority of the members of the board of directors of the corporation
resulting from
-2-
<PAGE>
such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation, with respect to which following such sale
or other disposition, (A) more than 60% of; respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be and (B) at least a majority of the
members of the board of directors of such corporation were members of
the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company, in accordance with the terms and provisions of this Agreement, for
the period commencing on the Effective Date and ending on the second
anniversary of such date (the "Employment Period").
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be
at least commensurate in all material aspects with the most
significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Effective
Date and (B) the Executive's services shall be performed at
the location where the Executive was employed immediately
preceding the Effective Date or any office which is the
headquarters of the Company and is less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time
during normal business hours to the business
-3-
<PAGE>
and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities.
During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as
such activities are similar to such activities of the
Executive prior to the Effective Date and do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been,
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to
the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to
the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments in accordance with the
Company's customary pay periods, at least equal to twelve
times the highest monthly base salary paid or payable to the
Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs. For purposes of
determining Annual Base Salary for this Agreement, there will
be included in, or added to, the base salary all quarterly or
other periodic bonuses (other than annual bonus) to which the
Executive would have been entitled for the year in which the
Effective Date occurs as if all criteria for such bonuses had
been satisfied at 100% of plan, with such bonuses to be paid
in accordance with the Company's customary pay periods for
such bonuses. During the Employment Period, the Annual Base
Salary shall be reviewed at least annually and shall be
increased at any time and from time to time as shall be
substantially consistent with increases in base salary
generally awarded in the ordinary course of business to other
peer executives of the Company and its affiliated companies.
Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any
such increase and the term Annual Base Salary as utilized in
this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by,
controlling or under common control with the Company.
-4-
<PAGE>
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in
cash at least equal to the greater of (A) the average
annualized (for any fiscal year consisting of less than twelve
full months or with respect to which the Executive has been
employed by the Company for less than twelve full months)
bonus paid or payable, including by reason of any deferral, to
the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the
fiscal year in which the Effective Date occurs (the "Recent
Average Bonus"), or (B) the annual bonus paid or payable,
including by reason of any deferral, to the Executive (and
annualized for any fiscal year consisting of less than twelve
full months or for which the Executive has been employed for
less than twelve full months) for the most recently completed
fiscal year as if all criteria for such bonus at 100% of plan
had been satisfied (such greater amount shall be hereinafter
referred to as the "Highest Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall elect
to defer the receipt of such Annual Bonus.
(iii) SPECIAL BONUS. In addition to the Annual Base Salary and
Annual Bonus payable as hereinabove provided, if the Executive
remains employed with the Company or its affiliated companies
through the first anniversary of the Effective Date, the
Company shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services
during the crucial one-year transition period following the
Change of Control in cash equal to the sum of (A) the
Executive's Annual Base Salary and (B) the Highest Annual
Bonus. The Special Bonus shall be paid no later than 30 days
following the first anniversary of the Effective Date.
(iv) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices policies
and programs applicable generally to other peer executives of
the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with respect
to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings
opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the
90-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at
any time after the Effective Date to other peer executives of
the Company and, its affiliated companies.
-5-
<PAGE>
(v) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in
no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive
at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated
companies.
(vi) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of
the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
(vii) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the
Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
(viii) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size
and with furnishings and other appointments, and to personal
secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the
Company and its affiliated companies at any time during the
90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(ix) VACATION. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most
favorable plans, policies,
-6-
<PAGE>
programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 11(b) of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after
such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative (such agreement
as to acceptability not to be withheld unreasonably).
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under Section 4(a) (other than as a result of
incapacity due to physical or mental illness) which is demonstrably
willful and deliberate on the Executive's part, which is committed in
bad faith or without reasonable belief that such breach is in the best
interests of the Company and which is not remedied in a reasonable
period of time after receipt of written notice from the Company
specifying such breach or (ii) the conviction of the Executive of a
felony involving moral turpitude.
(c) GOOD REASON; WINDOW PERIOD. The Executive's employment may be
terminated (i) during the Employment Period by the Executive for Good
Reason or (ii) during the Window Period by the Executive without any
reason. For purposes of this Agreement, the "Window Period" shall
mean the 60-day period immediately following the four-month
anniversary of the Effective Date (with the fourth-month anniversary
to be determined as the same calendar day as the Effective Date four
months later; for example, if the Effective Date were January 6,
1997, the Window Period would begin on May 6, 1997). For purposes of
this Agreement, "Good Reason" shall mean:
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<PAGE>
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) or any
other action by the Company which results in a diminution in
such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b), other than an isolated,
insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section
4(a)(i)(B);
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy Section
10(c), provided that such successor has received at least ten
days prior written notice from the company or the Executive of
the requirements of Section 10(c).
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by
the Executive without any reason during the Window Period or for Good
Reason, shall be communicated by Notice of Termination to the other
party hereto given in accordance with section 11(b). For purposes of
this Agreement, a "Notice of Termination" means a written notice which
(i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is
other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 15 days after the
giving of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or cause shall not waive any
right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
-8-
<PAGE>
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by
the Executive during the Window Period or for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date
of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment
is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON OR DURING THE WINDOW PERIOD; OTHER THAN FOR CAUSE, DEATH
OR DISABILITY. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or
Disability (and other than a termination due to death) or the
Executive shall terminate employment either for Good Reason or without
any reason during the Window Period:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of
the following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the Highest
Annual Bonus and (y) a fraction, the numerator of which
is the number of days in the current fiscal year
through the Date of Termination, and the denominator of
which is 365 and (3) the Special Bonus, if due to the
Executive pursuant to Section 4(b)(iii), to the extent
not theretofore paid and (4) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in
clauses (1), (2), (3) and (4) shall be hereinafter
referred to at the "Accrued Obligations"); and
B. the amount (such amount shall be hereinafter referred
to as the "Severance Amount") equal to the product of
(1) one and one-half (1.5) and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
(ii) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(v)
if the Executive's employment had not been terminated in
accordance with the
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most favorable plans, practices, programs or policies of the
Company and its affiliated companies as in effect and
applicable generally to other peer executives and their
families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies
and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another
employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility
(such continuation of such benefits for the applicable period
herein set forth shall be hereinafter referred to as "Welfare
Benefit Continuation"). For purposes of determining
eligibility of the Executive for retirement benefits pursuant
to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until the end of
the Employment Period and to have retired on the last day of
such period; and,
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to
be paid or provided or which the Executive and/or the
Executive's family is eligible to receive pursuant to this
Agreement and under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated
companies as in effect and applicable generally to other peer
executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally thereafter with
respect to other peer executives of the Company and its
affiliated companies and their families (such other amounts
and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of
Accrued Obligations (which shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination) and the timely payment or provision of the
Welfare Benefit Continuation and other Benefits (excluding, in each
case, Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination of an amount equal to
the greater of (A) the Severance Amount or (B) the present value
determined as provided in Section 280G(d)(4) of the Code of any cash
amount to be received by the Executive or the Executive's family as a
death benefit pursuant to the terms of any plan, policy or arrangement
of the Company and its affiliated companies, but not including any
proceeds of life insurance
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<PAGE>
covering the Executive to the extent paid for directly or on a
contributory basis by the Executive (which shall be paid in any event
as an Other Benefit) (the benefits included in this clause (B) shall
be hereinafter referred to as the "Death Benefits").
(c) DISABILITY. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for (i) payment of Accrued Obligations (which
shall be paid to the Executive in a lump sum in cash within 30 days of
the Date of Termination) and the timely payment or provision of the
Welfare Benefit Continuation and Other Benefits (excluding, in each
case, Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the greater of (A) the Severance
Amount or (B) the present value (determined as provided in Section
280G(d)(4) of the Code) of any cash amount to be received by the
Executive as a disability benefit pursuant to the terms of any plan,
policy or arrangement of the Company and its affiliated companies, but
not including any proceeds of disability insurance covering the
Executive to the extent paid for directly or on a contributory basis
by the Executive (which shall be paid in any event as an Other
Benefit) (the benefits included in this clause (B) shall be
hereinafter referred to as the "Disability Benefits").
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall
be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary through
the Date of Termination plus the amount of any compensation previously
deferred by the Executive, in each case to the extent theretofore
unpaid. If the Executive terminates employment during the Employment
Period, excluding a termination either for Good Reason or without any
reason during the Window Period, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in sections 6(a)(ii), 6(b)
and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which
the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
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<PAGE>
8. FULL SETTLEMENT; RESOLUTION OF DISPUTES.
(a) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of
the amounts payable to the Executive under any of the provisions of
this Agreement and, except as provided in Section 6(a)(ii), such
amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred, to
the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the
event of any termination of employment by the Executive, whether Good
Reason existed, then, unless and until there is a final, nonappealable
judgment by a court of competent jurisdiction declaring that such
termination was for Cause or that the determination by the Executive
of the existence of Good Reason was not made in good faith, the
Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the
case may be, that the Company would be required to pay or provide
pursuant to Section 6(a) as though such termination were by the
Company without Cause or by the Executive with Good Reason; provided,
however, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts
to which the Executive is ultimately adjudged by such court not to be
entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax,
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<PAGE>
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be
made by an independent national accounting firm selected by the
Company (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group affecting
the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to
the Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a
written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. Any determination
by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim
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<PAGE>
prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest such
claims the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
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<PAGE>
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall
(subject to the Company, complying with the requirements of Section
9(c)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is
made that the Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. The economic benefit provisions of this Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11. MISCELLANEOUS; NOTICES.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and
legal representatives.
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<PAGE>
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive: James W. Brown
2114 Green Hill
McKinney, Texas 75070
If to the Company: Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas 75041
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or the failure to assert any
right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment
for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed
to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the
Company is "at will" and, prior to the Effective Date, may be
terminated by either the Executive or the Company at any time.
Moreover, if prior to the Effective Date, the Executive's employment
with the Company terminates, then the Executive shall have no further
rights under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf; all as of the
day and year first above written.
EXECUTIVE
/s/ James W. Brown
--------------------------------------------
Name: James W. Brown
SOFTWARE SPECTRUM, INC.
By: /s/ Judy O. Sims
---------------------------------
Name: Judy O. Sims
Title: Chief Executive Officer
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<PAGE>
SCHEDULE A
TO MANAGEMENT CONTINUITY AGREEMENT
BETWEEN THE COMPANY
AND JAMES W. BROWN
The Company has entered into Management Continuity Agreements with
executive officers of the Company, which agreements are identical to the that
filed as Exhibit 10.13 with the exception of the difference in the parties and
the dates of execution set forth below:
<TABLE>
<CAPTION>
Party: Date of execution:
----- -----------------
<S> <C>
(1) Lorraine Castorina April 1, 1999
(2) Kelli H. Cole November 3, 1998
(3) Keith R. Coogan January 10, 1997
(4) Robert D. Graham January 10, 1997
(5) Roger J. King January 10, 1997
(6) Robert B. Mercer January 10, 1997
(7) Link Simpson April 1, 1999
(8) Judy Odom Sims April 1, 1999
(9) Lisa M. Stewart January 10, 1997
(10) Melissa Womack April 1, 1999
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED LIMITED WAIVER AGREEMENT
THIS SECOND AMENDED AND RESTATED LIMITED WAIVER AGREEMENT (the
"Agreement") is made and entered into as of the 29th day of March, 1999, by
and between Software Spectrum, Inc., a Texas corporation (the "Company") and
Private Capital Management, Inc., a Florida corporation (the "Shareholder").
Terms used but not otherwise defined herein shall have the meanings assigned
them in the Rights Agreement, as defined in such agreement as referenced
below.
WITNESSETH:
WHEREAS, the Company and ChaseMellon Shareholder Services, L.L.C.,
(the "Rights Agent") (as successor to Keycorp Shareholder Services, Inc.),
are parties to that certain Rights Agreement, dated as of December 13, 1996
(the "Rights Agreement"), which provides that, upon the event of any person
or entity becoming an "Acquiring Person" as defined therein (an "Event"),
shareholders of the Company may exercise certain Rights, defined therein to
be the rights to purchase from the Company certain shares of the preferred
stock of the Company having the rights and preferences set forth in the
Statement of Designation attached as Exhibit A to the Rights Agreement;
WHEREAS, the Company and the Shareholder mutually agreed that it was
in the best interest of each of the Company and the Shareholder that the
Company effect a certain 1997 Stock Repurchase Plan (the "1997 Plan")
pursuant to the terms of which the Company from time to time during the
operation of the 1997 Plan repurchased in the open market an amount equal to
$2.5 Million, shares of its common stock, par value $.01 (the "Common Stock")
(the "1997 Plan Repurchases");
WHEREAS, in order to preclude the 1997 Plan Repurchases from
resulting in the Shareholder owning a percentage of the Company's stock that
would result in an Event (the "Shareholder Event"), which Shareholder Event,
upon agreement of the Company and the Shareholder, would have had undesirable
consequences for each of the Company and the Shareholder, the Company and the
Shareholder executed and delivered that certain Limited Waiver Agreement
dated as of July 31, 1997 (the "Waiver Agreement");
WHEREAS, following the completion of the 1997 Plan Repurchases, the
Company and the Shareholder mutually agreed that it was in the best interest
of each of the Company and the Shareholder that the Company effect a certain
1998 Stock Repurchase Plan (the "1998 Plan") pursuant to the terms of which
the Company from time to time during the operation of the 1998 Plan
repurchased, for an additional amount not to exceed in the aggregate $2.5
Million, in the open market, a certain number of shares of its Common Stock
(the "1998 Repurchases");
WHEREAS, in order to preclude the 1998 Repurchases from resulting in
the Shareholder owning a percentage of the Company's stock that would result
in a Shareholder Event, the
<PAGE>
Company and the Shareholder executed and delivered that certain Amended and
Restated Limited Waiver Agreement dated as of July 7, 1998 (the "Amended
Waiver Agreement");
WHEREAS, the Company and the Shareholder have mutually agreed that
upon completion of the 1998 Repurchases, it is in the best interest of each
of the Company and the Shareholder that the Company effect a certain 1999
Stock Repurchase Plan (the "1999 Plan") pursuant to the terms of which the
Company will from time to time during the operation of the 1999 Plan,
repurchase for an additional amount not to exceed $5.0 million, in the open
market, a certain number of shares of its Company Stock (the "1999
Repurchases"); and
WHEREAS, the Company and the Shareholder have mutually agreed that
it is in the best interest of each of the Company and the Shareholder to
amend and restate the terms of the Amended Waiver Agreement, expressly to
effect the 1999 Plan;
NOW, THEREFORE, in order to facilitate the 1999 Repurchases pursuant
to the 1999 Plan and simultaneously to preclude the occurrence of the
Shareholder Event, the Company and the Shareholder, in consideration of the
mutual covenants and agreements herein contained, do hereby agree as follows:
1. CERTAIN DEFINITIONS.
"AFFILIATE(S)" shall mean any person or entity that directly,
or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Shareholder.
Furthermore, with respect to the Shareholder, "Affiliate(s)" shall
also mean any person or entity for whom the Shareholder acts as an
investment advisor or consultant with respect to the Company.
"BENEFICIAL OWNERSHIP" shall have the meaning assigned to such
term in Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended as in effect on the date
hereof.
"CONTROL" shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of the Company, whether through ownership of the Common Stock,
by contract, or otherwise.
"CURRENT SHAREHOLDER POSITION" shall have the meaning assigned
it in Section 2 below.
"PROHIBITED ACTIVITY" shall mean: (i) any attempt by the
Shareholder or any of its Affiliates to gain Control of the Company;
(ii) any Prohibited Transaction, as hereinafter defined or (iii) any
public action on the part of the Shareholder or any of its Affiliates,
acting individually or in concert with other persons, which could
reasonably be construed: (a) as an attempt to effect a change of
Control including, but not limited to, the issuance of press releases
or the filing of documents with the Securities And Exchange Commission
or any other Federal or State governmental entity or (b) as an action
contrary to the position of the then current board of directors of the
Company.
-2-
<PAGE>
"PROHIBITED TRANSACTION" shall mean any transaction by the
Shareholder or any of its Affiliates which would result in the
Beneficial Ownership by the Shareholder or any of its Affiliates,
either individually or as a group, of the Common Stock in an amount
in excess of the Current Shareholder Position.
"STANDSTILL PERIOD" shall mean that time period commencing on
the date of this Agreement and ending with the date which is the fifth
annual anniversary of the date of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDER.
A. The Company hereby represents and warrants to the
Shareholder that it (i) has duly authorized the 1999 Plan and, subject to
relevant market and other factors and conditions affecting the Company in the
good faith judgment of its Board of Directors, the Company will make bona fide
efforts, during the operation of the 1999 Plan, to effect the 1999 Repurchases
pursuant to the 1999 Plan and (ii) is currently authorized to spend up to $5.0
Million on the 1999 Repurchases pursuant to the 1999 Plan.
B. The Shareholder hereby represents and warrants to the
Company that, as of the date hereof, the total number of shares of Common Stock
of which the Shareholder or any of its Affiliates or Associates has Beneficial
Ownership is 861,854 shares (as such share ownership may be affected from time
to time by stock splits, stock dividends, reverse splits or any other such
matter affecting all shareholders equally, the "Current Shareholder Position").
3. CERTAIN COVENANTS AND AGREEMENTS.
A. COVENANTS AND AGREEMENTS OF THE COMPANY.
a. The Company hereby agrees that,
notwithstanding the fact that the 1999 Repurchases pursuant to the 1999 Plan
may result in the Shareholder Event, if the Shareholder Event should occur
solely by virtue of the 1997 Plan Repurchases, the 1998 Repurchases and/or
the 1999 Repurchases pursuant to the 1999 Plan, such Shareholder Event shall
be deemed not to have occurred, and the Company hereby grants a limited
waiver of any provision of the Rights Agreement pursuant to the terms of
which the Shareholder Event would be considered to have occurred solely by
virtue of the 1997 Plan Repurchases, the 1998 Repurchases and/or the 1999
Repurchases.
b. The Company hereby acknowledges and
agrees that, by virtue of the operation of this Agreement, the Shareholder,
alone or together with its Affiliates and Associates, may have Beneficial
Ownership of twenty percent (20%) or more of the shares of Common Stock of
the Company then outstanding, provided that such circumstance occurs solely
as a result of the 1997 Plan Repurchases, the 1998 Repurchases Repurchases
and/or the 1999 Repurchases, and yet not be deemed to be an "Acquiring
Person" for purposes of the Rights Agreement.
-3-
<PAGE>
c. The Company acknowledges and agrees that
nothing in this Agreement shall preclude the Shareholder from (i) effecting
sales and purchases of the Common Stock so long as the Current Shareholder
Position is not exceeded or (ii) subject to the provisions of paragraph
3(B)(a) below, exercising the voting privileges commensurate with its
ownership of the Common Stock.
