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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended December 31, 1996
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 0-4410
TELECOMM INDUSTRIES CORP.
------------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 34-1765902
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(State Of Incorporation) (I.R.S. Employer Identification No.)
9310 PROGRESS PARKWAY, MENTOR OHIO 44060
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (216) 953-1400
Securities Registered Pursuant To Section 12(b) Of The Act: None
Securities Registered Pursuant To Section 12(g) Of The Act: Common Stock, $0.01
-------------------
Par Value
- --------------
Indicate by check mark whether the registrant (1) 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 No X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. ______
State registrant's revenues for its most recent fiscal year: $10,580,785.
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
Common Stock, $0.01 par value: $5,575,048 (as of March 31, 1997)
- -----------------------------------------------------------------------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value: 9,642,800 (As Of March 31, 1997)
- -----------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one): Yes ; No X .
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TELECOMM INDUSTRIES CORP. AND SUBSIDIARIES
INDEX
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 4. Submission of Matters to Security Holders . . . . . . . . . . . . 4
Item 5. Market for Common Equity and Related Shareholder Matters. . . . . 5
Item 6. Management's Discussion and Analysis and Plan of Operation. . . . 5
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-1
Item 8. Changes in and Disagreements with Accountants . . . . . . . . . . N/A
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act . . . . . . . . 9
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 11
Item 11. Security Ownership of Certain Beneficial Owners and Management. . 11
Item 12. Certain Relationships and Related Transactions. . . . . . . . . . 13
Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 13
<PAGE>
PART I
DESCRIPTION OF BUSINESS.
THE COMPANY.
Telecomm Industries Corp. ("Telecomm" or the "Company"), a holding company
incorporated under the laws of the State of Delaware, has its principal
executive offices at 9310 Progress Parkway, Mentor, Ohio 44060 (telephone number
216-953-1400). Telecomm has two wholly-owned subsidiaries, Centel Corporation,
an Ohio corporation doing business under the trade name Teleco ("Teleco"), and
Authorized Network Distributors, Inc., an Ohio corporation ("A.N.D.").
Telecomm was originally incorporated in 1967 as Scotco Data Leasing
Incorporated, and from 1984 to October 18, 1993 Telecomm was inactive and had no
operations. During 1995 and the first quarter of 1996, Telecomm expanded
substantially through the acquisition of two Ameritech Authorized Distributors
and the addition of new sales and geographic markets.
Teleco was formed as a wholly owned subsidiary of Telecomm for the purpose
of acquiring substantially all of the operating assets of Associate Security,
Inc. ("ASI"). The purchase was effective April 14, 1994. Teleco has continued
to use the acquired assets in the same manner as they were used by ASI prior to
the purchase. Teleco encompassed Telecomm's entire business operations from
January 1, 1995 until the acquisition of the A.N.D. companies on September 7,
1995. Effective December 31, 1994, Telecomm disposed of substantially all of
the operating assets of its wholly-owned subsidiary, Telephone Communications,
Inc. ("TCI"), which operated as an audio text information provider and service
bureau. The disposition was in furtherance of Telecomm's revised business plan,
which was approved by its Board of Directors in November 1994, to focus
Telecomm's resources on telecommunication services and distributorships and
related equipment sales and services. As indicated above, Telecomm had no
operations from 1984 until its acquisition of TCI during the third quarter of
1993.
A.N.D. was formed in August 1995 as a wholly owned subsidiary of Telecomm
for the acquisition of three affiliated companies using the Authorized Network
Distributors name (the "A.N.D. Companies"). The A.N.D. Companies were acquired
by merger effective September 7, 1995 and had operated as an Ameritech
authorized distributor of telecommunications services in Illinois, Indiana and
Ohio. Telecomm has continued to operate the AND Companies in substantially the
manner previously operated. The geographic markets presently served by A.N.D.,
following the Seraphim acquisition (which is described below), include the
greater Chicago, Illinois, Peoria, Illinois, Merrilville, Indiana, South Bend,
Indiana, Indianapolis, Indiana, Columbus, Ohio, Independence, Ohio and Dayton,
Ohio areas. Teleco serves the Akron, Canton, Cleveland, Columbus, Dayton,
Toledo and Youngstown, Ohio areas. NCS (which is defined below) has offices in
Green Bay, Appleton and Milwaukee, Wisconsin.