B. COVENANTS AND AGREEMENTS OF THE SHAREHOLDER.
a. The Shareholder agrees that neither the
Shareholder nor any of its Affiliates shall engage in any Prohibited Activity
(i) at any time that the Shareholder, alone or together with its Affiliates
has Beneficial Ownership of 20% or more of the outstanding Common Stock of
the Company as a result of Repurchases pursuant to the Plan, or (ii) during
the Standstill Period.
b. The Shareholder acknowledges and agrees
that this Agreement constitutes only a limited waiver of the Rights Agreement
and that the waiver herein contained applies only to the occurrence of the
Shareholder Event as the result solely of the 1997 Plan Repurchases, the 1998
Repurchases and/or the 1999 Repurchases and not to any other circumstances or
conditions which may result in the occurrence of the Shareholder Event.
c. The Shareholder hereby further
acknowledges that, should the Shareholder Event occur as a result of or in
connection with the purchase or acquisition by the Shareholder of Common
Stock of the Company which results in an increase in the Current Shareholder
Position, then this limited waiver shall not apply and the Shareholder shall,
in accordance with the terms of the Rights Agreement, be deemed to be an
"Acquiring Person."
C. COVENANTS AND AGREEMENTS OF THE COMPANY AND THE
SHAREHOLDER.
The Company and the Shareholder acknowledge and
agree that this Agreement constitutes a limited waiver of the Rights
Agreement; by agreeing to this waiver, the Company has not agreed to waive
any other provisions of the Rights Agreement and the Company hereby expressly
reserves its right fully to enforce the Rights Agreement except as such
enforcement may be limited by the express terms of this Agreement.
4. GENERAL PROVISIONS.
A. VOIDABILITY. This Agreement shall become null and
void if the Company shall not have publicly announced its authorization of
the 1999 Plan on or before May 31, 1999.
B. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement by and among the parties with respect to the subject matter
hereof.
C. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
-4-
<PAGE>
D. ASSIGNABILITY. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the parties
hereto; provided, that neither this Agreement nor any right hereunder shall
be assignable by the Shareholder without the prior written consent of the
Company and the Rights Agent, but this Agreement shall be assignable by the
Company to any successor by merger or otherwise to the Company and by the
Rights Agent to any successor without the consent of the Shareholder.
E. GOVERNING LAW. The validity, interpretation and
effect of this Agreement shall be governed exclusively by the laws of the
State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SOFTWARE SPECTRUM, INC.
By: /s/ Judy Odom Sims
------------------------------
Name: Judy Odom Sims
Title: Chief Executive Officer
PRIVATE CAPITAL MANAGEMENT, INC.
By: /s/ Gregg Powers
------------------------------
Name: Gregg Powers
Title: Senior V.P.
-5-
<PAGE>
ACKNOWLEDGED AND ACCEPTED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: /s/ R. John Davis, V.P.
------------------------------
Name: R. John Davis
Title: Vice President
-6-
<PAGE>
OFFICE LEASE
STATE OF FLORIDA:
COUNTY OF HILLSBOROUGH:
THIS LEASE (the "Lease"), is made this the 19th day of
----
October, 1998, by and between HIGHWOODS/FLORIDA HOLDINGS, L.P., a
- ------- - --------------------------------
Delaware Partnership, By: Highwoods Properties, Inc., as agent
- ---------------------
hereinafter "Landlord" and Spectrum Integrated Services, Inc.,
----------------------------------
a(n), Texas corporation hereinafter (whether one or more) "Tenant":
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W I T N E S S E T H :
Upon the terms and conditions hereinafter set forth, Landlord leases
to Tenant and Tenant leases from Landlord property referred to as the
Premises, all as follows:
1. PREMISES. The property hereby leased to Tenant is that area shown
on EXHIBIT A hereto attached, which consists of approximately 44,768 rentable
------
square feet, which is located in what is presently called the Interstate
----------
Corporate Center Building (the "Building"), located at 6302 E. Martin Luther
- ---------------- ----------------------
King Blvd. , Suite 200 , Tampa, Hillsborough County, State of Florida (the
- ---------- --- ----- ------------
"Premises").
If Landlord and Tenant desire for improvements to be made to the
Premises prior to the Commencement Date such improvements shall be made
pursuant to the work letter attached hereto as ADDENDUM 2 (the "Work Letter").
-
2. TERM. This Lease Term (the "Term") is for sixty (60) months, and
----------
shall commence on January 1, 1999 ("Commencement Date"), and shall expire
---------------
(unless sooner terminated or extended as herein provided) at noon on December
--------
31, 2003 ("Expiration Date"). Tenant shall have the right to take possession
- --------
of the Premises prior to the Commencement Date provided the Premises are
delivered for occupancy.
If Landlord, for any reason whatsoever, cannot deliver possession of
the Premises to Tenant on the Commencement Date, then this Lease shall not be
void or voidable, no obligation of Tenant shall be affected thereby, and
neither Landlord nor Landlord's agents shall be liable to Tenant for any loss
or damage resulting from the delay in delivery of possession; provided,
however, that in such event, the Commencement Date and Expiration Date of
this Lease, and all other dates that may be affected by their change, shall
be revised to conform to the date of Landlord's delivery of possession to
Tenant. The above, however, is subject to the provision that the period
permitted for the delay of delivery of possession of the Premises shall not
exceed sixty (60) days after the Commencement Date set forth in the first
sentence of this SECTION 2 (except that those delays beyond Landlord's
control, including, without limitation, those encompassed in the meaning of
the term "force majeure", or caused by Tenant (the "Delays") shall be
excluded in calculating such period). If Landlord does not deliver possession
to Tenant within such period, then Tenant may terminate this Lease by written
notice to Landlord; provided, that written notice shall be ineffective if
given after Tenant takes possession of any part of the Premises, or if given
more than one hundred (100) days after the original Commencement Date plus
the time of any Delays. Unless expressly otherwise provided herein, Rent (as
hereinafter defined) shall commence on the earlier of: (i) the Commencement
Date; (ii) occupancy of the Premises by Tenant; (iii) the date Landlord has
the Premises ready for occupancy by Tenant, as such date is adjusted under
the Work Letter, if any, attached hereto; or (iv) the date Landlord could
have had the Premises ready had there been no Delays attributable to Tenant.
Unless the context otherwise so requires, the term "Rent" as used herein
includes both Base Rent and Additional Rent as set forth in SECTION 4.
The Commencement Date, Term and Expiration Date may be set forth in
a commencement letter (the "Commencement Letter") prepared by Landlord and
executed by Tenant.
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3. USE. The Premises may be used only for general office purposes in
connection with Tenant's present business, which is currently general office
--------------
purposes, which includes the operation of a 24-hour per day, seven day per
- --------------------------------------------------------------------------
week, technical call support center. Tenant shall never make any use of the
- -----------------------------------
Premises which is in violation of any governmental laws, rules or
regulations, whether now existing or hereafter enacted or which is in
violation of the general rules and regulations for tenants (a copy of the
present rules are attached as EXHIBIT B) as may be developed or modified from
time to time by Landlord effective as of the date delivered to Tenant or
posted on the Premises providing such rules are uniformly applicable to all
tenants in the Building (the "Rules and Regulations"), are not contrary to
the provisions of the Lease or increase Tenant's costs or obligations, nor
may Tenant make any use of the Premises not permitted, or otherwise
prohibited, by any restrictive covenants which apply to the Premises,
provided a copy of same were delivered prior to execution of this Lease.
Tenant may not make any use that is or may be a nuisance or trespass, which
increases any insurance premiums, or makes such insurance unavailable to
Landlord on the Building. In the event of any increase in any of Landlord's
insurance premiums which directly results from the Tenant's use or occupancy
of the Premises, Tenant agrees to pay Landlord such additional increase
within ten (10) days.
4. RENT. As used herein, the term "Rent" shall mean Base Rent (as
hereinafter defined) plus Additional Rent (as hereinafter defined). Tenant
shall pay Rent to the Landlord Rent, on or before the first day of each
calendar month, in advance, during the Term, without previous demand or
notice therefor by Landlord and without set off or deduction; provided,
however, if the Term commences on a day other than the first day of a
calendar month, then Rent for such month shall be (i) prorated for the period
between the Commencement Date and the last day of the month in which the
Commencement Date falls, and (ii) due and payable on the Commencement Date.
Notwithstanding anything contained herein to the contrary, Tenant's
obligation to pay Rent under this Lease is completely separate and
independent from any of Landlord's obligations under this Lease. For each
monthly Rent payment Landlord receives after the fifth (5th) business day of
the month, Landlord shall be entitled to all remedies provided under SECTIONS
13 and 14 below, and a late charge in the amount of five percent (5%) of all
Rent due for such month. If Landlord presents Tenant's check to any bank and
Tenant has insufficient funds to pay for such check, then Landlord shall be
entitled to all remedies provided under SECTIONS 13 and 14 below and a lawful
bad check fee or five percent (5%) of the amount of such check, whichever
amount is less.
4.1. BASE RENT. The minimum base rent for the Term shall be the sum
of $3,317,761.00 (the "Base Rent"). For the first twelve months of the Term,
-------------
Base Rent shall be payable, in advance, in equal monthly installments
as indicated below and thereafter shall be increased pursuant to the Rent
- ------------------
Schedule below.
4.1.1. RENT SCHEDULE. During the initial term of the Lease, the
monthly base rent shall be paid in accordance with SECTION 4 and in
accordance with the following payment schedule:
<TABLE>
<CAPTION>
-------------------------------- -------------------------------- ------------------------------------
MONTHS MONTHLY RENT TERM RENT
-------------------------------- -------------------------------- ------------------------------------
<S> <C> <C>
1/01/99 - 3/31/99 $29,375.00 * $88,125.00*
-------------------------------- -------------------------------- ------------------------------------
4/01/99 - 11/30/99 $52,602.00 $420,816.00
-------------------------------- -------------------------------- ------------------------------------
12/1/99 - 11/30/00 $54,468.00 $653,616.00
-------------------------------- -------------------------------- ------------------------------------
12/1/00 - 11/30/01 $56,333.00 $675,996.00
-------------------------------- -------------------------------- ------------------------------------
12/1/01 - 11/30/02 $58,198.00 $698,376.00
-------------------------------- -------------------------------- ------------------------------------
12/1/02 - 12/31/03 $60,064.00 $780,832.00
-------------------------------- -------------------------------- ------------------------------------
CUMULATIVE RENT: $3,317,761.00
-------------------------------- ---------------------------------------------------------------------
</TABLE>
* Tenant shall be responsible for payment of Base Rent on 25,000 square feet
only.
The above rent schedule does not include operating expense pass
through adjustments to be computed annually in accordance with Lease Addendum
Number 1 attached hereto.
--
4.2. ADDITIONAL RENT. As used in this Lease, the term "Additional
Rent" shall mean all sums and charges, excluding Base Rent, due and payable
by Tenant under this Lease, including, but not limited to, the following:
(a) sales or use tax imposed on rents collected by Landlord, even
though laws imposing such taxes attempt to require Landlord to pay the same;
provided, however, if any such sales or
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<PAGE>
use tax shall be imposed on Landlord and Landlord shall be prohibited by
applicable law from collecting the amount of such tax from Tenant as
Additional Rent, then Landlord, upon sixty (60) days prior written notice to
Tenant, may terminate this Lease, unless, legally, Tenant can and does
reimburse Landlord for such tax.
(b) Tenant's Proportionate Share (as hereinafter defined) of the
increase in Landlord's Operating Expenses (as hereinafter defined) as set forth
in Addendum Number 1 .
--
5. SERVICES BY LANDLORD. Landlord shall cause to be furnished to the
Building Common Areas, or as applicable, the Premises, in common with other
tenants, during business hours of 7:00 A.M. to 6:00 P.M. Monday through
---- ----
Friday (excluding National and State holidays), the following services;
janitorial services (five (5) days a week after normal working hours), water
for drinking, lavatory and toilet purposes, and heating and air conditioning
for the comfortable use and occupancy of the Premises, and further described
in the construction specifications, provided heating and cooling conforming
to any governmental regulation prescribing limitations thereon shall be
deemed to comply with this service. Notwithstanding the above, Landlord shall
--------------
provide the following services to the Premises seven days a week: water for
- ---------------------------------------------------------------------------
drinking, lavatory and toilet purposes. Tenant shall have 24-hour access to
- ---------------------------------------------------------------------------
its Premises and Tenant shall be directly responsible for its electrical
- ------------------------------------------------------------------------
consumption. Landlord shall further provide parking according to Tenant
- -----------
Parking Agreement Addendum No. 3 . There shall be no abatement or reduction
--
of Rent by reason of any of the foregoing services not being continuously
provided to Tenant. Landlord shall have the right to enter and inspect the
Premises and all electrical devices therein from time to time with proper
notice by telephone. There shall be no abatement or reduction of Rent by
reason of any of the foregoing services not being continuously provided to
Tenant, unless such service is interrupted for two (2) business days, then
starting on the next day, Rent and Additional Rent shall abate until such
service is available. If any interruption continues for thirty (30) days,
Tenant may terminate the Lease.
Tenant shall report to Landlord immediately any defective condition in or
about the Premises known to Tenant, and if such defect is not so reported and
such failure to promptly report results in other damage, Tenant shall be
liable for same, unless due to the negligence or willful misconduct of
Landlord, its employees or agents. Landlord shall not be liable to Tenant for
any damage caused to Tenant and its property due to the Building or any part
or appurtenance thereof being improperly constructed or being or becoming out
of repair, or arising from the leaking of gas, water, sewer or steam pipes.
6. TENANT'S ACCEPTANCE AND MAINTENANCE OF PREMISES; LANDLORD'S
DUTIES AND RIGHTS. Subject to the terms of the attached Work Letter, if any,
Tenant's occupancy of the Premises is Tenant's representation to Landlord
that Tenant has examined and inspected the same, finds the Premises to be as
represented by Landlord and satisfactory for Tenant's intended use, and
constitutes Tenant's acceptance "as is", latent defects excepted. Landlord
makes no representation or warranty as to the condition of said Premises.
During Tenant's move-in, a representative of Tenant must be on-site with
Tenant's moving company to insure proper treatment of the Building and the
Premises. Elevators in multi-story office buildings must remain in use for
the general public during business hours as defined herein in SECTION 5. Any
specialized use of elevators must be coordinated with Landlord's property
manager. Tenant must properly dispose of all packing material and refuse in
accordance with the Rules and Regulations. Any damage or destruction to the
Building or the Premises due to moving will be the sole responsibility of
Tenant. Tenant shall deliver at the end of this Lease each and every part of
the Premises in good repair and condition, ordinary wear and tear and damage
by casualty excepted. The delivery of a key or other such tender of
possession of the Premises to Landlord or to an employee of Landlord shall
not operate as a termination of this Lease or a surrender of the Premises
except upon written notice by Landlord. Tenant shall: (i) keep the Premises
and fixtures in good order; (ii) make repairs and replacements to the
Premises or Building needed because of Tenant's misuse or primary negligence,
unless coverable under insurance policies required to be carried by Landlord
hereunder; (iii) repair and replace special equipment or decorative
treatments installed by or at Tenant's request and that serve the Premises
only, except if this Lease is ended because of casualty loss or condemnation;
and (iv) not commit waste. Tenant, however, shall make no structural
alterations of the Premises without Landlord's prior written consent. If
Tenant requires alterations, and Landlord's consent is required, Tenant shall
provide Landlord's managing agent with a complete set of construction
drawings, and such agent shall then determine the actual cost of the work to
be done (to include a construction supervision fee of five percent (5%) to be
paid to Landlord's managing agent). Tenant may then either agree to pay
Landlord to have the
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work done or with Landlord's consent, engage their own contractor to perform
the alterations. On termination of this Lease or vacation of the Premises by
Tenant, Tenant shall restore the Premises, at Tenant's sole expense, to the
same condition as existed at the Commencement Date, ordinary wear and tear
and damage by casualty only excepted. Landlord, however, may elect to require
Tenant to leave alterations performed for Tenant unless at the time of such
alterations Landlord agreed in writing such alterations could be removed on
the Expiration Date, upon the termination of this Lease or upon Tenant's
vacation of the Premises.
Tenant shall keep the Premises and the Building free from any liens
arising out of any work performed, materials furnished, or obligations
incurred by or on behalf of Tenant. Should any claim of lien or other lien be
filed against the Premises or the Building by reason of any act or omission
of Tenant or any of Tenant's agents, employees, contractors or
representatives, then Tenant shall cause the same to be canceled and
discharged of record by bond or otherwise within ten (10) days after notice
of the filing thereof. Should Tenant fail to discharge such lien within such
ten (10) day period, then Landlord may discharge the same, in which event
Tenant shall reimburse Landlord, on demand, as Additional Rent, for the
amount of the lien or the amount of the bond, if greater, plus all
administrative costs incurred by Landlord in connection therewith. The
remedies provided herein shall be in addition to all other remedies available
to Landlord under this Lease or otherwise. Tenant shall have no power to do
any act or make any contract that may create or be the foundation of any
lien, mortgage or other encumbrance upon the reversionary or other estate of
Landlord, or any interest of Landlord in the Premises. NO CONSTRUCTION LIENS
OR OTHER LIENS FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED TO THE PREMISES
SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO THE PREMISES OR
THE BUILDING.
Notwithstanding anything to the contrary set forth above in this
SECTION 6, if Tenant does not perform its maintenance obligations in a timely
manner as set forth in this Lease, commencing the same within five (5) days
after receipt of written notice from Landlord specifying the work needed and
thereafter diligently and continuously pursuing completion of unfulfilled
maintenance obligations, then Landlord shall have the right, but not the
obligation, to perform such maintenance, and any amounts so expended by
Landlord shall be paid by Tenant to Landlord within thirty (30) days after
demand, with interest at the maximum rate allowed by law (or the rate of
fifteen percent (15%) per annum, whichever is less) accruing from the date of
expenditure through the date paid.
Except for repairs and replacements that Tenant must make under this
SECTION 6, Landlord shall pay for and make all other repairs and replacements
to the Premises, common areas and Building (including Building fixtures and
equipment). This maintenance shall include the roof, foundation, exterior
walls, interior structural walls, all structural components, and all exterior
(outside of walls) systems, such as mechanical, electrical, HVAC, and
plumbing. Repairs or replacements required under SECTION 6 shall be made
within a reasonable time (depending on the nature of the repair or
replacement needed) after receiving notice from Tenant or Landlord having
actual knowledge of the need for a repair or replacement.
7. DAMAGES TO PREMISES. If the Premises shall be partially damaged
by fire or other casualty insured under Landlord's insurance policies, and if
Landlord's lender(s) shall permit insurance proceeds paid as a result thereof
to be so used, then upon receipt of the insurance proceeds, Landlord shall,
except as otherwise provided herein, promptly repair and restore the Premises
(exclusive of improvements made by Tenant, Tenant's trade fixtures,
decorations, signs, and contents) substantially to the condition thereof
immediately prior to such damage or destruction; limited, however, to the
extent of the insurance proceeds received by Landlord. If by reason of such
occurrence: (i) the Premises is rendered wholly untenantable; (ii) the
Premises is damaged in whole or in part as a result of a risk which is not
covered by Landlord's insurance policies; (iii) Landlord's lender does not
permit a sufficient amount of the insurance proceeds to be used for
restoration purposes; (iv) the Premises is damaged in whole or in part during
the last two years of the Term; or (v) the Building containing the Premises
is damaged (whether or not the Premises is damaged) to an extent of fifty
percent (50%) or more of the fair market value thereof, then Landlord may
elect either to repair the damage as aforesaid, or to cancel this Lease by
written notice of cancellation given to Tenant within sixty (60) days after
the date of such occurrence, and thereupon this Lease shall terminate. Tenant
shall vacate and surrender the Premises to Landlord within fifteen (15) days
after receipt of such notice of termination. In addition, Tenant may also
terminate this Lease by written notice given to Landlord if the Premises and
any areas necessary for access to the Premises cannot be repaired in one
hundred eighty (180) days, or at any time between the one hundred
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eighty-first (181st) and one hundred ninety-sixth (196th) days after the
occurrence of any such casualty, if Landlord has failed to restore the
damaged portions of the Building (including the Premises) within one hundred
eighty (180) days of such casualty. However, if Landlord is prevented by
Delays as defined in SECTION 2, from completing the restoration within said
one hundred eighty (180) day period, and if Landlord provides Tenant with
written notice of the cause for the Delays within fifteen (15) days after the
occurrence thereof, such notice to contain the reason for the Delays and a
good faith estimate of the period of the Delays caused thereby, then Landlord
shall have an additional period beyond said one hundred eighty (180) days,
equal to the Delays in which to restore the damaged areas of the Building;
and Tenant may not elect to terminate this Lease until said additional period
required for completion has expired with the Building not having been
substantially restored. In such case, Tenant's fifteen (15) day notice of
termination period shall begin to run upon the expiration of Landlord's
additional period for restoration set forth in the preceding sentence. Upon
the termination of this Lease as aforesaid, Tenant's liability for the Rent
and other charges reserved hereunder shall cease as of the effective date of
the termination of this Lease, subject, however, to the provisions for
abatement of Rent hereinafter set forth.
Unless this Lease is terminated as aforesaid, this Lease shall
remain in full force and effect, and Tenant shall promptly repair, restore,
or replace Tenant's improvements, trade fixtures, decorations, signs, and
contents in the Premises in a manner and to at least a condition equal to
that existing prior to their damage or destruction, and the proceeds of all
insurance carried by Tenant on said property shall be held in trust by Tenant
for the purposes of such repair, restoration, or replacement.
If, by reason of such fire or other casualty, the Premises is
rendered wholly untenantable, then the Rent payable by Tenant shall be fully
abated, or if only partially damaged, such Rent and other charges shall be
abated proportionately as to that portion of the Premises rendered
untenantable, in either event (unless the Lease is terminated, as aforesaid)
from the date of such casualty until the Premises have been substantially
repaired and restored, or until Tenant's business operations are restored in
the entire Premises, whichever shall first occur. Tenant shall continue the
operation of Tenant's business in the Premises or any part thereof not so
damaged during any such period to the extent reasonably practicable from the
standpoint of prudent business management. Except for the abatement of the
Rent hereinabove set forth, Tenant shall not be entitled to, and hereby
waives, all claims against Landlord for any compensation or damage for loss
of use of the whole or any part of the Premises and/or for any inconvenience
or annoyance occasioned by any such damage, destruction, repair, or
restoration.
8. ASSIGNMENT-SUBLEASE. Tenant may not assign or encumber this Lease
or its interest in the Premises arising under this Lease, and may not sublet
any part or all of the Premises without first obtaining the written consent
of Landlord, which consent will not be unreasonably withheld or delayed or
conditioned. Any assignment or sublease to which Landlord may consent (one
consent not being any basis that Landlord should grant any further consent)
shall not relieve Tenant of any or all of its obligations hereunder. For the
purpose of this SECTION 8, the word "assignment" shall be defined and deemed
to include the following: (i) if Tenant is a partnership, the withdrawal or
change, whether voluntary, involuntary or by operation of law, of partners
owning thirty percent (30%) or more of the partnership, or the dissolution of
the partnership; (ii) if Tenant consists of more than one person, an
assignment, whether voluntary, involuntary, or by operation of law, by one
person to one of the other persons that is a Tenant; (iii) if Tenant is a
corporation, any dissolution or reorganization of Tenant, or the sale or
other transfer of a controlling percentage (hereafter defined) of capital
stock of Tenant, in a single transaction or series of related transactions,
other than to an affiliate (which is expressly permitted hereby) or; (iv) if
Tenant is a limited liability company, the change of members whose interest
in the company is fifty percent (50%) or more. The phrase "controlling
percentage" means the ownership of, and the right to vote, stock possessing
at least fifty-one percent (51%) of the total combined voting power of all
classes of Tenant's capital stock issued, outstanding and entitled to vote
for the election of directors, or such lesser percentage as is required to
provide actual control over the affairs of the corporation. Acceptance of
Rent by Landlord after any non-permitted assignment shall not constitute
approval thereof by Landlord. Notwithstanding the foregoing provisions of
this SECTION 8, Tenant may assign or sublease part or all of the Premises
without Landlord's consent to: (i) any corporation or partnership that
controls, is controlled by, or is under common control with, Tenant; or (ii)
any corporation resulting from the merger or consolidation with Tenant or to
any entity that acquires all of Tenant's assets as a going concern of the
business that is being
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conducted on the Premises, as long as the assignee or sublessee is a bona
fide entity and assumes the obligations of Tenant, and continues the same
Permitted Use as provided under SECTION 3. However, Landlord must be given
prior written notice of any such assignment or subletting, and failure to do
so shall be a default hereunder. Landlord will never consent to an assignment
or sublease that might result in a use that conflicts with the rights of an
existing tenant under its lease.
In no event shall this Lease be assignable by operation of any law,
and Tenant's rights hereunder may not become, and shall not be listed by
Tenant as an asset under any bankruptcy, insolvency or reorganization
proceedings. Tenant is not, may not become, and shall never represent itself
to be an agent of Landlord, and Tenant acknowledges that Landlord's title is
paramount, and that it can do nothing to affect or impair Landlord's title.
If Landlord consents to any assignment or subletting, Tenant shall
pay all reasonable out-of-pocket costs and expenses incurred by Landlord in
connection with the assignment or sublease transaction, including Landlord's
reasonable attorneys' fees, not to exceed $750.
If this Lease shall be assigned or the Premises or any portion
thereof sublet by Tenant at a rental that exceeds the rentals to be paid to
Landlord hereunder, attributable to the Premises or portion thereof so
assigned or sublet, then any such excess (after payment of all costs incurred
in connection with such transfer) shall be paid over to Landlord by Tenant.
If Landlord assists Tenant in finding a permissible subtenant, Landlord shall
be paid a fee for such assistance in the amount of $200 in addition to a fee
in an amount necessary to cover the subtenant's improvements to the Premises
or any portion thereof so assigned or sublet.
9. TENANT'S COMPLIANCE; INSURANCE REQUIREMENTS. Tenant shall comply
with all applicable laws, ordinances and regulations affecting the Premises,
now existing or hereafter adopted, including the Rules and Regulations.
Tenant shall not be obligated to correct any non-compliance existing on the
Commencement Date, or to make structural alterations. At all times during the
Term, Landlord will carry and maintain bodily injury and property damage
insurance.
The insurance coverage and amounts above will be reasonably determined
by Landlord, based on coverages carried by prudent owners of comparable
buildings in the vicinity of the Project.
Throughout the Term, Tenant, at its sole cost and expense, shall
keep or cause to be kept for the mutual benefit of Landlord, Landlord's
managing agent, (presently Highwoods/Florida Holdings Limited Partnership and
its affiliates) and Tenant, Commercial General Liability Insurance (1986 ISO
Form or its equivalent) with a combined single limit, each Occurrence and
General Aggregate-per location of at least TWO MILLION DOLLARS ($2,000,000),
which policy shall insure against liability of Tenant, arising out of and in
connection with Tenant's use of the Premises, and which shall insure the
indemnity provisions contained herein. Not more frequently than once every
three (3) years, Landlord may require the limits to be increased if in its
reasonable judgment (or that of its mortgagee) the coverage is insufficient.
Tenant shall also carry the equivalent of ISO Special Form Property Insurance
on its personal property and fixtures located in the Premises and any
improvements made by Tenant for their full replacement value and with
coinsurance waived, and Tenant shall neither have, nor make, any claim
against Landlord for any loss or damage to the same, regardless of the cause
thereof.
Prior to taking possession of the Premises, and annually thereafter,
Tenant shall deliver to Landlord certificates or other evidence of insurance
satisfactory to Landlord. All such policies shall be non-assessable and shall
contain language to the extent obtainable that: (i) any loss shall be payable
notwithstanding any act or negligence of Landlord or Tenant that might
otherwise result in forfeiture of the insurance, (ii) that the policies are
primary and non-contributing with any insurance that Landlord may carry, and
(iii) that the policies cannot be canceled, non-renewed, or coverage reduced
except after thirty (30) days' prior written notice to Landlord. If Tenant
fails to provide Landlord with such certificates or other evidence of
insurance coverage, Landlord may obtain such coverage and Tenant shall
reimburse the cost thereof on demand.
Anything in this Lease to the contrary notwithstanding, Landlord
hereby releases and waives unto Tenant (including all partners, stockholders,
officers, directors, employees and
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agents thereof), its successors and assigns, and Tenant hereby releases and
waives unto Landlord (including all partners, stockholders, officers,
directors, employees and agents thereof), its successors and assigns, all
rights to claim damages for any injury, loss, cost or damage to persons or to
the Premises or any other casualty, as long as the amount of which injury,
loss, cost or damage is coverable under the insurance policies required under
this Lease to be covered. As respects all policies of insurance carried or
maintained pursuant to this Lease and to the extent permitted under such
policies, Tenant and Landlord each waive the insurance carriers' rights of
subrogation. Subject to the foregoing, Tenant shall indemnify and hold
Landlord harmless from and against any and all claims arising out of (i)
Tenant's use of the Premises or any part thereof, (ii) any activity, work, or
other thing done, permitted or suffered by Tenant in or about the Premises or
the Building, or any part thereof, (iii) any breach or default by Tenant in
the performance of any of its obligations under this Lease, or (iv) any act
or negligence of Tenant, or any officer, agent, employee, contractor, servant
of Tenant; and in each case from and against any and all damages, losses,
liabilities, lawsuits, costs and expenses (including reasonable attorneys'
fees at all tribunal levels) arising in connection with any such claim or
claims as described in (i) through (iv) above, or any action brought thereon.
If such action is brought against Landlord, Tenant upon notice from
Landlord shall defend the same through counsel selected by Tenant's insurer,
or other counsel reasonably acceptable to Landlord. Tenant assumes all risk
of damage or loss to its property or injury or death to persons in, on, or
about the Premises, from all causes except those for which the law imposes
liability on Landlord regardless of any attempted waiver thereof, and Tenant
hereby waives such claims in respect thereof against Landlord. The provisions
of this paragraph shall survive the termination of this Lease.
Landlord shall keep the Building, including the improvements,
insured against damage and destruction by perils insured by the equivalent of
ISO Special Form Property Insurance in the amount of the full replacement
value of the Building.
Each party shall keep its personal property and trade fixtures in
the Premises and Building insured with the equivalent of ISO Special Form
Property Insurance in the amount of the full replacement cost of the property
and fixtures. Tenant shall also keep any non-standard improvements made to
the Premises at Tenant's request insured to the same degree as Tenant's
personal property.
Tenant's insurance policies required by this Lease shall: (i) be
issued by insurance companies licensed to do business in the state in which
the Premises are located with a general policyholder's ratings of at least A-
and a financial rating of at least VI in the most current Best's Insurance
Reports available on the Commencement Date, or if the Best's ratings are
changed or discontinued, the parties shall agree to a comparable method of
rating insurance companies; (ii) name the non-procuring party as an
additional insured as its interest may appear [other landlords or tenants
may be added as additional insureds in a blanket policy]; (iii) provide that
the insurance not be canceled, non-renewed or coverage materially reduced
unless thirty (30) days advance notice is given to the non-procuring party;
(iv) be primary policies; (v) provide that any loss shall be payable
notwithstanding any gross negligence of Landlord or Tenant which might result
in a forfeiture thereunder of such insurance or the amount of proceeds
payable; (vi) have no deductible exceeding TEN THOUSAND DOLLARS ($10,000),
unless accepted in writing by Landlord; and (vii) be maintained during the
entire Term and any extension terms.
10. SUBORDINATION-ATTORNMENT-LANDLORD FINANCING. Tenant agrees that
this Lease will be either subordinate or superior to any mortgage heretofore
or hereafter executed by Landlord covering the Premises, depending on the
requirements of such mortgagee. Notwithstanding the foregoing, this Lease
shall be subordinate to future mortgages only if the mortgagee agrees in
writing not to disturb Tenant's possession hereunder so long as Tenant is not
in default past applicable cure periods under this Lease. The Landlord owns
the building and there is no lender, therefore, no non-disturbance agreement
is attached. Tenant, within thirty (30) days after request to do so from
Landlord or its mortgagee, will execute such agreement making this Lease
superior or subordinate and containing such other agreements and covenants on
Tenant's part as Landlord's mortgagee may reasonably request, and will agree
to attorn to said mortgagee provided the mortgagee agrees in writing not to
disturb Tenant's possession hereunder so long as Tenant is not in default
past applicable cure periods iwith this Lease. Further, Tenant agrees to
execute within fifteen (15) days after request therefor, and as often as
requested, estoppel certificates confirming any factual matter
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requested therein which is true and is within Tenant's knowledge regarding
this Lease, the Premises, or Tenant's use thereof, including, but not limited
to date of occupancy, Expiration Date, the amount of Rent due and date to
which Rent is paid, whether or not Tenant has any defense or offsets to the
enforcement of this Lease or the Rent payable hereunder or knowledge of any
default or breach by Landlord, and that this Lease together with any
modifications or amendments is in full force and effect. Tenant shall attach
to such estoppel certificate copies of all modifications or amendments.
Tenant agrees to give any mortgagee of Landlord which has provided a
non-disturbance agreement to Tenant, notice of, and a reasonable opportunity
(which shall in no event be less than thirty (30) days after written notice
thereof is delivered to mortgagee as herein provided except in the event of
emergency) to cure, any Landlord default hereunder; and Tenant agrees to
accept such cure if effected by such mortgagee. No termination of this Lease
by Tenant shall be effective until such notice has been given and the cure
period has expired without the default having been cured. Further, Tenant
agrees to permit such mortgagee (or other purchaser at any foreclosure sale),
and its successors and assigns, on acquiring Landlord's interest in the
Premises and the Lease, to become substitute Landlord hereunder, with
liability only for such Landlord obligations as accrue or continue after
Landlord's interest is so acquired. Tenant agrees to attorn to any successor
Landlord.
11. SIGNS. Tenant may not erect, install or display any sign or
advertising material upon the Building exterior, the exterior of the Premises
(including any exterior doors), or the exterior walls thereof, or in any
window therein, without the prior written consent of Landlord. Tenant shall
have the right to such signage as set forth and described in Paragraph 36, at
the expense of Tenant , and as set forth on EXHIBIT A , provided Tenant shall
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be responsible for any changes to such signage.
12. ACCESS TO PREMISES. Landlord shall have the right, at all
reasonable times, either itself or through its authorized agents, to enter
the Premises (i) to make repairs, alterations or changes as Landlord deems
necessary, (ii) with 24-hour telephone notice to inspect the Premises, and
(iii) with 24-hour telephone notice to show the Premises to prospective
mortgagees and purchasers. Landlord shall have the right, either itself or
through its authorized agents with 24-hour telephone notice, to enter the
Premises at all reasonable times for inspection to show prospective tenants
within ninety (90) days prior to the Expiration Date as extended by any
exercised option. Tenant, its agents, employees, invitees, and guests, shall
have the right of ingress and egress to common and public areas of the
Building, provided Landlord by reasonable regulation may control such access
for the comfort, convenience, safety and protection of all tenants in the
Building, or as needed for making repairs and alterations. Tenant shall be
responsible for providing access to the Premises to its agents, employees,
invitees and guests after hours, but in no event shall Tenant's use of and
access to the Premises after hours compromise the security of the Building.
Landlord shall have the right to enter the Premises at any time in the event
of an emergency.
13. DEFAULT. If Tenant: (i) fails to pay any Rent within ten (10)
days of written notice, or any other sum of money which Tenant is obligated
to pay within thirty (30) days of written notice, as provided in this Lease;
or (ii) breaches any other agreement, covenant or obligation herein set forth
and such breach shall continue and not be remedied within thirty (30) days
after Landlord shall have given Tenant written notice specifying the breach,
or if such breach cannot, with due diligence, be cured within said period of
thirty (30) days and Tenant does not within said thirty (30) day period
commence and thereafter with reasonable diligence completely cure the breach;
or (iii) files (or has filed against it and not stayed or vacated within
sixty (60) days after filing) any petition or action for relief under any
creditor's law (including bankruptcy, reorganization, or similar action),
either in state or federal court; or (iv) makes any transfer in fraud of
creditors as defined in Section 548 of the United States Bankruptcy Code (11
U.S.C. 548, as amended or replaced), has a receiver appointed for its assets
(and appointment shall not have been stayed or vacated within thirty (30)
days), or makes an assignment for benefit of creditors; then Tenant shall be
in default hereunder, and, in addition to any other lawful right or remedy
which Landlord may have, Landlord at its option, in addition to such other
remedies as may be available under Florida law, may do the following: (1)
terminate this Lease and Tenant's right of possession; or (2) terminate
Tenant's right to possession but not this Lease and/or proceed in accordance
with any and all of the following remedies:
(a) Landlord may, without further notice, re-enter the Premises in
accordance with applicable law and dispossess Tenant by summary proceedings or
otherwise, as well as the
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legal representative(s) of Tenant and/or other occupant(s) of the Premises,
and remove their effects and hold the Premises as if this Lease had not been
made, and Tenant hereby waives instituting legal proceedings to that end;
and/or at Landlord's option,
(b) All Base Rent and all Additional Rent for the balance of the
Term will, at the election of Landlord, be accelerated and the present worth
of same (as reasonably determined by Landlord) for the balance of the Term,
net of amounts actually collected by Landlord, shall become immediately due
thereupon and be paid, together with all expenses of any nature which
Landlord may incur such as (by way of illustration and not limitation) those
for reasonable attorneys' fees, brokerage, advertising, and refurbishing the
Premises in good order or preparing them for re-rental; and/or at Landlord's
option,
(c) Landlord may re-let the Premises, or any part thereof, either in
the name of Landlord or otherwise, for a term or terms which may at
Landlord's option be less than or exceed the period which would otherwise
have constituted the balance of the Term, and may grant concessions or free
rent or charge a higher rental than that reserved in this Lease; provided,
however, Landlord shall have no obligation to re-let the Premises but shall
use good faith efforts to do so, or any part thereof, and shall in no event
be liable for failure to re-let the Premises, or any part thereof, or, in the
event of any such re-letting, for refusal or failure to collect any rent due
upon such re-letting, and no such refusal or failure shall operate to release
Tenant of any liability under this Lease or otherwise to effect or reduce any
such liability; and/or at Landlord's option,
(d) Tenant or its legal representative(s) will also pay to Landlord
as agreed upon damages, in addition to such other damages that Landlord may
be legally entitled to, any deficiency between the Base Rent and all
Additional Rent hereby charged and/or agreed to be paid and the net amount,
if any, of the rents collected on account of this Lease or Leases of the
Premises for each month of the period which would otherwise have constituted
the balance of the Term.