A.N.D. acquired Seraphim Information Systems, Inc., an Illinois corporation
("Seraphim"), by merger effective January 25, 1996. Seraphim operated as an
Ameritech Authorized
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Distributor of data services and integrated hardware and software networking
solutions in northern Illinois, particularly the Chicago market.
On January 4, 1997, Telecomm acquired Northeastern Communications Services,
Inc., a Wisconsin corporation ("NCS"), by merger. NCS operated as an Ameritech
Authorized Distributor of voice and usages services, and as an NEC distributor
for PBX and Key telephone systems. NCS was headquartered in Green Bay,
Wisconsin and had offices throughout the state. Telecomm continues to operate
the businesses of Seraphim and NCS substantially in the manner previously
conducted prior to their respective acquisitions.
On March 13, 1997, Telecomm entered into a letter of intent to acquire
Unitel Corporation of Indianapolis. Unitel operates as an Ameritech and Bell
South authorized distributor. Unitel also distributes voice, data and LAN
equipment and performs in-house software development. There is no assurance
that a transaction with Unitel will be consummated.
PRODUCTS AND SERVICES.
As Ameritech's largest authorized distributor, Telecomm sells Ameritech
voice, data, cellular, video and telephone information network solutions
throughout the Ameritech region. Telecomm has sales personnel in Illinois,
Indiana, Wisconsin and Ohio. Ameritech voice services include Centrex,
Centrex-ISDN, usage, audio-conferencing and voice mail. Ameritech data services
include 56Kbps, DS1, DS3, Frame Relay, Sonet, ATM, and ISDN Prime.
In addition to Ameritech services, Telecomm represents numerous voice and
data telecommunications manufacturers and service suppliers, such as Northern
Telecom, NEC, Toshiba, Amdahl, Ascend, Adtran and Cisco providing high quality
products and value added services. Telecomm's value added services include
system networking, installation, maintenance and repair services.
MARKETING AND SALES.
Telecomm's subsidiaries presently employ 62 dedicated sales persons.
Management and development of Telecomm's sales force are provided through
Telecomm's Managing Vice Presidents and Regional Vice Presidents of Sales and
Customer Support. Product training is provided by all service and equipment
providers, generally, at no charge to Telecomm. Based upon their market area
and experience level, sales personnel are each assigned a monthly objective for
services and equipment sales. Additionally, Telecomm partners with other firms
and individuals to supplement their product lines with voice and data
applications provided by Telecomm through Ameritech.
MARKETS AND CUSTOMER BASE.
Telecomm presently operates sales offices in LaGrange, Naperville, Peoria,
Quad Cities and Savoy, Illinois; Indianapolis and South Bend, Indiana; and
Mentor (Cleveland), Columbus, Dayton, Independence, and Akron, Ohio; and Green
Bay, Appleton and Milwaukee, Wisconsin. Customer system sizes range from two
lines to 7,600 lines and range in sophistication from basic telephone sets to
extensive communications systems that include voice messaging, automatic call
distribution, multi-location networks, advanced data networks including SONET,
Frame Relay and
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ATM, and sophisticated disaster recovery capabilities. Telecomm's customers can
be found in all industries, particularly mid-size business enterprises,
municipal governments, financial institutions, manufacturing and public school
systems.
TELECOMMUNICATIONS INDUSTRY.
The telecommunications industry is undergoing significant changes. The
enactment of the Telecommunications Act of 1996 (the "Telecommunications Act")
will bring significant change at the Federal and State levels. Local Exchange
Carriers (LECs) who provide local telephone service and Inter-Exchange Carriers
(IXCs) who carry long distance traffic will begin competing for each other's
services. Services historically offered at a single tariffed rate will be
available at wholesale and retail rates. Accordingly, some customers will
choose their service provider based entirely on price, while others will select
their vendor based on the type and sophistication of services they provide.