All rights and remedies of Landlord are cumulative, and the exercise
of any one shall not be an election excluding Landlord at any other time from
exercise of a different or inconsistent remedy. No exercise by Landlord of
any right or remedy granted herein shall constitute or effect a termination
of this Lease unless Landlord shall so elect by written notice delivered to
Tenant.
The failure of Landlord to exercise its rights in connection with
this Lease or any breach or violation of any term, or any subsequent breach
of the same or any other term, covenant or condition herein contained shall
not be a waiver of such term, covenant or condition or any subsequent breach
of the same or any other covenant or condition herein contained.
No acceptance by Landlord of a lesser sum than the Base Rent,
administrative charges, Additional Rent and other sums then due shall be
deemed to be other than on account of the earliest installment of such
payments due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment be deemed as accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such installment or pursue any
other remedy provided in this Lease.
In addition, no payments of money by Tenant to Landlord after the
expiration or termination of this Lease after the giving of any notice by
Landlord to Tenant shall reinstate or extend the Term, or make ineffective
any notice given to Tenant prior to the payment of such money. After the
service of notice or the commencement of a suit, or after final judgment
granting Landlord possession of the Premises, Landlord may receive and
collect any sums due under this Lease, and the payment thereof shall not make
ineffective any notice or in any manner affect any pending suit or any
judgment previously obtained.
Tenant hereby absolutely, unconditionally and irrevocably waives the
following:
(i) Any right Tenant may have to interpose or assert any
claim or counterclaim in any action or proceeding brought by Landlord under
this Lease. If Tenant violates this Subsection, Landlord and Tenant stipulate
that any such claim or counterclaim shall be severed and tried separately
from the action or proceeding brought by Landlord pursuant to Florida Rules
of Civil Procedure 1.270(b) or other applicable law. This Subsection shall in
no way impair the right of Tenant to commence a separate action against
Landlord for
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any violation by Landlord of the provisions of this Lease or to which Tenant
has not waived any claim pursuant to the provisions of this Lease so long as
notice is first given to Landlord and any holder of a mortgage and/or lessor
under a superior lease, and a reasonable opportunity is granted to Landlord
and such holder and/or lessor to correct such violation. In no event shall
Landlord, any holder of a mortgage and/or lessor under a superior lease be
responsible for any consequential damages incurred by Tenant, including lost
profits or interruption of business, as a result of any default by Landlord.
Tenant shall in all events comply with the provisions of Section 83.232,
Florida Statutes with respect to any action or proceeding brought by Landlord
under this Lease;
(ii) Any and all rights of redemption of the Premises or
any goods therein granted by or under any present or future laws in the event
Tenant is evicted or dispossessed of the same in accordance with this Lease
or Landlord obtains possession of the same in accordance with this Lease;
Landlord and Tenant further acknowledge that, to induce Tenant to
enter into this Lease, and in consideration of Tenant's agreement to perform
all of the provisions to be performed by Tenant under this Lease, Landlord
has agreed to waive (i) reimbursement from Tenant of the amount of any tenant
improvement expenses incurred by Landlord in connection with the build-out of
the Premises for Tenant's initial occupancy, except any amount Tenant paid
Landlord for overages on tenant improvements requested by Tenant, and (ii)
payment by Tenant of Base Rent or portions thereof during the period(s)
specified herein.
If Landlord exercises the remedies provided in Subsection a, b, c or
d above, Landlord may declare the entire balance of all forms of Rent due
under this Lease for the remainder of the Term to be forthwith due and
payable and may collect the then present value of such Rents (calculated
using a discount equal to the yield then obtainable from the United States
Treasury Bill or Note with a maturity date closest to the Expiration Date).
The accelerated Additional Rent shall be calculated by multiplying the
highest Additional Rent amount payable by Tenant in the immediately preceding
calendar year prior to Default times the number of calendar years (including
any fractional calendar year) remaining in the Term following the date of
default. If Landlord exercises the remedy provided in Subsection b above and
collects from Tenant all forms of Rent owed for the remainder of the Term,
Landlord shall account to Tenant, at the Expiration Date, for amounts
actually collected by Landlord as a result of a reletting, net of Tenant's
obligations pursuant to Subsection b.
Tenant further agrees that Landlord may obtain an order for summary
ejectment from any court of competent jurisdiction without prejudice to
Landlord's rights to otherwise collect rents from Tenant.
14. MULTIPLE DEFAULTS.
(a) Tenant acknowledges that any rights or options of first
refusal, or to extend the Term, to expand the size of the Premises, to
purchase the Premises or the Building, or other such or similar rights or
options which have been granted to Tenant under this Lease are conditioned
upon the prompt and diligent performance of the terms of this Lease by
Tenant. Accordingly, provided that Landlord provides Tenant with written
notice and should Tenant default under this Lease on two (2) or more
occasions during any twelve (12) month period, in addition to all other
remedies available to Landlord, all such rights and options shall
automatically, and without further action on the part of any party, expire
and be deemed canceled and of no further force and effect.
(b) Provided that Landlord provides Tenant with written
notice and should Tenant default in the payment of Base Rent, Additional
Rent, or any other sums payable by Tenant under this Lease on two (2) or more
occasions during any twelve (12) month period, regardless of whether any such
default is cured, then, in addition to all other remedies otherwise available
to Landlord, Tenant shall, within ten (10) days after demand by Landlord,
post a security deposit in, or increase the existing Security Deposit by, a
sum equal to three (3) months' installments of Base Rent. Any security
deposit posted pursuant to the foregoing sentence shall be governed by
SECTION 22 below.
Landlord shall be in default under this Lease if Landlord
has not commenced and pursued with reasonable diligence the cure of any
failure of Landlord to meet its obligations under this Lease within thirty
(30) days of the receipt by Landlord of written notice from Tenant
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of the alleged failure to perform. Notwithstanding anything in this Lease to
the contrary, Landlord shall never be liable to Tenant in the event of a
default by Landlord or otherwise under provision of this Lease for any loss
of business or profits or other direct, special, incidental, indirect or
consequential damages or for punitive or special damages of any kind. None of
Landlord's officers, employees, agents, directors, shareholders, or partners
shall ever have any personal liability to Tenant under or in connection with
this Lease. Tenant shall look solely to Landlord's estate and interest in the
Building, including but not limited to, proceeds from the sale of the
building for the satisfaction of any right or remedy of Tenant under this
Lease, or for the collection of any judgment (or other judicial process)
requiring the payment of money by Landlord, and no other property or assets
of Landlord or its principals shall be subject to levy, execution, or other
enforcement procedure for the satisfaction of Tenant's rights or remedies
under this Lease, the relationship of Landlord and Tenant under this Lease,
Tenant's use and occupancy of the Premises, or any other liability of
Landlord to Tenant of whatever kind or nature. Except as specifically
provided in this Lease, Tenant expressly, knowingly, and voluntarily waives
any right, claim, or remedy otherwise available to Tenant to terminate or
rescind this Lease as a result of Landlord's default as to any covenant or
agreement contained in this Lease or as a result of the breach of any promise
or inducement allegedly made on behalf of Landlord, whether in this Lease or
elsewhere. No act or omission of Landlord or its agents shall constitute an
actual or constructive eviction of Tenant unless Landlord shall have first
received written notice of Tenant's claim and shall have failed to cure it
after having been afforded a reasonable time to do so.
15. PROPERTY OF TENANT. Tenant shall pay, timely, any and all taxes
levied or assessed against or upon Tenant's equipment, fixtures, furniture,
leasehold improvements and personal property located in the Premises. Tenant
may, prior to the Expiration Date, remove all fixtures and equipment which it
has placed in the Premises; provided, however, Tenant repairs all damages
caused by such removal. If Tenant does not remove its property from the
Premises upon termination (for whatever cause) of this Lease, such property
shall be deemed abandoned by Tenant, and Landlord may dispose of the same in
whatever manner Landlord may elect without any liability to Tenant.
Notwithstanding the foregoing, if the Lease is terminated by Landlord prior
to expiration, Tenant shall have a reasonable time to remove such property
prior to it being deemed abandoned.
16. SECURITY AGREEMENT. Landlord hereby expressly waives any lien,
including, but not limited, any statutory lien for rent, which Landlord may
have upon any equipment, fixtures, furniture or other personal property of
Tenant now or hereafter situated in the Leased Premises.
17. BANKRUPTCY. Landlord and Tenant understand that, notwithstanding
certain provisions to the contrary contained herein, a trustee or debtor in
possession under the United States Bankruptcy Code, as amended, (the "Code")
may have certain rights to assume or assign this Lease. Landlord and Tenant
further understand that, in any event, pursuant to the Code, Landlord is
entitled to adequate assurances of future performance of the provisions of
this Lease. The parties agree that, with respect to any such assumption or
assignment, the term "adequate assurance" shall include at least the
following:
(a) In order to assure Landlord that the proposed assignee
will have the resources with which to pay all Rent payable pursuant to the
provisions of this Lease, any proposed assignee must have, as demonstrated to
Landlord's satisfaction, a net worth (as defined in accordance with generally
accepted accounting principles consistently applied) of not less than the net
worth of Tenant on the Effective Date (as hereinafter defined), increased by
seven percent (7%), compounded annually, for each year from the Effective
Date through the date of the proposed assignment. It is understood and agreed
that the financial condition and resources of Tenant were a material
inducement to Landlord in entering into this Lease.
(b) Any proposed assignee must have been engaged in the
conduct of business for the five (5) years prior to any such proposed
assignment, which business does not violate the Permitted Use allowed under
SECTION 3 above and such proposed assignee shall continue to engage in the
Permitted Use. It is understood that Landlord's asset will be substantially
impaired if the trustee in bankruptcy or any assignee of this Lease makes any
use of the Premises other than the Permitted Use.
(c) Any proposed assignee of this Lease must assume and
agree to be personally bound by the provisions of this Lease.
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18. EMINENT DOMAIN. If all of the Premises, or such part thereof or of
the Building as will make the same unusable for the purposes contemplated by
this Lease, be taken under the power of eminent domain (or a conveyance in lieu
thereof), then this Lease shall terminate as of the date possession is taken by
the condemnor, and Rent shall be adjusted between Landlord and Tenant as of such
date. If only a portion of the Premises is taken and Tenant can continue use of
the remainder, then this Lease will not terminate, but Rent shall abate in a
just and proportionate amount to the loss of use occasioned by the taking.
Landlord shall be entitled to receive and retain the entire award for the
affected portion of the Building. Tenant shall have no right or claim to advance
any claim against Landlord for any part of any award made to or received by
Landlord for any taking and no right or claim for any alleged value of the
unexpired portion of this Lease, or its leasehold estate, or for costs of
removal, relocation, business interruption expense or any other damages arising
out of such taking. Tenant, however, shall not be prevented from making a claim
against the condemning party (but not against Landlord) for any moving expenses,
loss of profits, or taking of Tenant's personal property (other than its
leasehold estate) to which Tenant may be entitled. Any such award shall not
reduce the amount of the award otherwise payable to Landlord, if any.
19. ADA GENERAL COMPLIANCE. Tenant, at Tenant's sole expense, shall
comply with all laws, rules, orders, ordinances, directions, regulations and
requirements of federal, state, county and municipal authorities now in force,
which shall impose any duty upon Landlord or Tenant with respect to the use,
occupation or alteration of the Premises, and Tenant shall use all reasonable
efforts to fully comply with The Americans With Disabilities Act of 1990 (the
"ADA"). Landlord's responsibility for compliance with ADA shall include the
common areas and restrooms of the Building, but not the Premises.
If Tenant receives any notices alleging violation of ADA relating to
any portion of the Building or of the Premises; any written claims or threats
regarding non-compliance with ADA and relating to any portion of the Building or
of the Premises; or any governmental or regulatory actions or investigations
instituted or threatened regarding non-compliance with ADA and relating to any
portion of the Building or of the Premises, then Tenant shall, within ten (10)
days after receipt of such, advise Landlord in writing, and provide Landlord
with copies of any such claim, threat, action or investigation (as applicable).
20. QUIET ENJOYMENT. So long as Tenant is not in default past
applicable cure periods of its obligations hereunder, Tenant shall have and
enjoy peacefully the possession of the Premises during the Term hereof, provided
that no action of Landlord or other tenants working in other space in the
Building, or in repairing or restoring the Premises, shall be deemed a breach of
this covenant, or give to Tenant any right to modify this Lease either as to
term, rent payables or other obligations to be performed.
21. RADON GAS. The following notification is provided pursuant to
Section 404.056(6), Florida Statutes (1995): "Radon is a naturally occurring
radioactive gas that, when it has accumulated in a building in sufficient
quantities, may present health risks to persons who are exposed to it over time.
Levels of radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding radon gas and radon
testing may be obtained from your County public health unit."
22. SECURITY DEPOSIT. Tenant shall deposit with Landlord the sum of TEN
THOUSAND DOLLARS AND NO/100 ($10,000.00), which sum Landlord shall retain as
security for the performance by Tenant of each of its obligations hereunder (the
"Security Deposit"). The Security Deposit shall not bear interest. If, at any
time, Tenant fails to perform its obligations, then Landlord may, at its option,
apply the Security Deposit, or any portion thereof required to cure Tenant's
default; provided, however, if prior to the Expiration Date or any termination
of this Lease, Landlord depletes the Security Deposit, in whole or in part, then
immediately following such depletion, Tenant shall restore the amount so used by
Landlord. Unless Landlord uses the Security Deposit to cure a default of Tenant,
or to restore the Premises to the condition to which Tenant is required to leave
the Premises upon the Expiration Date or any termination of the Lease, then
Landlord shall, within thirty (30) days after the Expiration Date or any
termination of this Lease, refund to Tenant any funds remaining in the Security
Deposit. Tenant may not credit against or deduct the Security Deposit from any
month's Rent.
23. NOTICES. All notices, demands and requests which may be given or
which are required to be given by either party to the other must be in writing.
All notices, demands and
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requests by Landlord or Tenant shall be addressed as follows (or to such
other address as a party may specify by duly given notice):
RENT PAYMENT
ADDRESS: HIGHWOODS REALTY LIMITED PARTNERSHIP
P.O. Box 550281
Tampa, Florida 33655-0281
Tax ID# 56-1869557
LEGAL NOTICE
ADDRESS FOR
LANDLORD: HIGHWOODS REALTY LIMITED PARTNERSHIP
c/o Highwoods Properties, Inc.
Suite 600, 3100 Smoketree Court
Raleigh, North Carolina 27604
Attn: Lease Administrator
Facsimile: 919/876-2448
WITH A
COPY TO: Highwoods Properties, Inc.
Attn: C. Henry L. Millet
Lease Administrator
9720 Princess Palm Avenue, #140
Tampa, Florida 33619
Facsimile: 813-623-5445
TENANT: Spectrum Integrated Services, Inc.
2140 Merritt Drive
Garland, TX 75041
Facsimile # 972.864.7878
Attn: Larry Callahan
WITH A
COPY TO: Locke Purnell Rain Harrell
Attn: Jonetta Brooks
2200 Ross Avenue, Suite 2200
Dallas, TX 75201
Facsimile # (214) 740-8800
Notices, demands or requests which Landlord or Tenant are required or
desire to give the other hereunder shall be deemed to have been properly given
for all purposes if (i) delivered against a written receipt of delivery, (ii)
mailed by express, registered or certified mail of the United States Postal
Service, return receipt requested, postage prepaid, or (iii) delivered to a
nationally recognized overnight courier service for next business day delivery,
to its addressee at such party's address as set forth above or (iv) delivered
via telecopier or facsimile transmission to the facsimile number listed above,
provided, however, that if such communication is given via telecopier or
facsimile transmission, an original counterpart of such communication shall be
sent concurrently in either the manner specified in section (ii) or (iii) above
and written confirmation of receipt of transmission shall be provided. Each such
notice, demand or request shall be deemed to have been received upon the earlier
of the actual receipt or refusal by the addressee or three (3) business days
after deposit thereof at any main or branch United States post office if sent in
accordance with section (ii) above, and the next business day after deposit
thereof with the courier if sent pursuant to section (iii) above. The parties
shall notify the other of any change in address, which notification must be at
least fifteen (15) days in advance of it being effective.
Notices may be given on behalf of any party by such party's legal
counsel.
24. HOLDING OVER. If Tenant shall hold over after the Expiration Date
or other termination of this Lease, such holding over shall not be deemed to be
a renewal of this Lease but shall be deemed to create a month to month tenancy
only and by such holding over Tenant shall continue to be bound by all of the
terms and conditions of this Lease, except that during such month to month
tenancy Tenant shall pay to Landlord one hundred fifty percent (150%) of the
Base Rent payable hereunder during the last month of the Term, and any and all
Operating Expenses and other forms of Additional Rent payable under this Lease.
Such month-to-month tenancy may be terminated by Landlord or Tenant effective as
of the last day of any calendar
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month by delivery to the other of notice of such termination prior to the
first day of such calendar month. Tenant shall indemnify, defend and hold
Landlord harmless from and against any claim, damage, loss, liability,
judgment, suit, disbursement or expense (including consequential damages and
reasonable attorneys' fees and disbursements) (collectively, "Claims")
resulting from failure to surrender possession upon the Expiration Date or
sooner termination of the Term, including any Claims made by any succeeding
tenant, and such obligations shall survive the expiration or sooner
termination of this Lease.
25. RIGHT TO RELOCATE. DELIBERATELY OMITTED.
26. BROKER'S COMMISSIONS. Tenant represents and warrants that it has
not dealt with any real estate broker, finder or other person, with respect to
this Lease in any manner, except Trammell Crow Realty Services, Inc. whose
address is 2203 N. Lois Avenue, Suite 814, Tampa, FL 33607. Landlord shall
pay only any commissions or fees that are payable to the above-named broker or
finder with respect to this Lease pursuant to Landlord's separate agreement with
such broker or finder. Tenant shall indemnify and hold Landlord harmless from
any and all damages resulting from claims that may be asserted against Landlord
by any other broker, finder or other person (including, without limitation, any
substitute or replacement broker claiming to have been engaged by Tenant in the
future), claiming to have dealt with Tenant in connection with this Lease or any
amendment or extension hereto, or which may result in Tenant leasing other or
enlarged space from Landlord. The provisions of this paragraph shall survive the
termination of this Lease.
27. ENVIRONMENTAL COMPLIANCE.
(a) TENANT'S RESPONSIBILITY. Tenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of any biologically
active or other hazardous substances, or materials. Tenant shall not allow the
storage or use of such substances or materials in any manner not sanctioned by
law or in compliance with the highest standards prevailing in the industry for
the storage and use of such substances or materials, nor allow to be brought
into the Building any such materials or substances except to use in the ordinary
course of Tenant's business, and then only after written notice is given to
Landlord of the identity of such substances or materials. Tenant covenants and
agrees that the Premises will at all times during its use or occupancy thereof
be kept and maintained so as to comply with all now existing or hereafter
enacted or issued statutes, laws, rules, ordinances, orders, permits and
regulations of all state, federal, local and other governmental and regulatory
authorities, agencies and bodies applicable to the Premises, pertaining to
environmental matters or regulating, prohibiting or otherwise having to do with
asbestos and all other toxic, radioactive, or hazardous wastes or material
including, but not limited to, the Federal Clean Air Act, the Federal Water
Pollution Control Act, and the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as from time to time amended (all
hereafter collectively called "Laws"). Tenant shall execute affidavits,
representations and the like, from time to time, at Landlord's request,
concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Premises.
(b) TENANT'S LIABILITY. Tenant shall hold Landlord free, harmless, and
indemnified from any penalty, fine, claim, demand, liability, cost, or charge
whatsoever which Landlord shall incur, by reason of Tenant's failure to comply
with this SECTION 27 including, but not limited to: (i) the cost of bringing the
Premises into compliance with all Laws and in a non-contaminated state, the same
condition as prior to occupancy; (ii) the reasonable cost of all appropriate
tests and examinations of the Premises to confirm that the Premises have been
brought into compliance with all Laws; and (iii) the reasonable fees and
expenses of Landlord's attorneys, engineers, and consultants incurred by
Landlord in enforcing and confirming compliance with this SECTION 27.
(c) PROPERTY. For the purposes of this SECTION 27, the Premises shall
include the real estate covered by this Lease; all improvements thereon; all
personal property used in connection with the Premises (including that owned by
Tenant); and the soil, ground water, and surface water of the Premises, if the
Premises includes any ground area.
(d) INSPECTIONS BY LANDLORD. Landlord and its engineers, technicians,
and consultants (collectively the "Auditors") may, from time to time as Landlord
deems appropriate, conduct periodic tests and examinations ("Audits") of the
Premises to confirm and monitor Tenant's compliance with this SECTION 27. Such
Audits shall be conducted in such a manner as to
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minimize the interference with Tenant's Permitted Use; however in all cases,
the Audits shall be of such nature and scope as shall be reasonably required
by then existing technology to confirm Tenant's compliance with this SECTION
27. Tenant shall fully cooperate with Landlord and its Auditors in the
conduct of such Audits. The cost of such Audits shall be paid by Landlord
unless an Audit shall disclose a material failure of Tenant to comply with
this SECTION 27, in which case, the cost of such Audit shall be paid for on
demand by Tenant.
(e) LANDLORD'S LIABILITY. Provided, however, the foregoing covenants
and undertakings of Tenant contained in this SECTION 27 shall not apply to any
condition or matter constituting a violation of any Law: (i) which existed prior
to the commencement of Tenant's use or occupancy of the Premises; (ii) which was
not caused, in whole or in part, by Tenant or Tenant's agents, employees,
officers, partners, contractors or invitees; or (iii) to the extent such
violation is caused by, or results from the acts or neglects of Landlord or
Landlord's agents, employees, officers, partners, contractors, guests, or
invitees.
(f) TENANT'S LIABILITY AFTER TERMINATION OF LEASE. The covenants
contained in this SECTION 27 shall survive the expiration or termination of this
Lease, and shall continue for so long as Landlord and its successors and assigns
may be subject to any expense, liability, charge, penalty, or obligation against
which Tenant has agreed to indemnify Landlord under this SECTION 27.
(g) To the best of Landlord's actual knowledge, the Premises are
currently in compliance with laws.
28. ATTORNEYS' FEES. In the event of any action or proceeding brought
by either party under this Lease, the prevailing party shall be entitled to
recover court costs and the fees and disbursements of its attorneys in such
action or proceeding (whether at the administrative, trial or appellate levels)
from the non-prevailing party in such amount as the court or administrative body
may judge reasonable. Landlord shall also be entitled to recover reasonable
attorneys' fees and disbursements incurred in connection with a Tenant default
hereunder which does not result in the commencement of any action or proceeding.
29. JURY TRIAL WAIVER. Landlord and Tenant each hereby irrevocably,
knowingly and voluntarily waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties against the other or their
successors in respect to any matter arising out of or in connection with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, and/or any claim for injury or damage, or any emergency or statutory
remedy.
30. MISCELLANEOUS. Headings of sections are for convenience only and
shall not be considered in construing the meaning of the contents of such
section. The invalidity of any portion of this Lease shall not have any effect
on the balance hereof. This Lease shall be binding upon the respective parties
hereto, and upon their heirs, executors, successors and assigns. This Lease
supersedes and cancels all prior negotiations between the parties, and no
changes shall be effective unless in writing signed by both parties. Tenant
acknowledges and agrees that it has not relied upon any statements,
representations, agreements or warranties except those expressed in this Lease,
and that this Lease contains the entire agreement of the parties hereto with
respect to the subject matter hereof. Landlord may sell the Premises or the
Building without affecting the obligations of Tenant hereunder; upon the sale of
the Premises or the Building, Landlord shall be relieved of all responsibility
for the Premises and shall be released from any liability thereafter accruing
under this Lease. If any Security Deposit or prepaid Rent has been paid by
Tenant, Landlord may transfer the Security Deposit or prepaid Rent to Landlord's
successor and upon such transfer, Landlord shall be released from any liability
for return of the Security Deposit or prepaid Rent. This Lease may not be
recorded without Landlord's prior written consent, but Tenant agrees on request
of Landlord to execute a memorandum hereof for recording purposes. The singular
shall include the plural, and the masculine, feminine or neuter includes the
other. If Landlord, or its employees, officers, directors, stockholders or
partners are ordered to pay Tenant a money judgment because of Landlord's
default under this Lease, said money judgment may only be enforced against and
satisfied out of: (i) Landlord's interest in the Building in which the Premises
are located including the rental income and proceeds from sale; and (ii) any
insurance or condemnation proceeds received because of damage or condemnation
to, or of, said Building that are available for use by Landlord. No other assets
of Landlord or said other parties exculpated by the preceding sentence shall be
liable for, or subject to, any such money judgment. This Lease shall be
interpreted and enforced in accordance with the laws of the State of Florida. If
requested by
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Landlord, Tenant shall furnish appropriate legal documentation evidencing the
valid existence in good standing of Tenant, and the authority of any person
signing this Lease to act for Tenant. If Tenant signs as a corporation, each
of the persons executing this Lease on behalf of Tenant does hereby covenant
and warrant that Tenant is a duly authorized and existing corporation, that
Tenant has and is qualified to do business in the State of Florida, that the
corporation has a full right and authority to enter into this Lease and that
each of the persons signing on behalf of the corporation is authorized to do
so. The submission of this Lease to Tenant for review does not constitute a
reservation of or option for the Premises, and this Lease shall become
effective as a contract only upon the execution and delivery by both Landlord
and Tenant. The date of execution shall be entered on the top of the first
page of this Lease by Landlord, and shall be the date on which the last party
signed the Lease, or as otherwise may be specifically agreed by both parties.
Such date, once inserted, shall be established as the final day of
ratification by all parties to this Lease, and shall be the date for use
throughout this Lease as the "Effective Date".
31. SPECIAL CONDITIONS OR ADDENDA. The following special conditions, if
any, shall apply, and where in conflict with earlier provisions in this Lease
shall control. If any addenda are noted below, such addenda are incorporated
herein and made a part of this Lease.
A. EXPANSION OPTION. Provided Tenant is not in default as of the date of
exercise of the option nor at the date of the commencement of the option, and
Tenant has not done anything nor failed to do anything that, with the passage of
time and/or the giving of notice, would constitute a default hereunder, Tenant
shall have the option to expand the Premises on available and unencumbered space
as depicted on Exhibit A of a minimum of 45,000 rentable square feet,
("Additional Space") during the period of time November 15, 1998 through May 31,
1999. Tenant must provide Landlord at least forty-five (45) days prior notice of
its intent to exercise the option. The rental rate for such expansion space
shall be $14.50 per rentable square foot with $.50 annual rental escalations.
Landlord shall provide a tenant improvement allowance of $17.35 per rentable
square foot; Landlord shall not charge Tenant a Landlord construction management
fee. In addition, as part of the Base Building Landlord contribution, Landlord
shall, at Landlord's cost, provide necessary building standard heating and
ventilation air conditioning roof top units and electrical panel to the Premises
with capacity consistent with the initial Premises. The term of any such
expansion shall not be less than sixty (60) months. If, however, Tenant elects
to exercise its Expansion Option no later than February 1, 1999 with occupancy
no later than March 1, 1999, then in that event, Landlord shall provide said
Expansion Space (approximately 45,000 sf) at a rate of $14.10 per rentable
square foot with $.50 annual rental escalation for a term of such expansion
equal to sixty (60) months. Included in the Rental Rate is the $4.00 Expense
Stop.
B. RIGHT OF FIRST REFUSAL. Provided Tenant is not in default as of the date of
exercise of its right of first refusal, and Tenant has not done anything nor
failed to do anything that, with the passage of time and/or the giving of
notice, would constitute a default hereunder, Tenant shall have a right of first
refusal on the approximate 45,000 rentable square feet of Additional Space in
the Building as depicted on Exhibit A, after Tenant's expiration of its
Expansion Option (5/31/99) and shall expire on August 31, 2000. Landlord shall
provide Tenant with Right of First Refusal on the 45,000 rsf Additional Space
and such right shall begin after the expiration of the Expansion Option (May 31,
1999) and expire August 31, 2000. Provided Landlord receives a bona fide offer
from a third party on the Additional Space, Landlord will provide Tenant with
such notice of offer, and Tenant shall have ten (10) days to agree to lease
space offered at same rental rate then being paid by Tenant with prorated Tenant
Improvements (straight line pro-ration), notwithstanding the above, the lease
term for expansion space shall be coterminous with the original term. Any
additional Tenant Improvements above the prorated Tenant Improvements (not to
exceed a total Tenant Improvements of $20.35 psf) will be amortized into the
Base Rent at 11% interest over the Lease Term for the Expansion Space.
32. PARKING. Tenant shall be entitled, free of charge, 6 parking spaces per
1,000 rentable square feet leased within the building project for the initial
Premises and Additional Space.
33. ACCESS TO COMMON AREA RESTROOMS. Tenant shall have access 24-hours per
day, seven days per week, to the common area restrooms for Tenant's
employees use.
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34. AMENITIES. It is Landlord's intent to provide a public eating facility
within the building Project. The building shall have a common conference
room available for Tenant's occupying the building. Landlord shall
provide Building courtesy office no less than twelve hours per day, seven
days per week.
35. JANITORIAL SPECIFICATIONS. Janitorial specifications are attached hereto
as Exhibit D.
36. SIGNAGE. Tenant shall have right to install exterior signage and such
exterior signage shall consist of a monument sign and location, size,
material and color shall be mutually agreed by Landlord and Tenant. In
the event Tenant expands into the entire Additional Space, Tenant, at
Tenant's election, shall have the right, at Tenant's cost, to remove
existing monument sign and install exterior surface sign attached to the
building at entrance to Tenant's suite. Landlord shall provide Directory
Sign at main entrance to the Building and Landlord shall install Tenant's
name at Landlord's sole expense.
37. RENEWAL.
37.01 Grant. Landlord grants to Tenant the two options to renew this Lease
upon the terms and conditions set out in this Article 37 if:
(a) Tenant delivers to Landlord, not later than twelve (12) months prior to
the end of the original Term or extended Term, written notice
exercising its option to renew this Lease,
(b) Tenant is not in default hereunder past applicable cure periods at the
time it exercises its option or at the commencement of the renewal
term,
(c) Tenant is in possession of all of the Premises and has not sublet all
or at least fifty percent (50%) of the Premises or assigned the Lease
other than to an affiliate; and
37.02 Terms. During the renewal term:
(a) Base Rent shall be ninety percent (90%) of the Market Rent as defined
in Article 38 but in no event less than the Base Rent payable in regard
to the highest amount payable during the original Term or extended
term;
(b) The term of the renewal Lease shall be five (5) years, commencing upon
the expiration of the original Term or extended Term with no further
right of renewal; and
37.03 Documentation.
Landlord and Tenant shall execute and deliver appropriate documentation to
evidence renewal and the terms and conditions of the renewal Lease. Within
fifteen (15) days of determination of market rent, Tenant shall have the right
to rescind its exercise of the renewal option provided Tenant notifies Landlord
in writing of its election to rescind.
38. MARKET RENT.
38.01 Definition. "Market Rent" means for the purposes of Article 37, the
annual amount per square foot, including adjustments thereto, if any,
that a willing renewing Tenant would pay and a willing Landlord would
accept in arm's length bona fide negotiations for a lease of Premises
having a similar configuration and otherwise similar to the Premises in
office buildings in the I-75 Corridor Office Market on the same terms
and conditions for the specified period of time. No allowance shall be
made for the value of existing improvements and finishes provided by
Tenant.
38.02 Notice of Market Rent. At least two hundred ten (210) days prior to the
date on which the term of the renewal Lease or lease of Offer Space is
to begin, as the case may be, Landlord shall give Tenant written notice
(the "Market Rent Notice") of its determination of Market Rent and the
amount of Base Rent payable during the term of the renewal Lease.
38.03 Final Determination of Market Rent.
(a) Whether or not Tenant agrees with Landlord's determination of Market
Rent, Tenant shall nevertheless pay to Landlord the amount set out in
the Market Rent notice from and after the date on which the term
referred to in the Market Rent Notice begins and until the Market Rent
has been finally determined. If Tenant does not so agree, Tenant
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shall give written notice (the "Dispute Notice") to Landlord to that
effect within ten (10) days of its receipt of the Market Rent Notice.
In the absence of a Dispute Notice, Tenant shall be deemed to have
accepted Landlord's determination of Market Rent.
(b) If Tenant has given Dispute Notice and Landlord and Tenant have not
agreed in writing as to Market Rent within ten (10) days after the
Dispute Notice is given, Market Rent shall be determined as follows:
I) Within fifteen (15) days of the date on which Tenant has given
its Dispute Notice, Landlord and Tenant shall each appoint an
independent and qualified person ("Consultant") who shall be a
reputable Real Estate Appraiser with at least seven (7) years
Real Estate Appraising experience to determine the Market Rent
and by notice advise the other of the identity of its
Consultant;
II) If either Landlord or Tenant, having given notice of its
Consultant, considers the Consultant of the other to be either
not independent or not qualified, it may by notice to the other
given within seven (7) days of the date on which the notice of
the appointment is given, protest such appointment with reasons;
III) If within ten (10) days of the date on which the notice of
protest is given, the parties cannot agree as to an alternate
Consultant, the party whose Consultant is the subject of the
protest shall within the next 10-day period either give notice
to the other of a new Consultant or bring an action for a
judicial determination as to whether it original Consultant was
either independent or qualified or both, according to the
particulars of the protest;
IV) If such party elects to make a new appointment, the right of
the other party to protest as aforesaid shall apply with respect
to the new Consultant; if it is judicially determined that a
Consultant was ineligible shall within ten (10) days of such
determination give notice to the other of a new Consultant
whereupon the preceding provisions of this section shall again
apply;
V) If within the 15-day period set out in the subparagraph (i)
of this subsection either Landlord or Tenant fails to make an
appointment and so to identify its Consultant, the Market
Rent shall be determined by the Consultant of the party which
has made an appointment and so given notice thereof;
VI) Within thirty (30) days of the date on which the identity of
either the single Consultant or the two Consultants has been
ascertained, either the Consultant or Consultants, as the
case may be, shall determine the Market Rent and each party,
or the party making the only appointment, as the case may be,
shall give notice of the determination made by its Consultant
to the other;
VII) If the Consultant of either party fails to do so, or if
either party fails to give notice to the other party of the
determination of Market Rent within the time limit as
aforesaid, the determination of Market Rent made by the
Consultant of the other party shall govern;
VIII) If the determinations of Market Rent by the two Consultants
differs by less than ten percent (10%), then Market Rent shall
be the average of the two determinations;
IX) If the determinations of Market Rent by the two Consultants
differ by ten percent (10%) or more, then the two Consultants
will select a third independent and qualified person who will
choose one or the other of the determinations made as
aforesaid and the rate so chosen will be Market Rent;
X) If the two Consultants cannot agree on the selection of the
third person, then the provisions of the American Arbitration
Association shall apply for the appointment of a single
arbitrator. The sole function of the person so appointed
shall be to choose one or the other of the determinations
made as aforesaid.
(c) If Market Rent as determined pursuant to subsection (b) is greater than
Tenant has paid in accordance with the Market Rent Notice, Tenant shall
immediately pay to Landlord the difference and shall thereafter make
the payments of Base Rent equal to the greater of Market Rent as so
determined and the highest amount of Base Rent payable during the Term.
If the amount of Market Rent is less than that stipulated in the Market
Rent Notice, Landlord shall immediately refund to Tenant any
overpayment made by Tenant.
(d) Each party shall pay the fees of its own arbitrator and if a third
arbitrator is appointed, the parties shall share equally in the cost
of the third.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this lease in four
originals, all as of the day and year first above written.
WITNESSES: HIGHWOODS/FLORIDA HOLDINGS, L.P.
By: Highwoods Properties, Inc., as agent
/s/ Jeff (illegible) By: /s/ Richard A. Nash
- ----------------------------- --------------------------------------
Richard A. Nash
/s/ Linda Peery Its: Regional Vice President
- ----------------------------- "LANDLORD"
As to Landlord
Date: 10/20/98
-----------------------------------
WITNESSES: Spectrum Integrated Services, Inc.
/s/ Robert D. Graham
----------------------------------------
/s/ Debra S. Thompson By: Robert D. Graham
- ----------------------------- --------------------------------------
(Print name)
/s/ Alison E. Amiot Its: Vice President & General Counsel
- ----------------------------- -------------------------------------
As to Tenant "TENANT"
Date: October 20, 1998
------------------------------------
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LEASE ADDENDUM NO. 1 [EXPENSE STOP]
ADDITIONAL RENT - OPERATING EXPENSE PASS THROUGHS. For each Calendar
Year (as hereinafter defined) during the Term, Tenant agrees to pay to Landlord,
as Additional Rent, in a lump sum, Tenant's Proportionate Share of any increase
in Operating Expenses (as hereinafter defined) incurred by Landlord's operation
or maintenance of the Building, above $4.00 per rentable square foot of the
Building (the "Expense Stop"). Tenant's Proportionate Share shall be calculated
by dividing the 44,768 rentable square feet of the Premises by 337,259 net
rentable square feet of the Building, which equals 13.3 %. If during any
Calendar Year the occupancy of rentable area in the Building is less than full,
then Operating Expenses (as hereinafter defined) which will vary with occupancy,
will be adjusted for such Calendar Year as though at least 95% of the rentable
area had been occupied. As used herein, the term "Calendar Year" shall mean each
of the twelve month periods (or any portion thereof) during the Term beginning
on January 1 and ending on the next following December 31. Operating Expenses
for Calendar Year 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Cleaning $ .90 per square foot
Utilities .20 per square foot
Repair/Maint. .46 per square foot
Insurance .07 per square foot
Security .14 per square foot
Landscaping .30 per square foot
G & A .19 per square foot
Real Estate Taxes 1.44 per square foot
Management Fee .30 per square foot
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$4.00 per square foot
</TABLE>
As used herein, the term "Operating Expenses" shall mean direct costs
of operation, repair and maintenance as determined by GAAP and shall include, by
way of illustration but shall not be limited to, ad valorem real and personal
property taxes, hazard and liability insurance premiums, utilities, heat, air
conditioning, janitorial service to include supplies, labor, materials which
shall include Building standard light bulbs, supplies, equipment and tools,
permits, licenses, inspection fees, management fees, and common area expenses;
provided, however, the term "Operating Expenses" shall not include depreciation
on the Building or equipment therein, interest, executive salaries, real estate
brokers' commissions, or other expenses that do not relate to the operation of
the Building. The annual statement of Operating Expenses shall be accounted for
and reported in accordance with generally accepted accounting principles (the
"Annual Statement").