Local exchange and long distance service companies, cable TV companies,
cellular service companies, computer concerns and the entertainment and
information services industries are converging, forming alliances and
positioning to provide a variety of services. New companies are being formed to
take advantage of wholesale pricing. Regulatory, legislative and judicial
decisions and technological advances, as well as heightened customer interest in
advanced telecommunication services, have expanded the types of available
communications services and products, as well as the number of companies
offering such services.
The distribution of telecommunications equipment and services is highly
fragmented and competitive. Many of the major suppliers to the industry, such
as Ameritech, AT&T and Northern Telecom, have sales forces that compete with
their authorized distributors. These sales forces, as well as those of various
distributors, compete for the same small and medium sized business customers
that Telecomm targets. Telecomm competes as a full-service provider of its
customers' telecommunications needs, providing quality services, competitive
prices and a wide selection of equipment and services. Management believes that
substantial opportunities will continue to arise to expand its business and
increase stockholder value. Management intends to continue expanding the menu
of services provided, primarily to provide more interconnect services to
compliment its existing networking business, as well as to expand the geographic
markets which it serves. Telecomm continues to seek and evaluate acquisitions of
other telecommunications distributors, as well as to expand its sales through
internal growth.
REGULATORY ENVIRONMENT.
Telecomm's equipment and service providers are subject to regulation by the
Federal Communication Commission ("FCC") and various state public utilities
commissions. The Company anticipates that as local telephone service becomes
more competitive under the provision of the Telecommunications Act that
Ameritech, and consequently the Company, will face more competition in the
provision of these services. Management believes the complex regulatory
environment in which its equipment suppliers operate has little effect on
Telecomm's ability to distribute equipment and services, and that many sources
of supply exist for the types of equipment and services sold.
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EMPLOYEE RELATIONS.
As of December 31, 1996, Telecomm and its subsidiaries employed 112
persons, an increase from 88 persons at December 31, 1995. Of these employees,
108 are employed on a full-time basis and 4 are employed on a part-time basis.
The increase was due primarily to the acquisition of Seraphim and the expansion
of Teleco's sales force, markets served and services provided.
DESCRIPTION OF PROPERTY.
Telecomm's principal offices are located in approximately 6,000 square feet
of a one-story brick building located at 9310 Progress Parkway, Mentor, Ohio
44060. The facility is leased from an affiliate through November 31, 1998 at a
monthly rate of $2,400 each month. The facility also houses the bulk of
Teleco's operations, although Teleco has sales offices in Columbus and Dayton
that are rented on a month-to-month basis. Telecomm has sales offices in
several Illinois, Indiana and Ohio cities. Such offices are leased on a
short-term basis not exceeding two years.
LEGAL PROCEEDINGS.
Ameritech is investigating allegations of forged customer signatures on
customer contracts for Ameritech's long distance services and products sold
by NCS as a sales representative of Americtech. These transactions occurred
prior to the acqusistion of NCS by Telecomm. No litigation has been
commenced or is anticipated by management. Telecomm is not a party to, nor
are any of Telecomm's assets subject to, any pending legal proceedings other
than non-material litigation incidental to its business.
SUBMISSION OF MATTERS TO SECURITIES HOLDERS.
None.
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PART II
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
MARKET INFORMATION
Since November 1, 1993, Telecomm's Common Stock has traded on the NASDAQ
over-the counter market and has been quoted on the NASDAQ Electronic Bulletin
Board under the symbol "TCMM." The following quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
REPRESENTATIVE PRICES
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CALENDAR QUARTER HIGH/ASK LOW/BID
- ---------------- -------- -------
First quarter 1995 1/2 1/4
Second quarter 1995 1-1/4 1/4
Third quarter 1995 4-5/8 1-1/8
Fourth quarter 1995 4-1/4 1-7/8
First quarter 1996 2-3/4 1-3/4
Second quarter 1996 3-5/8 1-5/8
Third quarter 1996 2-1/2 1-7/16
Fourth quarter 1996 2-1/16 1
First quarter 1997 1-3/4 1
HOLDERS
The approximate number of holders of Telecomm's Common Stock as of March
29, 1997 was 422.