ITEMS EXCLUDED FROM OPERATING EXPENSES:
1. The cost of any work or service performed for any tenant (including
Tenant) at such tenant's cost;
2. The cost of correcting defects in the construction of the Building
or in the Building equipment;
3. The cost of any items for which Landlord is reimbursed by insurance
or otherwise;
4. The cost of (including increased real estate taxes and other
operating expenses related to) any additions to the Building after
the original construction;
5. The cost of any repairs, alterations, additions, changes,
replacements and other items which under generally accepted
accounting principles are properly classified as capital
expenditures or which are made in order to prepare for a new
tenant's occupancy;
6. Interest on debt or amortization payments on any mortgage and rental
under any ground lease or other underlying lease;
7. Any promotional expenses or advertising expenses;
8. Any costs included in Operating Expense representing an amount paid
to a corporation related to Landlord which is in excess of the
amount which would have been paid in the absence of such
relationship;
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9. Charges (including applicable taxes) for electricity, steam and
other utilities for which Landlord is entitled to reimbursement
from any tenant;
10. Any costs of painting or decorating of any tenanted part of the
Building;
11. Lease payments for rented equipment, the cost of which equipment
would constitute a capital expenditure if the equipment were
purchased, provided it does not result in a savings for the
Building Operating Expenses;
12. New items of maintenance not included in the Expense Stop;
13. Penalties for late payment of taxes or any other item included as an
Operating Expense. 14. Legal expenses and renovation costs.
15. Salaries of owner/manager exceeding the level of Property Manager
so long as same is dedicated to the Building.
16. Costs associated with Building amenities.
For the Calendar Year commencing on 1999 and for each Calendar Year
thereafter during the Term, Landlord shall estimate the amount the Operating
Expenses shall increase for such Calendar Year above the Expense Stop. Landlord
shall send a written statement of the amount of Tenant's Proportionate Share of
any estimated increase in Operating Expenses and Tenant shall pay to Landlord,
monthly or annually, Tenant's Proportionate Share of such increase in Operating
Expenses plus any applicable sales or use taxes payable by Tenant hereunder.
Within ninety (90) days after the end of each Calendar Year, Landlord shall send
a copy of the Annual Statement to Tenant. Pursuant to the Annual Statement,
Tenant shall pay to Landlord Additional Rent as owed or Landlord shall adjust
Tenant's Rent payments if Landlord owes Tenant a credit, such payment or
adjustment to be made within thirty (30) days after the Annual Statement is
received by Tenant. After the Expiration Date or any termination of this Lease,
Landlord shall send Tenant the final Annual Statement for the Term, and Tenant
shall pay to Landlord Additional Rent as owed or if Landlord owes Tenant a
credit, then Landlord shall pay Tenant a refund. If this Lease expires or
terminates on a day other than the December 31, then Additional Rent shall be
prorated on a 365-day Calendar Year (or 366 if a leap year).
Tenant shall have the right to audit Building Operating Expenses,
provided Tenant audits such expenses within ninety (90) days from Tenant's
receipt of Annual Statement. If Landlord and Tenant disagree on the accuracy of
Operating Expenses as set forth in the statement and if the amount of Operating
Expenses as contained in the statement are in excess of one hundred four percent
(104%) of the amount of the Operating Expenses for the immediately preceding
Calendar Year, and provided further that Tenant strictly complies with the
provisions of this Addendum No. 1, Tenant shall nevertheless make payment in
accordance with any notice given by Landlord, but the disagreement shall
immediately be referred by Landlord for prompt decision by a certified public
accountant (who is mutually acceptable to Landlord and Tenant), who shall be
deemed to be acting as expert(s) and not arbitrator(s), and a determination
signed by the selected expert(s) shall be final and binding on both Landlord and
Tenant. Any adjustment required to any previous payment made by Tenant or
Landlord by reason of any such decision shall be made within fourteen (14) days
thereof, and the party required to make payment under such adjustment shall bear
all costs of the expert(s) making such decision except where that payment
represents five percent (5%) or less of the Operating Expenses that were the
subject of the disagreement in which case Tenant shall bear all such costs.
Notwithstanding the above, the Controllable Operating Expenses which shall
include landscaping, cleaning, repair and maintenance, security, G & A and
management fee shall not increase more than four percent (4%) annually.
/s/ RDG
/s/ SM
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LEASE ADDENDUM NO. 2 [ALLOWANCE]
WORK LETTER. This Lease Addendum Number 2 (the "Second Addendum") shall set
forth the rights and obligations of Landlord and Tenant with respect to space
planning, engineering, final workshop drawings, and the construction and
installation of any improvements to the Premises to be completed before the
Commencement Date ("Tenant Improvements"). This Second Addendum contemplates
that the performance of this work will proceed in four stages in accordance with
the following schedule: (i) preparation of a space plan; (ii) final design and
engineering and preparation of final plans and working drawings; (iii)
preparation by the Contractor (as hereinafter defined) of an estimate of the
additional cost of the initial Tenant Improvements; (iv) submission and approval
of plans by appropriate governmental authorities and construction and
installation of the Tenant Improvements by the Commencement Date.
In consideration of the mutual covenants hereinafter contained, Landlord
and Tenant do mutually agree to the following:
1. SPACE PLANNING, DESIGN AND WORKING DRAWINGS. On Tenant's behalf, Landlord
shall provide and designate architects and engineers, who, at Tenant's
expense, which expense shall be deducted from the Allowance (as hereinafter
defined) will do the following:
a. Attend a reasonable number of meetings with Tenant and Landlord's agent
to define Tenant's requirements. Landlord shall provide one complete
space plan prepared by Landlord's architect in order to obtain Tenant's
approval. Tenant shall approve such space plan or make comments
thereto, in writing, within five (5) days after receipt of the space
plan.
b. Complete construction drawings for Tenant's partition layout, reflected
ceiling grid, telephone and electrical outlets, keying, and finish
schedule (subject to the limitation expressed in SECTION 2 below).
c. Complete building standard mechanical plans where necessary (for
installation of air conditioning system and ductwork, and heating and
electrical facilities) for the work to be done in the Premises.
d. All plans and working drawings for the construction and completion of
the Premises (the "Plans") shall be subject to Landlord's prior written
approval. Any changes or modifications Tenant desires to make to the
Plans shall also be subject to Landlord's prior approval. Landlord
agrees that it will not unreasonably withhold its approval of the
Plans, or of any changes or modifications thereof; provided,
however, Landlord shall have sole and absolute discretion to approve
or disapprove any improvements that will be visible to the exterior
of the Premises, or which may affect the structural integrity of the
Building. Any approval of the Plans by Landlord shall not
constitute approval of any Delays caused by Tenant and shall not be
deemed a waiver of any rights or remedies that may arise as a result
of such Delays. Landlord may condition its approval of the Plans if:
(i) the Plans require design elements or materials that would cause
Landlord to deliver the Premises to Tenant after the scheduled
Commencement Date, or (ii) the estimated cost for any improvements
under the Plan is more than the Allowance.
e. Landlord, at Landlord's sole cost, shall provide Tenant Heating,
Ventilation, and Air Conditioning (HVAC) and electric panels for
Tenant's adequate use for contemplated use and density as conveyed on
the attached plans and specifications. Notwithstanding the above,
Tenant shall be responsible for HVAC and electric distribution from the
rooftop units and from the Landlord supplied electric panels, and
Tenant shall be directly responsible for Tenant's electric consumption
and purchase and installation of computer room HVAC units.
2. ALLOWANCE. Landlord agrees, at its sole cost and expense to provide an
allowance of up to $17.41 per rentable square foot, to design, engineer,
install, supply and otherwise to construct the Tenant Improvements in the
Premises that will become a part of the Building (the "Allowance");
otherwise, Tenant is fully responsible for the payment of all costs in
connection with the Tenant Improvements.
3. SIGNAGE AND KEYING. Door and/or directory signage and suite keying in
accordance with building standards shall be provided and installed by
Landlord and deducted from the Allowance.
4. WORK AND MATERIALS AT TENANT'S EXPENSE
a. Prior to commencing and providing any such work or materials to the
Premises, Landlord shall select a licensed general contractor or
contractors (the "Contractor") to construct and install the
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Tenant Improvements and Landlord shall submit to Tenant written
estimates of the cost of such work and materials and Tenant shall
approve said estimates in writing within five (5) business days
after the receipt thereof. Landlord shall not be authorized to
proceed thereon until such estimate is mutually agreed upon and
approved in writing and delivered to Landlord.
b. Tenant agrees to pay to Landlord, promptly upon being billed
therefor, all costs and expenses in excess of the Allowance incurred
in connection with the Tenant Improvements. Such costs and expenses
shall include all amounts charged by the Contractor for performing
such work and providing such materials (including the Contractor's
general conditions, overhead and profit). Tenant will be billed for
such costs and expenses as follows: (i) fifty percent (50%) of such
costs and expenses shall be due and payable upon Tenant's approval
of the cost estimates for the Tenant Improvements; (ii) thirty
percent (30%) of such costs and expenses shall be due and payable
when such work is substantially completed as defined in Section 6
below; (iii) twenty percent (20%) of such costs and expenses shall
be due and payable upon final completion of such work. If unpaid
within ten (10) days after receipt of invoice, then the outstanding
balance shall accrue at the rate of one percent (1%) per month until
paid in full.
Notwithstanding the above, in the event Tenant elects to amortize
additional tenant improvement provided by Landlord, not to exceed $3.00
per square foot above the Allowance, Tenant shall be entitled, provided
such additional cost is amortized at 11% over the term of the Lease and
added to the Base Rent.
c. Any Contractor provided by Landlord to construct the Tenant
Improvements shall obtain, prior to the commencement of construction of
the Tenant Improvements, a payment bond in compliance with Section
713.23, Florida Statutes.
5. TENANT PLAN DELIVERY DATE
a. Tenant covenants and agrees that although certain plans and drawings
may be prepared by Landlord's architect or engineer, Tenant shall be
solely responsible for the timely completion of the Plans and it is
hereby understood time is of the essence.
b. Tenant covenants and agrees to deliver to Landlord the final Plans for
the Tenant Improvements on or before September 25, 1998 (the "Tenant
Plan Delivery Date"). It is vital that the final Plans be delivered to
Landlord by the Tenant Plan Delivery Date in order to allow Landlord
sufficient time to review such Plans, to discuss with Tenant any
changes therein which Landlord believes to be necessary or desirable,
to enable the Contractor to prepare an estimate of the cost of the
initial Tenant Improvements, and to substantially complete the Premises
within the time frame provided in the Lease.
6. SUBSTANTIAL COMPLETION
a. The Premises shall be deemed to be substantially complete when the work
to be performed by Landlord pursuant to the Plans approved by Landlord
and Tenant has been completed and approved by the appropriate
governmental authorities, as certified by Landlord and architect, and a
Certificate of Occupancy has been issued, except for items of work and
adjustment of equipment and fixtures that can be completed after the
Premises are occupied without causing material interference with
Tenant's use of the Premises (i.e., "punch list items").
b. Notwithstanding the foregoing, if Landlord shall be delayed in
substantially completing the Premises as a result of:
(i) Tenant's failure to furnish to Landlord the final Plans on
or before the Tenant Plan Delivery Date; or
(ii) Tenant's failure to furnish the Plans and/or Tenant's failure
to approve Landlord's cost estimates within the time specified
in SECTION 4 herein and/or Tenant's failure to approve the
space plan within the time specified in SECTION 1 herein; or
(iii) Tenant's changes in the Tenant Improvements or the Plans
(notwithstanding Landlord's approval of any such changes); or
(iv) Tenant's request for changes in or modifications to the Plans
subsequent to the Tenant Plan Delivery Date; or
(v) Inability to obtain non-building standard materials, finishes
or installations requested by
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Tenant; or
(vi) The performance of any work by any person, firm or corporation
employed or retained by Tenant; or
(vii) Any other act or omission by Tenant or its agents,
representatives, and/or employees; then, in any such event,
for purposes of determining the Commencement Date, the
Premises shall be deemed to have been substantially completed
on the date that Landlord and architect determine that the
Premises would have been substantially completed if such Delay
or Delays had not occurred.
7. MATERIALS AND WORKMANSHIP. Landlord covenants and agrees that all work
performed in connection with the construction of the Premises shall be
performed in a good and workmanlike manner and in accordance with all
applicable laws and regulations and with the final approved Plans. Landlord
agrees to exercise due diligence in completing the construction of the
Premises.
8. REPAIRS AND CORRECTIONS. Landlord agrees to repair and correct any work or
materials installed by Landlord or its Contractor in the Premises that
prove defective as a result of faulty materials, equipment, or workmanship
and that first appear within ninety (90) days after the date of occupancy
of the Premises. Notwithstanding the foregoing, Landlord shall not be
responsible to repair or correct any defective work or materials installed
by Tenant or any contractor other than Landlord's Contractor, or any work
or materials that prove defective as a result of any act or omission of
Tenant or any of its employees, agents, invitees, licensees, subtenants,
customers, clients, or guests.
9. POSSESSION BY TENANT. The taking of possession of the Premises by Tenant
shall constitute an acknowledgment by Tenant that the Premises are in good
condition and that all work and materials provided by Landlord are
satisfactory as of such date of occupancy, except as to any defects or
incomplete work that are described in a written notice given by Tenant to
Landlord no later than thirty (30) days after Tenant commences occupancy of
the Premises, and except for any equipment that is used seasonally if
Tenant takes possession of the Premises during a season when such equipment
is not in use and except for latent defects.
10. ACCESS DURING CONSTRUCTION. During construction of the Tenant Improvements
in the Premises with the approval of Landlord, Tenant shall be permitted
reasonable access to the Premises, as long as such access does not
interfere with or delay construction work on the Premises for the purposes
of taking measurements, making plans, installing trade fixtures, and doing
such other work as may be appropriate or desirable to enable Tenant
eventually to assume possession of and operate in the Premises.
11. RESTORATION OF PREMISES. In the event Tenant does not expand into the
Additional Space, then Landlord shall have the right, at Landlord's option
and sole expense, to reconstruct the demised wall to accommodate a Landlord
provided common area corridor located on the South side of the Premises
(the "Proposed Corridor"). The anticipated Proposed Corridor is depicted on
Exhibit C. Notwithstanding the above, Tenant shall, at Tenant's cost and
thirty (30) days upon Landlord's request, pay for the reconstruction of the
removal of glass panels on the East side of Tenant's reception area, as
depicted on Exhibit C.
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LEASE ADDENDUM NO. 3
TENANT PARKING AGREEMENT
THIS AGREEMENT made as of the 15th day of October, 1998, between
---- --------
HIGHWOODS/FLORIDA HOLDINGS, L.P., By: Highwoods Properties, Inc., as agent,
("Landlord") and Spectrum Integrated Services, Inc. ("Tenant").
1. The parties hereby acknowledge that they have heretofore entered,
or are contemporaneously herewith entering, a certain lease dated October 15,
1998 (the "Lease") for premises known as Suite(s) 200 (the "Premises")
located in the property known as Interstate Corporate Center (the "Property").
In the event of any conflict between the Lease and this Agreement, the latter
shall control.
2. Landlord hereby grants to Tenant and persons designated by Tenant
a license to use 264 surface uncovered parking spaces on the property
(referred to herein as the "Garage") at no cost to Tenant. The Term of such
license shall commence on the Commencement Date under the Lease and shall
continue until the earlier to occur of the Expiration Date under the Lease,
or termination of the Lease or Tenant's abandonment of the Premises
thereunder.
3. Tenant shall at all times comply with all applicable ordinances,
rules, regulations, codes, laws, statutes and requirements of all federal,
state, county and municipal governmental bodies or their subdivisions
respecting the use of the Garage. Landlord reserves the right to adopt,
modify and enforce reasonable Rules governing the use of the Garage from time
to time, including any key-card, sticker or other identification or entrance
system, and hours of operation. The Rules set forth hereinafter are currently
in effect. Landlord may refuse to permit any person who violates such Rules
to park in the Garage, and any violation of the Rules shall subject the car
to removal from the Garage.
4. The parking spaces hereunder shall be provided on an unreserved
"first-come, first-served" basis. In such event, Tenant acknowledges that
Landlord shall have no liability for claims arising through acts or omissions
of such independent contractor, if such contractor is reputable. Except for
intentional acts or gross negligence, Landlord shall have no liability
whatsoever for any damage to property or any other items located in the
Garage, nor for any personal injuries or death arising out of any matter
relating to the Garage, and in all events, Tenant agrees to look first to its
insurance carrier and to require that Tenant's employees look first to their
respective insurance carriers for payment of any losses sustained in
connection with any use of the Garage. Tenant hereby waives on behalf of its
insurance carriers all rights or subrogation against Landlord or Landlord's
agents. Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, handicapped persons and for other tenants,
guests of tenants or other parties, and Tenant and persons designated by
Tenant hereunder shall not park in any such assigned or reserved spaces.
Landlord also reserves the right to close all or any portion of the Garage in
order to make repairs or perform maintenance services, or to alter, modify,
re-stripe or renovate the Garage, or if required by casualty, strike,
condemnation, act of God, governmental law or requirement or other reason
beyond Landlord's reasonable control. In such event, Landlord shall refund
any prepaid parking rent hereunder, prorated on a per diem basis. If, for any
other reason, Tenant or persons properly designated by Tenant, shall be
denied access to the Garage, and Tenant or such persons shall have complied
with this Agreement and this Agreement shall be in effect, Landlord's
liability shall be limited to such parking charges (excluding tickets for
parking violations) incurred by Tenant or such persons in utilizing
alternative parking, which amount Landlord shall pay upon presentation of
documentation supporting Tenant's claims in connection therewith.
5. If Tenant shall default under this Agreement, Landlord shall have
the right to remove from the Garage any vehicles hereunder which shall have
been involved or shall have been owned or driven by parties involved in
causing such default, without liability therefor whatsoever.
RULES
(i) Parking shall be available 24-hours per day, seven (7) days
per week.
(ii) Cars must be parked entirely within the stall lines painted
on the floor, and only small cars may be parked in areas
reserved for small cars.
(iii) All directional signs and arrows must be observed.
(iv) The speed limit shall be ten (10) miles per hour.
(v) Spaces reserved for handicapped parking must be used only by
vehicles properly designated.
(vi) Parking is prohibited in all areas not expressly designated
for parking, including without limitation.
(a) areas not striped for parking
(b) aisles
(c) where "no parking" signs are posted
(d) ramps
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(e) loading zones
(vii) Parking stickers, key cards or any other devices or forms of
identification or entry supplied by Landlord shall remain the property of
Landlord. Such devices must be displayed as requested and may not be
mutilated in any manner. The serial number of the parking identification
device may not be obliterated. Devises are not transferable and any device in
the possession of an unauthorized holder will be void.