UNREGISTERED STOCK ISSUANCES
Telecomm issued 400,000 shares of Telecomm Common Stock to three
individuals in consideration for all common stock outstanding of Seraphim
Corporation on January 25, 1996. Such issuance was exempt under section 4(2) of
the Securities Act of 1933, as amended (the "Act"). 35,000 shares of Telecomm
common stock were issued to John Rodes, an employee of Centel, in January 1996
for $35,000. Such issuance was exempt under Section 4(2) of the Act.
DIVIDENDS
Telecomm has not declared any cash dividends to date.
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
OVERVIEW
Telecomm was incorporated on December 13, 1967, and until December 1993,
its name was Scoto Data Com., Inc. The Registrant has two wholly owned
subsidiaries, Centel Corporation d/b/a Teleco ("Teleco") and Authorized Network
Distributors, Inc. ("AND"). The operations of Teleco
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were primarily acquired in April 1994 and AND was acquired in September 1995.
AND was acquired by merger, in a stock-for-stock exchange. AND acquired
Seraphim by merger in January 1996, in a stock-for-stock exchange. The results
of AND for 1995 and Seraphim for 1996 have been pooled with the results of
Teleco.
Teleco distributes telecommunications services in the major metropolitan
markets of the State of Ohio for Ameritech Corporation ("Ameritech") and sells
telecommunication equipment and provides related installation, maintenance and
repair services. AND distributes telecommunication services in Illinois,
Indiana and Ohio for Ameritech. On a combined basis, Teleco and AND make
Telecomm the largest authorized Ameritech distributor of voice and data services
and integrated hardware and software networking solutions in the Ameritech
region.
Because of a change in the commission payment structure Ameritech used in
1996, Telecomm adopted a new compensation plan for its sales force. Previous to
June 1996, Ameritech paid 100% of the commissions earned at the time the service
was installed. After June 1996, Ameritech began paying Telecomm 60% of the
commissions earned at the time the service was installed and the remaining 40%
over the life of the contract. Telecomm adopted an aggressive commission policy
which enabled it to adjust to the new method of payment from Ameritech, while
continuing to actively attract and maintain skilled, experienced salespeople.
In addition, Telecomm opened new offices in several Illinois, Indiana and Ohio
cities and expanded the size of other offices. Telecomm also restructured its
sales forces into specialized teams dedicated to specific products and services,
i.e. data transmission, voice transmission, voice transmission and cellular and
Internet access services.
In addition, in the third quarter of 1996, Ameritech also implemented a new
billing and customer record system in an effort to consolidate and standardize
its five non-standard billing systems. As the new billing and record system is
being implemented, commissions payments to authorized distributors, such as the
Company, continue to be temporarily delayed. The combined effect on the Company
of the change in timing of commission payments and the new system implementation
is a lengthened collection period for receivables, which adversely affects the
Company's working capital and cash flow.
1996 VS.1995
Telecomm's net revenues in 1996 were $10,561,000, an 87% increase from 1995
net revenue. The revenue increase reflects a rapid growth in the sale of
Ameritech products and services, which accounts for $7,526,000 or 71% of
Telecomm net revenues in 1996, primarily attributed to extensive 1996 marketing
efforts, including the addition of highly skilled sales and technical personnel
in existing sales offices. To a lesser extent, as the Company achieved certain
specified sales targets, net revenues increased because Ameritech paid higher
commissions per sale to the Company in accordance with the terms of the
agreement between Ameritech and the Company. Sales by Telecomm of interconnect
services, which account for 29% of Telecomm's 1996 sales, increased to
$3,035,000 an increase of 37% from the 1995 comparable period sales of
$2,209,000.
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Commissions, contractor fees, and selling, general and administrative
expenses increased by 80% to $9,609,000 from $5,348,000 in 1995. The increase
includes over $1,752,000 in additional sales salaries and sales commissions,
reflecting an increase in sales compensation attributable to 1996 sales growth.
Increases in the costs to support the increase in equipment and network sales
contributed an additional $1,288,000. Sales management and administrative
expenses increased $1,221,000 due to increased volume of sales and further
development and maturity of existing sales offices. The increase included
management bonuses of $341,000 accrued in 1996 based upon office performance and
profit contributions. As a percentage of net revenues, commissions, contractors
fees and selling, general and administrative expenses decreased from 95% in 1995
to 91% in 1996.
Other income (expense) was $ (28,000) in 1996 as compared to $45,000 in
1995. Included in this item for 1996 was $28,000 of net interest expense as
compared to $44,000 net interest income in 1995 due to increased borrowing
levels.
Income from continuing operations before taxes increased 269%, to $923,000,
from 1995 income of $343,000. The increase is attributable to the reasons set
forth above.
Tax expense increased 169% to $371,000 from 1995 tax expense of $138,000,
primarily because of the increased income from continuing operations.
Net income for 1996 was $552,000 an increase of 257% from 1995 net income
of $206,000.
LIQUIDITY AND CAPITAL RESOURCES
Telecomm's principal capital requirement is to fund its growth, including
working capital, acquisition of companies, and the purchase of equipment.
Telecomm uses cash generated from operations, borrowings under its credit
facilities and the sale of equity in private placements to fund these
requirements.
Cash flow at December 31, 1996 decreased by $337,000, or 59% since December
31, 1995. The decrease is primarily attributable to a $2,213,000 increase in
accounts receivable (exclusive of a $370,000 allowance for doubtful accounts),
reflecting an increase in long-term accounts receivable of $1,014,000 because
of the change in Ameritech's commission payment structure, coupled with
Telecomm's continued rapid growth in the sale of Ameritech products and
services. Offsetting the increase in receivables is $675,000 of sales and
management bonuses and $400,00 in proceeds from long-term debt.
The Company's 1996 capital expenditures were approximately $150,000,
primarily representing furniture purchases for the newly opened sales offices in
Independence and Indianapolis and laptop computer and LAN equipment purchases
necessary to automate Telecomm's sales force.
The change in the commission payment structure by Ameritech, which was
implemented in June 1996, and Ameritech's continuing implementation of a new
billing and customer record system, lengthened the collection period of
receivables, adversely affecting cash flow. Telecomm believes
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cash flow will continue to be similarly affected as long as the existing
Ameritech commission structure remains.
Approximately $487,000 in unused borrowing availability existed under
Telecomm's credit facility at December 31, 1996. Telecomm is pursuing
additional funds under its credit facility, and coupled with cash reserves and
funds generated from operations, believes sufficient funds will be available to
provide the liquidity necessary to fund its anticipated existing capital,
operational requirements, and acquisitions over the next twelve months.
Telecomm is currently investigating additional acquisitions that could require
other sources of funding, including additional private placements or other debt
or equity offerings.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts
are forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward looking statement. These risks and uncertainties
include, but are not limited to the dependence of Telecomm on one principal
supplier, Ameritech, for a significant portion of its revenues; changes in
Ameritech's commission payment plan resulting in potential decreases in
long-term accounts receivable; changes arising from greater competition in local
telephone service attributable to passage of the Telecommunications Act; the
introduction of competitors into the market, including competitors with
financial and other reserves significantly greater those of Telecomm; the
ability of the Company to integrate NCS operations into the Company; the
availability of other acquisitions and the integration of the operations of
those acquisitions, if completed into the Company; the ability of Telecomm to
continue to grow its sales force internally and to expend its product menu
particularly in light of the increased competition in the telecommunication
markets in which Telecomm operates; whether or not the Unitel transaction will
be consummated; general economic conditions, and other risk factors discussed
herein.
FINANCIAL STATEMENTS.