(viii) Garage managers or attendants are not authorized to make or
allow any exceptions to these Rules.
(ix) Every parker is required to park and lock his own car.
(x) Washing, waxing, cleaning or servicing of any vehicle by the
customer and/or his agents is prohibited. Parking spaces may be used only for
parking automobiles.
(xi) By signing this Parking Agreement, Tenant agrees to acquaint
all persons to whom Tenant assigns parking space of these Rules.
WITNESSES: Spectrum Integrated Services, Inc.
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/s/ Debra S. Thompson By: /s/ Robert D. Graham
- ------------------------ -------------------------------
/s/ Alison E. Amiot Title: Vice President & General Counsel
- ------------------------ ---------------------------------
As to Tenant Spectrum Integrated Services Inc.
WITNESSES: Highwoods/Florida Holdings, L.P.
By: Highwoods Properties, Inc., as agent
/s/ Jeff (illegible) By: /s/ Richard A. Nash
- ------------------------ -----------------------------------
/s/ Linda Peery Richard A. Nash
- ------------------------ As: Regional Vice President
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EXHIBIT A
[FLOOR PLAN]
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EXHIBIT B
RULES AND REGULATIONS
1. ACCESS TO BUILDING. On Saturdays, Sundays, legal holidays and weekdays
between the hours of 6:00 P.M. and 7:00 A.M., access to the Building
and/or to the halls, corridors, elevators or stairways in the Building
may be restricted and access shall be gained by use of a key or
electronic card to the outside doors of the Buildings. Landlord may from
time to time establish security controls for the purpose of regulating
access to the Building. Tenant shall be responsible for providing access
to the Premises for its agents, employees, invitees and guests at times
access is restricted, and shall comply with all such security
regulations so established. Landlord shall provide Tenant with six (6)
building access cards per 1,000 rentable square feet free; additional
cards may be purchased at the Highwoods Management Office at a charge of
$25.00 per card.
2. PROTECTING PREMISES. The last member of Tenant to leave the Premises shall
close and securely lock all doors or other means of entry to the Premises
and shut off all utilities in the Premises.
3. BUILDING DIRECTORIES. The directories for the Building in the form
selected by Landlord shall be used exclusively for the display of the
name and location of tenants. Any additional names and/or name
change requested by Tenant to be displayed in the directories must be
approved by Landlord and, if approved, will be provided at the sole
expense of Tenant.
4. LARGE ARTICLES. Furniture, freight and other large or heavy articles
may be brought into the Building only at times and in the manner
designated by Landlord and always at Tenant's sole responsibility. All
damage done to the Building, its furnishings, fixtures or equipment by
moving or maintaining such furniture, freight or articles shall be
repaired at Tenant's expense.
5. SIGNS. Tenant shall not paint, display, inscribe, maintain or affix any
sign, placard, picture, advertisement, name, notice, lettering or
direction on any part of the outside or inside of the Building, or on
any part of the inside of the Premises which can be seen from the
outside of the Premises, without the written consent of Landlord, and
then only such name or names or matter and in such color, size, style,
character and material as shall be first approved by Landlord in
writing. Landlord, without notice to Tenant, reserves the right to
remove, at Tenant's expense, all matter other than that provided for
above.
6. COMPLIANCE WITH LAWS. Tenant shall comply with all applicable laws,
ordinances, governmental orders or regulations and applicable orders or
directions from any public office or body having jurisdiction, whether
now existing or hereinafter enacted with respect to the Premises and the
use or occupancy thereof. Tenant shall not make or permit any use of the
Premises which directly or indirectly is forbidden by law, ordinance,
governmental regulations or order or direction of applicable public
authority, which may be dangerous to persons or property or which may
constitute a nuisance to other tenants.
7. HAZARDOUS MATERIALS. Tenant shall not use or permit to be brought into
the Premises or the Building any flammable oils or fluids, or any
explosive or other articles deemed hazardous to persons or property, or
do or permit to be done any act or thing which will invalidate, or
which, if brought in, would be in conflict with any insurance policy
covering the Building or its operation, or the Premises, or any part of
either, and will not do or permit to be done anything in or upon the
Premises, or bring or keep anything therein, which shall not comply with
all rules, orders, regulations or requirements of any organization,
bureau, department or body having jurisdiction with respect thereto (and
Tenant shall at all times comply with all such rules, orders,
regulations or requirements), or which shall increase the rate of
insurance on the Building, its appurtenances, contents or operation.
8. DEFACING PREMISES AND OVERLOADING. Tenant shall not place anything or
allow anything to be placed in the Premises near the glass of any door,
partition, wall or window that may be unsightly from outside the
Premises. Tenant shall not place or permit to be placed any article of
any kind on any window ledge or on the exterior walls; blinds, shades,
awnings or other forms of inside or outside window ventilators or
similar devices shall not be placed in or about the outside windows in
the Premises except to the extent that the character, shape, color,
material and make thereof is approved by Landlord. Tenant shall not do
any painting or decorating in the Premises or install any floor
coverings in the Premises or make, paint, cut or drill into, or in any
way deface any part of the Premises or Building without in each instance
obtaining the prior written consent of Landlord. Tenant shall not
overload any floor or part thereof in the Premises, or any facility in
the Building or any public corridors or elevators therein by bringing in
or removing any large or heavy articles and Landlord may direct and
control the location of
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safes, files, and all other heavy articles and, if considered necessary
by Landlord may require Tenant at its expense to supply whatever
supplementary supports necessary to properly distribute the weight.
9. OBSTRUCTION OF PUBLIC AREAS. Tenant shall not, whether temporarily,
accidentally or otherwise, allow anything to remain in, place or store
anything in, or obstruct in any way, any sidewalk, court, hall,
passageway, entrance, or shipping area. Tenant shall lend its full
cooperation to keep such areas free from all obstruction and in a clean
and sightly condition, and move all supplies, furniture and equipment as
soon as received directly to the Premises, and shall move all such items
and waste (other than waste customarily removed by Building employees)
that are at any time being taken from the Premises directly to the areas
designated for disposal. All courts, passageways, entrances, exits,
elevators, escalators, stairways, corridors, halls and roofs are not for
the use of the general public and Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose
presence, in the judgment of Landlord, shall be prejudicial to the
safety, character, reputation and interest of the Building and its
tenants; provided, however, that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant deals
within the normal course of Tenant's business so long as such persons
are not engaged in illegal activities.
10. ADDITIONAL LOCKS. Tenant shall not attach, or permit to be attached,
additional locks or similar devices to any door or window, change
existing locks or the mechanism thereof, or make or permit to be made
any keys for any door other than those provided by Landlord. Upon
termination of this Lease or of Tenant's possession, Tenant shall
immediately surrender all keys to the Premises. Landlord acknowledges
that Tenant shall, at Tenants cost, install and maintain Tenant card
reader to the Premises.
11. COMMUNICATIONS OR UTILITY CONNECTIONS. Other than provided for in
initial construction, if Tenant desires signal, alarm or other utility
or similar service connections installed or changed, then Tenant shall
not install or change the same without the approval of Landlord, and
then only under direction of Landlord and at Tenant's expense. Tenant
shall not install in the Premises any equipment which requires a greater
than normal amount of electrical current for the permitted use without
the advance written consent of Landlord. Tenant shall ascertain from
Landlord the maximum amount of load or demand for or use of electrical
current which can safely be permitted in the Premises, taking into
account the capacity of the electric wiring in the Building and the
Premises and the needs of other tenants in the Building, and shall not
in any event connect a greater load than that which is safe.
12. OFFICE OF THE BUILDING. Service requirements of Tenant will be attended to
only upon application at the office of Highwoods Properties, Inc. Employees
of Landlord shall not perform, and Tenant shall not engage them to do any
work outside of their duties unless specifically authorized by Landlord.
13. RESTROOMS. The restrooms, toilets, urinals, vanities and the other
apparatus shall not be used for any purpose other than that for which
they were constructed, and no foreign substance of any kind whatsoever
shall be thrown therein. The expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant
whom, or whose employees or invitees, shall have caused it.
14. INTOXICATION. Landlord reserves the right to exclude or expel from the
Building any person who, in the judgment of Landlord, is intoxicated, or
under the influence of liquor or drugs, or who in any way violates any
of the Rules and Regulations of the Building.
15. NUISANCES AND CERTAIN OTHER PROHIBITED USES. Tenant shall not (a)
install or operate any internal combustion engine, boiler, machinery,
refrigerating, heating or air conditioning apparatus in or about the
Premises; (b) engage in any mechanical business, or in any service in or
about the Premises or Building, except those ordinarily embraced within
the Permitted Use as specified in SECTION 3 of the Lease; (c) use the
Premises for housing, lodging, or sleeping purposes; (d) prepare or warm
food in the Premises (other than by microwave) or permit food to be
brought into the Premises for consumption therein (heating coffee and
individual lunches of employees excepted) except by express permission
of Landlord; (e) place any radio or television antennae on the roof or
on or in any part of the inside or outside of the Building other than
the inside of the Premises, or place a musical or sound producing
instrument or device inside or outside the Premises which may be heard
outside the Premises; (f) use any power source for the operation of any
equipment or device other than dry cell batteries or electricity; (g)
operate any electrical device from which may emanate waves that could
interfere with or impair radio or television broadcasting or reception
from or in the Building or elsewhere; (h) bring or permit to be in the
Building any bicycle, other vehicle, dog (except in the company of a
blind person), other animal or bird; (i) make or permit any
objectionable noise or odor to emanate from the Premises;
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<PAGE>
(j) disturb, harass, solicit or canvass any occupant of the Building;
(k) do anything in or about the Premises which could be a nuisance or
tend to injure the reputation of the Building; (i) allow any firearms in
the Building or the Premises except as approved by Landlord in writing.
16. SOLICITATION. Tenant shall not canvass other tenants in the Building to
solicit business or contributions and shall not exhibit, sell or offer
to sell, use, rent or exchange any products or services in or from the
Premises unless ordinarily embraced within the Tenant's Permitted Use as
specified in SECTION 3 of the Lease.
17. ENERGY CONSERVATION. Tenant shall not waste electricity, water, heat or
air conditioning and agrees to cooperate fully with Landlord to insure
the most effective operation of the Building's heating and air
conditioning, and shall not allow the adjustment (except by Landlord's
authorized Building personnel) of any controls.
18. BUILDING SECURITY. At all times other than normal business hours the
exterior Building doors and suite entry door(s) must be kept locked to
assist in security. The janitorial service, upon completion of its
duties, will lock all Building doors. Problems in Building and suite
security should be directed to Landlord at (813) 612-7700. Landlord
shall provide Building courtesy officer twelve (12) hours per day, seven
days per week, such hours are subject to change.
19. PARKING. Parking is in designated parking areas only. There may be no
vehicles in "no parking" zones or at curbs. Handicapped spaces are for
handicapped persons and the Police Department will ticket unauthorized
(unidentified) cars in handicapped spaces. Landlord reserves the right
to remove vehicles that do not comply with the Lease or these Rules and
Regulations.
20. JANITORIAL SERVICE. The janitorial staff will remove all trash from
trashcans. Any container or boxes left in hallways or apparently
discarded unless clearly and conspicuously labeled DO NOT REMOVE may be
removed without liability to Tenant. Any large volume of trash
resulting from delivery of furniture, equipment, etc., should be removed
by the delivery company, Tenant, or Landlord at Tenant's expense.
Janitorial service will be provided after hours five (5) days a week.
All requests for trash removal other than normal janitorial services
should be directed to Landlord at (813) 612-7700. (See Exhibit D)
21. CONSTRUCTION. Tenant shall make no structural alterations of the
Premises. All structural alterations and modifications to the Premises
shall be coordinated through Landlord as outlined in the Lease.
Completed construction drawings of the requested changes are to be
submitted to Landlord or its designated agent for pricing and
construction supervision.
22. PARKING LOT LIGHTING. Landlord shall provide and maintain exterior
parking lot lighting. Currently the exterior parking light candlefoot is 2
and shall remain 2 foot candles through the Term.
23. GENERATOR. Tenant shall have the right at Tenant's cost to install a
generator on the property as depicted in Exhibit A .
24. SATELLITE DISH. Tenant shall have the right, at no additional cost, to
install a satellite dish, such location shall be mutually agreed upon by
Landlord and Tenant. Any installation, maintenance and removal of shall
be at Tenant's cost.
25. PHONE/DATA/FIBER OPTIC SERVICE. Tenant shall have the right to install,
at Tenant's cost, phone/data/fiber optic service from multiple locations
within the Building.
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EXHIBIT "C"
RESTORATION OF PREMISES
[FLOOR PLAN]
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EXHIBIT "D"
CLEANING SPECIFICATIONS
<TABLE>
<CAPTION>
SUITE:
DAILY:
<S> <C>
- - EMPTY TRASH RECEPTACLES
- - SPOT CLEAN TRASH RECEPTACLES
- - REPLACE SOILED OR TORN TRASH RECEPTACLES LINERS
- - REMOVE LITTER FROM FLOORS
- - REARRANGE FURNITURE, AS REQUIRED
- - CLEAN GLASS ENTRY DOORS
- - REMOVE CARPET STAINS
- - SPOT CLEAN BUILDING SURFACES
- - SPOT CLEAN FURNITURE SURFACES
- - DUST BUILDING SURFACES
- - DUST FURNITURE SURFACES
- - CLEAN AND DISINFECT DRINKING FOUNTAINS
- - CLEAN AND DISINFECT TELEPHONES
- - REMOVE STAINS FROM WALK-OFF MATS
- - COMPLETELY VACUUM WALK-OFF MAT AND ALL CARPETS
WEEKLY:
- - VACUUM UPHOLSTERED FURNITURE, IF ANY
- - CLEAN CORNERS AND EDGES
- - DUST LIGHTING FIXTURES
- - CLEAN BASE COVE
- - POLISH WOOD SURFACE
MONTHLIES:
- - DUST OR VACUUM HVAC VENTS
- - CLEAN KICK PLATES AND CORNER GUARDS
BREAKROOM AND VENDING AREA:
DAILY:
- - EMPTY TRASH RECEPTACLES
- - SPOT CLEAN TRASH RECEPTACLES
- - REPLACE TRASH RECEPTACLES LINERS
- - VACUUM FLOOR MATS
- - REMOVE LITTER FROM FLOORS
- - SPOT CLEAN BUILDING SURFACES
- - SPOT CLEAN FURNITURE SURFACES
- - DUST HORIZONTAL BUILDING SURFACES
- - SWEEP OR DAMP MOP NON-CARPETED FLOORS
- - REMOVE CARPET STAINS
- - COMPLETELY VACUUM CARPET
- - VACUUM UPHOLSTERED SEATING
- - SWEEP OR DUST MOP FLOORS TAKING CARE TO REMOVE ALL FOOD DEBRIS FROM
UNDER COUNTERS AND BETWEEN CABINETS AND REFRIGERATION UNITS
- - CLEAN AND DISINFECT FLOOR DRAINS
- - CLEAN AND DISINFECT PUBLIC TELEPHONES
- - CLEAN TOP AND FRONT OF VENDING MACHINES INCLUDING GRILLS
- - REFILL HAND SOAP DISPENSERS, IF APPLICABLE
WEEKLY:
- - CLEAN AND DISINFECT BUILDING AND FURNITURE SURFACES
MONTHLY:
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- - DUST OR VACUUM HVAC VENTS
- - RE-COAT NON-CARPETED FLOORS, AS REQUIRED
RESTROOMS:
DAILY:
- - EMPTY TRASH RECEPTACLES
- - REPLACE TRASH RECEPTACLES LINERS
- - POLISH FLOORS TO REMOVE LITTER
- - CLEAN AND DISINFECT COUNTERTOPS, BASINS
- - CLEAN MIRRORS
- - REFILL BATHROOM PRODUCT DISPENSERS
- - REFILL FEMININE PRODUCT DISPENSERS
- - REFILL HAND SOAP DISPENSERS; IF NEEDED
- - SANITIZE AND DISINFECT TOILET SEATS AND TOILET BOWLS AND URINALS
WITH A GERMICIDAL CLEANER
- - SWEEP, WET MOP AND SANITIZE FLOORS
- - SPOT CLEAN WALLS AND PARTITIONS
MONTHLY:
- - MACHINE SCRUB HARD SURFACE FLOORS
- - DAMP WIPE WALLS AND PARTITIONS WITH A GERMICIDAL CLEANER
QUARTERLY:
- - CLEAN AND VACUUM HVAC VENTS
- - THOROUGHLY WASH ALL WALLS AND PARTITIONS WITH A GERMICIDAL CLEANER
- - REMOVE ALL STAINLESS STEEL POLISH AND REPOLISH
</TABLE>
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<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "First Amendment") is made and
entered into as of the 16th day of April, 1999 by and between Highwoods /
Florida Holdings L.P. having an office at 9720 Princess Palm Avenue, Suite
140, Tampa, Florida 33619, ("Landlord") and Spectrum Integrated Services,
Inc. ("Tenant").
WITNESSETH
A. Landlord and Tenant entered into a Lease Agreement (the "Original
Lease") for an initial lease term commencing January 1, 1999, with an
expiration date being December 31, 2003 relating to certain premises
(the "Premises") in the building known as Interstate Corporate Center,
having a street address of 6302 E. Martin Luther King, Jr. Boulevard,
Tampa, Florida 33610 (the "Building").
B. Landlord and Tenant desire to amend the Lease to, among other things,
extend the term of the Lease until July 31, 2004, expand the Premises by
an additional 53,750 rentable square feet known as Suite 250
("Additional Space") and revise the base annual rent.
NOW, THEREFORE, in consideration of the following provisions and for
other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. RECITALS. The recitals set forth hereinabove are true and
correct, and such recitals and the Lease are incorporated herein by
this reference.
2. LEASED PREMISES. The term "Leased Premises" or "Premises" is hereby
stated to be that portion of the Building more particularly shown and
outlined on Exhibit "A" to this First Amendment, containing a total
of 98,518 rentable square feet on the first floor of the Interstate
Corporate Center Building, and hereinafter referred to as Suites 200
and 250.
3. TERM. The Lease Term, which expires on December 31, 2003, is changed
and extended to, and is anticipated to expire on, midnight of July
31, 2004. This period shall hereinafter be referred to as the
"Expansion Renewal Term".
This Lease Term (the "Term") is for sixty (60) months, and
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shall commence on August 1, 1999 ("Commencement Date"), and shall
--------------
expire (unless sooner terminated or extended as herein provided) at
noon on July 31, 2004 ("Expiration Date"). Tenant shall have the
-------------
right to take possession of the Premises prior to the Commencement
Date provided the Premises are delivered for occupancy.