Telecomm's Reports of Independent Accountants and Financial Statements
follow this page.
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TELECOMM INDUSTRIES CORP.
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996 and 1995
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INDEX
PAGE
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Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . 2
Consolidated Statements of Income for the years ended December 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 7-17
F-2
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Telecomm Industries Corp.
Mentor, Ohio
We have audited the accompanying consolidated balance sheets of Telecomm
Industries Corp. and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. 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 Telecomm
Industries Corp. and its subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Coopers Lybrand L.L.P
Cleveland, Ohio
May 27, 1997
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
ASSETS 1996 1995
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<S> <C> <C>
Current assets:
Cash $ 238,312 $ 575,367
Note receivable - current portion 400,000 61,200
Accounts receivable 2,548,961 1,348,997
Inventory 616,147 199,610
Prepaid income taxes 48,260 -
Prepaid expenses 38,660 145,567
Employee advances 139,887 29,420
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Total current assets 4,030,227 2,360,161
---------- ----------
Property and equipment - at cost,
net of accumulated depreciation of $237,640
and $131,215 at December 31, 1996 and 1995,
respectively 482,712 364,297
---------- ----------
Other assets:
Accounts receivable, long-term portion 1,013,520 -
Note receivable, less current portion - 375,446
Intangibles, net of accumulated amortization
of $18,238 and $11,606 at December 31,
1996 and 1995, respectively 81,244 87,876
---------- ----------
1,094,764 463,322
---------- ----------
Total assets $5,607,703 $3,187,780
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 113,384 $ 126,000
Current portion of long-term debt 175,823 98,168
Accounts payable - trade 408,848 143,388
Payroll taxes payable 122,719 17,987
Other accrued expense 56,185 16,190
Deferred income taxes 106,321 -
Accrued commissions and contractor fees 455,582 318,869
Income taxes payable 81,136 162,130
Accrued bonus 816,900 142,000
---------- ----------
Total current liabilities 2,336,898 1,024,732
---------- ----------
Long-term liabilities:
Long-term debt, less current portion 389,436 137,120
Deferred income taxes 402,913 158,900
---------- ----------
Total liabilities 3,129,247 1,320,752
Commitments and contingencies (Note 13) - -
Stockholders' equity:
Common stock $.01 par value; authorized
- 20,000,000 and 10,000,000 shares;
issued - 9,742,791 and 9,742,791; outstanding
- 9,642,791 and 9,607,791,
at December 31, 1996 and 1995, respectively 96,428 96,078
Additional paid-in capital 2,085,887 2,145,706
Receivables from stockholders (44,531) (163,202)
Retained earnings (deficit) 340,672 (211,554)
---------- ----------
Total stockholders' equity 2,478,456 1,867,028
---------- ----------
Total liabilities and stockholders' equity $5,607,703 $3,187,780
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
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<S> <C> <C>
Net revenues $ 10,560,785 $ 5,645,321
Commissions, contractor fees and related expenses 3,560,176 2,535,288
Selling, general and administrative expenses 6,048,802 2,812,450
------------- -------------
Operating income 951,807 297,583
------------- -------------
Other income (expense):
Gain (loss) on disposal of assets (870) 731
Interest income 26,130 67,240
Interest expense (53,641) (22,899)
------------- -------------
(28,381) 45,072
------------- -------------
Income from operations before income tax expense 923,426 342,655
Income tax expense 371,200 137,568
------------- -------------
Net income $ 552,226 $ 205,087
------------- -------------
------------- -------------
Earnings per common and common equivalent share .06 .02
------------- -------------
------------- -------------
Number of shares used in computing earnings
per common and common equivalent share 9,425,291 8,918,921
------------- -------------
------------- -------------
Dividends per common share - -
------------- -------------
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
COMMON STOCK ADDITIONAL RECEIVABLES RETAINED
------------------------- PAID-IN FROM EARNINGS
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT)