If Landlord, for any reason whatsoever, cannot deliver
possession of the Premises to Tenant on the Commencement Date, then
this Lease shall not be void or voidable, no obligation of Tenant
shall be affected thereby, and neither Landlord nor Landlord's agents
shall be liable to Tenant for any loss or damage resulting from the
delay in delivery of possession; provided, however, that in such
event, the Commencement Date and Expiration Date of this Lease, and
all other dates that may be affected by their change, shall be
revised to conform to the date of Landlord's delivery of possession
to Tenant. The above, however, is subject to the provision that the
period permitted for the delay of delivery of possession of the
Premises shall not exceed sixty (60) days after the Commencement Date
set forth in the first sentence of this SECTION 3 (except that those
delays beyond Landlord's control, including, without limitation,
those encompassed in the meaning of the term "force majeure", or
caused by Tenant (the "Delays") shall be excluded in calculating such
period). If Landlord does not deliver possession to Tenant within
such period, then Tenant may terminate this Lease by written notice
to Landlord; provided, that written notice shall be ineffective if
given after Tenant takes possession of any part of the Premises, or
if given more than one hundred (100) days after the original
Commencement Date plus the time of any Delays. Unless expressly
otherwise provided herein, Rent (as hereinafter defined) shall
commence on the earlier of: (i) the Commencement Date; (ii) occupancy
of the Premises by Tenant; (iii) the date Landlord has the Premises
ready for occupancy by Tenant, as such date is adjusted under the
Work Letter, if any, attached hereto; or (iv) the date Landlord could
have had the Premises ready had there been no Delays attributable to
Tenant. Unless the context otherwise so requires, the term "Rent" as
used herein includes both Base Rent and Additional Rent as set forth
in SECTION 4 of the Original Lease and Sections 4 and 6 of this First
Amendment to Lease Agreement.
The Commencement Date, Term and Expiration Date may be set forth in a
commencement Letter (the "Commencement Letter") prepared by Landlord
and executed by Tenant.
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4. RENT. Article 4, entitled "Rent" is hereby revised with the following:
Rent for the Premises for the Additional Space (Suite 250) and the
Lease extension term of Suite 200 has been determined as follows:
<TABLE>
<CAPTION>
Rentable Monthly Annual
Period Suite # Sq. Ft. Base Rent Base Rent
------ ------- --------- ----------- -----------
<S> <C> <C> <C> <C>
08/1/99 - 10/31/99 #250 53,750 $ 54,375.00 $163,125.00
11/1/99 - 07/31/00 #250 53,750 $ 63,125.00 $568,125.00
08/1/00 - 07/31/01 #250 53,750 $ 65,364.58 $784,374.96
08/1/01 - 07/31/02 #250 53,750 $ 67,604.17 $811,250.04
08/1/02 - 07/31/03 #250 53,750 $ 69,843.75 $838,125.00
08/1/03 - 12/31/03 #250 53,750 $ 72,083.33 $360,416.65
01/1/04 - 07/31/04 #200 & #250 98,518 $133,639.33 $935,475.31
</TABLE>
The above amounts do not include Additional Rent as stated in Paragraph
4.2 of the Original Lease and Paragraph 6 of this First Amendment or
applicable Florida State sales and use taxes, which taxes shall be paid
by Tenant with each payment of Base Monthly Rent.
5. TENANT IMPROVEMENTS. Landlord shall provide Tenant with a tenant
improvement allowance of $17.35 per rentable square foot
($932,562.50) as depicted in Exhibit "B" ("Work Letter for Expansion
Space").
6. ADDITIONAL RENT. Addendum No. 1 [Expense Stop] of the Original
Lease shall be revised on the Expansion Commencement Date as
depicted on Exhibit "C".
7. RADON DISCLOSURE. The following is given to comply with Section
404.056(8), Florida Statutes: Radon is a naturally occurring
radioactive gas that, when it has accumulated in a building in
sufficient quantities, may present health risks to persons who are
exposed to it over a time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from
your county public health unit.
8. NO SMOKING. Tenant shall not allow any smoking in the Premises
except in the rooms designed and constructed to accommodate smoking
and to prevent smoke from entering the plenum or any other portion
of the Premises or the Building. Landlord reserves the right to
promulgate additional rules for the Building which may include fines
upon tenants of the building who do not cause their employees and
invitees to comply with rules prohibiting or limiting smoking in the
Premises, the Building and/or areas adjacent to the Building.
9. PARKING. Tenant's allocated parking spaces depicted on Lease
Addendum No. [Tenant Parking Agreement], Paragraph 2, shall be
revised from 264 surface unreserved parking spaces on the property
to a total of 588 surface uncovered parking spaces on the property
at no cost to Tenant.
10. OTHER LEASE PROVISIONS. Except as amended by this First Amendment,
the Lease and all of its terms and provisions shall remain in full
force and effect. In the event of any conflict between the
provisions of this Amendment and provision of the Lease, the
provisions of the First Amendment shall control. All capitalized
terms herein shall have the same meanings as they have in the Lease,
unless otherwise defined herein.
11. NO DEFAULT BY LANDLORD. Tenant hereby acknowledges that to the best
of Tenant's current actual knowledge, without investigation or
inquiry, as of the date of execution of this First Amendment, there
exists no defenses or offsets to enforcement of the Lease by
Landlord and Landlord is not in default in the performance of the
Lease. Landlord acknowledges that Tenant is not in default under the
Lease.
12. BROKER'S COMMISSION. Tenant represents and warrants that it has
not dealt with any real estate broker, finder or other person, with
respect to this First Amendment to Lease Agreement in any manner,
except Trammell Crow Realty Services, Inc. whose address is 400 N.
Ashley Drive, Suite 2675, Tampa, FL 33602. Landlord shall pay only
any commissions or fees that are payable to the above-named broker
with respect to this First Amendment to Lease Agreement pursuant to
the separate Brokerage Agreement (dated 7/28/98 by Highwoods
Properties, Inc. and dated 8/28/98 by Trammell Crow Realty Services,
Inc.) as amended. Tenant shall indemnify and hold Landlord harmless
from any and all damages resulting from claims that may be asserted
against Landlord by any other broker, finder or other person
(including, without limitation, any substitute or replacement broker
claiming to have been engaged by Tenant in the future), claiming to
have dealt with Tenant in connection with this Lease or any amendment
or extension hereto, or which may result in Tenant leasing other or
enlarged space from Landlord. The provisions of this paragraph shall
survive the termination of this Lease and First Amendment to Lease
/s/ RDG
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Agreement and shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
The obligations of Highwoods/Florida Holdings, L.P. and/or Highwoods
Properties, Inc. shall be binding upon any successor owner/Landlord
of Interstate Corporate Center.
13. FLORIDA LAW. This First Amendment and the Lease shall be construed
and interpreted under the laws of the State of Florida.
IN WITNESS WHEREOF, this First Amendment has been duly executed by the
parties hereto effective as of the Effective Date.
WITNESSES: "LANDLORD":
Highwoods / Florida Holdings L.P.
a Delaware limited partnership
By: Highwoods / Florida GP Corp.,
its general partner
/s/ Steve Garraty By: /s/ Stephen A. Meyers
- ------------------------------ -----------------------------------
Printed Name: Steve Garraty Printed Name: Stephen A. Meyers
/s/ Linda Peery
- ------------------------------ Its: Regional Vice President
Printed Name: Linda Peery ----------------------------------
----------------- Date: 5/14/99
---------------------------------
"TENANT":
Spectrum Integrated Services, Inc.
/s/ Lawrence P. Callahan By: /s/ Robert D. Graham
- ---------------------------------- -----------------------------------
Printed Name: Lawrence P. Callahan Printed Name: Robert D. Graham
--------------------- -------------------------
/s/ Christi M. Baker
- ---------------------------------- Title: Vice President
Printed Name: Christi M. Baker ---------------------------------
---------------------
Date: April 27, 1999
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EXHIBIT A
[FLOOR PLAN]
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EXHIBIT B
WORK LETTER FOR EXPANSION SPACE
This Lease Addendum Number 2 (the "Second Addendum") shall set forth the rights
and obligations of Landlord and Tenant with respect to space planning,
engineering, final workshop drawings, and the construction and installation of
any improvements to the Premises to be completed before the Commencement Date
("Tenant Improvements"). This Second Addendum contemplates that the performance
of this work will proceed in four stages in accordance with the following
schedule: (i) preparation of a space plan; (ii) final design and engineering and
preparation of final plans and working drawings; (iii) preparation by the
Contractor (as hereinafter defined) of an estimate of the additional cost of the
initial Tenant Improvements; (iv) submission and approval of plans by
appropriate governmental authorities and construction and installation of the
Tenant Improvements by the Commencement Date.
In consideration of the mutual covenants hereinafter contained, Landlord
and Tenant do mutually agree to the following:
1. SPACE PLANNING, DESIGN AND WORKING DRAWINGS. On Tenant's behalf, Landlord
shall provide and designate architects and engineers, who SHALL BE
REASONABLY ACCEPTABLE TO TENANT, at Tenant's expense, which expense shall
be deducted from the Allowance (as hereinafter defined) will do the
following:
a. Attend a reasonable number of meetings with Tenant and Landlord's agent
to define Tenant's requirements. Landlord shall provide one complete
space plan prepared by Landlord's architect in order to obtain Tenant's
approval. Tenant shall approve such space plan or make comments
thereto, in writing, within five (5) days after receipt of the space
plan.
b. Complete construction drawings for Tenant's partition layout, reflected
ceiling grid, telephone and electrical outlets, keying, and finish
schedule (subject to the limitation expressed in SECTION 2 below).
c. Complete building standard mechanical plans where necessary (for
installation of air conditioning system and ductwork, and heating and
electrical facilities) for the work to be done in the Premises.
d. All plans and working drawings for the construction and
completion of the Premises (the "Plans") shall be subject to
Landlord's prior written approval. Any changes or modifications
Tenant desires to make to the Plans shall also be subject to
Landlord's prior approval. Landlord agrees that it will not
unreasonably withhold its approval of the Plans, or of any changes
or modifications thereof; provided, however, Landlord shall have
sole and absolute discretion to approve or disapprove any
improvements that will be visible to the exterior of the Premises,
or which may affect the structural integrity of the Building. Any
approval of the Plans by Landlord shall not constitute approval of
any Delays caused by Tenant and shall not be deemed a waiver of any
rights or remedies that may arise as a result of such Delays.
Landlord may condition its approval of the Plans if: (i) the Plans
require design elements or materials that would cause Landlord to
deliver the Premises to Tenant after the scheduled Commencement
Date, or (ii) the estimated cost for any improvements under the Plan
is more than the Allowance.
e. Landlord, at Landlord's sole cost, shall provide Tenant Heating,
Ventilation, and Air Conditioning (HVAC) and electric panels for
Tenant's adequate use TAKING INTO ACCOUNT THE SAME USE AND DENSITY AS
REQUIRED FOR THE INITIAL PREMISES IN SUITE 200. LANDLORD SHALL INSTALL
INSULATION WITH WIRE ATTACHED TO THE ROOF DECK WITHIN THE EXPANSION
SPACE. Notwithstanding the above, Tenant shall be responsible for HVAC
and electric distribution from the rooftop units and from the Landlord
supplied electric panels, and Tenant shall be directly responsible for
Tenant's electric consumption and purchase and installation of computer
room HVAC units.
2. ALLOWANCE. Landlord agrees, at its sole cost and expense to provide an
allowance of up to $17.35 per rentable square foot ($932,562.50), to
design, engineer, install, supply and otherwise to construct the Tenant
Improvements in the Premises that will become a part of the Building (the
"Allowance"); otherwise, Tenant is fully responsible for the payment of all
costs in connection with the Tenant Improvements. NOTWITHSTANDING THE
ABOVE, IN THE EVENT THE COST FOR THE BUILD-OUT FOR THE PREMISES FOR THE
ADDITIONAL SPACE (SUITE 250) IS LESS THAN THE ALLOWANCE, TENANT MAY APPLY
THE BALANCE OF THE ALLOWANCE TO PAY FOR ANY CONSTRUCTION COSTS THAT
EXCEEDED THE ALLOWANCE FOR THE BUILD-OUT FOR SUITE 200.
3. SIGNAGE AND KEYING. Door and/or directory signage and suite keying in
accordance with building standards shall be provided and installed by
Landlord and deducted from the Allowance.
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4. WORK AND MATERIALS AT TENANT'S EXPENSE
a. Prior to commencing and providing any such work or materials to the
Premises, Landlord AND TENANT shall select a licensed general
contractor or contractors (the "Contractor"), WHO SHALL BE REASONABLY
ACCEPTABLE TO TENANT, to construct and install the Tenant Improvements
and Landlord shall submit to Tenant written estimates of the cost of
such work and materials and Tenant shall approve said estimates in
writing within five (5) business days after the receipt thereof.
Landlord shall not be authorized to proceed thereon until such estimate
is mutually agreed upon and approved in writing and delivered to
Landlord.
b. Tenant agrees to pay to Landlord, promptly upon being billed
therefor, all costs and expenses in excess of the Allowance incurred
in connection with the Tenant Improvements. Such costs and expenses
shall include all amounts charged by the Contractor for performing
such work and providing such materials (including the Contractor's
general conditions, overhead and profit). Tenant will be billed for
such costs and expenses as follows: (i) fifty percent (50%) of such
costs and expenses shall be due and payable upon Tenant's approval
of the cost estimates for the Tenant Improvements; (ii) thirty
percent (30%) of such costs and expenses shall be due and payable
when such work is substantially completed as defined in Section 6
below; (iii) twenty percent (20%) of such costs and expenses shall
be due and payable upon final completion of such work. If unpaid
within ten (10) days after receipt of invoice, then the outstanding
balance shall accrue at the rate of one percent (1%) per month until
paid in full.
Notwithstanding the above, in the event Tenant elects to amortize
additional tenant improvement provided by Landlord, not to exceed $3.00
per square foot above the Allowance, Tenant shall be entitled, provided
such additional cost is amortized at 11% over the term of the Lease and
added to the Base Rent.
c. Any Contractor provided by Landlord to construct the Tenant
Improvements shall obtain, prior to the commencement of construction of
the Tenant Improvements, a payment bond in compliance with Section
713.23, Florida Statutes.
5. TENANT PLAN DELIVERY DATE
a. Tenant covenants and agrees that although certain plans and drawings
may be prepared by Landlord's architect or engineer, Tenant shall be
solely responsible for the timely completion of the Plans and it is
hereby understood time is of the essence.
b. Tenant covenants and agrees to deliver to Landlord the final Plans for
the Tenant Improvements on or before May 15, 1999 (the "Tenant Plan
Delivery Date"). It is vital that the final Plans be delivered to
Landlord by the Tenant Plan Delivery Date in order to allow Landlord
sufficient time to review such Plans, to discuss with Tenant any
changes therein which Landlord believes to be necessary or desirable,
to enable the Contractor to prepare an estimate of the cost of the
initial Tenant Improvements, and to substantially complete the Premises
within the time frame provided in the Lease.
6. SUBSTANTIAL COMPLETION
a. The Premises shall be deemed to be substantially complete when the work
to be performed by Landlord pursuant to the Plans approved by Landlord
and Tenant has been completed and approved by the appropriate
governmental authorities, as certified by Landlord and architect, and a
Certificate of Occupancy has been issued, except for items of work and
adjustment of equipment and fixtures that can be completed after the
Premises are occupied without causing material interference with
Tenant's use of the Premises (i.e., "punch list items").
b. Notwithstanding the foregoing, if Landlord shall be delayed in
substantially completing the Premises as a result of:
(i) Tenant's failure to furnish to Landlord the final Plans on or
before the Tenant Plan Delivery Date; or
(ii) Tenant's failure to furnish the Plans and/or Tenant's failure
to approve Landlord's cost estimates within the time specified
in SECTION 4 herein and/or Tenant's failure to approve the
space plan within the time specified in SECTION 1 herein; or
(iii) Tenant's changes in the Tenant Improvements or the Plans
(notwithstanding Landlord's approval of any such changes); or
/s/ RDG
/s/ SM
6
<PAGE>
(iv) Tenant's request for changes in or modifications to the Plans
subsequent to the Tenant Plan Delivery Date; or
(v) Inability to obtain non-building standard materials, finishes
or installations requested by Tenant; or
(vi) The performance of any work by any person, firm or corporation
employed or retained by Tenant; or
(vii) Any other act or omission by Tenant or its agents,
representatives, and/or employees;
then, in any such event, for purposes of determining the
Commencement Date, the Premises shall be deemed to have been
substantially completed on the date that Landlord and architect
determine that the Premises would have been substantially completed
if such Delay or Delays had not occurred.
7. MATERIALS AND WORKMANSHIP. Landlord covenants and agrees that all work
performed in connection with the construction of the Premises shall be
performed in a good and workmanlike manner and in accordance with all
applicable laws and regulations and with the final approved Plans. Landlord
agrees to exercise due diligence in completing the construction of the
Premises.
8. REPAIRS AND CORRECTIONS. Landlord agrees to repair and correct any work or
materials installed by Landlord or its Contractor in the Premises that
prove defective as a result of faulty materials, equipment, or workmanship
and that first appear within ninety (90) days after the date of occupancy
of the Premises. Notwithstanding the foregoing, Landlord shall not be
responsible to repair or correct any defective work or materials installed
by Tenant or any contractor other than Landlord's Contractor, or any work
or materials that prove defective as a result of any act or omission of
Tenant or any of its employees, agents, invitees, licensees, subtenants,
customers, clients, or guests.
9. POSSESSION BY TENANT. The taking of possession of the Premises by Tenant
shall constitute an acknowledgment by Tenant that the Premises are in good
condition and that all work and materials provided by Landlord are
satisfactory as of such date of occupancy, except as to any defects or
incomplete work that are described in a written notice given by Tenant to
Landlord no later than thirty (30) days after Tenant commences occupancy of
the Premises, and except for any equipment that is used seasonally if
Tenant takes possession of the Premises during a season when such equipment
is not in use and except for latent defects.
10. ACCESS DURING CONSTRUCTION. During construction of the Tenant Improvements
in the Premises with the approval of Landlord, Tenant shall be permitted
reasonable access to the Premises, as long as such access does not
interfere with or delay construction work on the Premises for the purposes
of taking measurements, making plans, installing trade fixtures, and doing
such other work as may be appropriate or desirable to enable Tenant
eventually to assume possession of and operate in the Premises.
11. RESTORATION OF PREMISES. Paragraph 11 "Restoration of Premises" of Lease
Addendum No. 2 of Original Lease is deleted.
/s/ RDG
/s/ SM
7
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
1. Spectrum Integrated Services, Inc. d/b/a Software Spectrum Technology
Services Group
2. Software Spectrum Limited
3. Software Spectrum Holdings Pty, Ltd.
4. Software Spectrum (UK) Ltd.
5. Software Spectrum B.V.
6. Software Spectrum Canada, Ltd.
7. Software Spectrum GmbH
8. Integrated Leasing Services, Inc.
9. Software Spectrum Services B.V.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated June 15, 1999, accompanying the consolidated
financial statements and schedule included in the Annual Report of Software
Spectrum, Inc. on Form 10-K for the year ended April 30, 1999. 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, Software Spectrum, Inc. Non-Employee Directors' Retainer Stock Plan,
filed on September 28, 1995, and Software Spectrum, Inc. 1998 Long Term
Incentive Plan, filed on July 1, 1999).
GRANT THORNTON LLP
Dallas, Texas
July 26, 1999
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