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 as originally reported 8,227,791 $ 82,278 $1,351,896 $ (138,764) $ (424,821)
Adjustments for Seraphim pooling 400,000 4,000 (3,000) - 8,180
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 as restated 8,627,791 86,278 1,348,896 $ (138,764) (416,641)
Settlement of AND notes from stockholders - - - 138,764 -
Stock issued to employees 115,000 1,150 60,460 - -
Stock issued for private placement 865,000 8,650 736,350 - -
Advances to stockholders - - - (163,202) -
Net income - - - - 205,087
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 9,607,791 96,078 2,145,706 (163,202) (211,554)
Stock issued to employees 35,000 350 (350)
Forgiveness of debt - - (59,469) 59,469 -
Settlement of advances to stockholders - - - 59,202 -
Net income - - - - 552,226
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 9,642,791 $ 96,428 $2,085,887 $ (44,531) $ 340,672
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
F-6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 552,226 $ 205,087
Adjustments to reconcile to net cash provided
by (used in) operating activities:
Expenses not requiring the use of cash:
Depreciation and amortization 120,664 74,067
Deferred taxes 350,334 (56,100)
Loss (gain) on sale of fixed assets 870 (731)
Changes in assets and liabilities:
Accounts receivable (1,199,964) (766,236)
Inventory (416,537) (47,089)
Prepaid income taxes (48,260) -
Prepaid expenses 106,907 (106,724)
Employee advances (110,467) (29,420)
Security deposits 318
Accounts payable 265,460 (101,693)
Accrued expenses 39,995 (22,024)
Payroll taxes payable 104,732 3,759
Accrued commissions and contractor fees 136,713 236,567
Income taxes payable (80,994) 124,595
Accrued bonuses 674,900 142,000
---------- ----------
Total adjustments (55,647) (548,711)
---------- ----------
Net cash provided by (used in)
operating activities 496,579 (343,624)
Cash flows from investing activities:
Proceeds from sale of fixed assets - 11,196
Purchases of fixed assets (149,833) (243,165)
Proceeds from stockholders receivables 59,202 138,764
Issuance of stockholders receivable - (163,202)
Increase in long-term accounts receivable (1,013,520) -
Decrease in notes receivable 36,646 143,354
---------- ----------
Net cash used in investing activities (1,067,505) (113,053)
---------- ----------
Cash flows from financing activities:
Payments on long-term debt (153,512) (21,441)
Proceeds from issuance of long-term debt 400,000 -
Proceeds from issuance of common stock to employees - 65,000
Proceeds from sale of common stock - 745,000
Net borrowings under line of credit (12,617) 113,500
---------- ----------
Net cash provided by financing activities 233,871 902,059
---------- ----------
Net (decrease) increase in cash (337,055) 445,382
Cash at beginning of year 575,367 129,985
---------- ----------
Cash at end of year $ 238,312 $ 575,367
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
F-7
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash was paid during the year for:
Interest $ 53,641 $ 22,899
Income taxes 149,300 75,700
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: Telecomm Industries Corp. ("Telecomm" or the
"Company"), a holding company incorporated under the laws of the State of
Delaware, has its principal offices in Northeast Ohio. The Company's
wholly-owned subsidiaries include Centel Corporation, an Ohio corporation
doing business under the tradename Teleco ("Teleco"), and Authorized
Network Distributors ("AND"), an Indiana corporation.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated.
BUSINESS AND INDUSTRY: Teleco and AND are Ameritech Authorized
Distributors and full service providers of telecommunication services and
equipment.
The telecommunications industry is undergoing significant changes. Local
exchange and long distance service companies, cable TV companies, cellular
service companies, computer concerns and the entertainment and information
services industries are converging, forming alliances and positioning to
provide a variety of services. Regulatory, legislative and judicial
decisions and technological advances, as well as heightened customer
interest in advanced telecommunication services, have expanded the types of
available communication services and products, as well as the number of
companies offering such services.
The distribution of telecommunications equipment and services is highly
fragmented and competitive. Many of the major suppliers to the industry
such as Ameritech, AT&T and Northern Telecom, have sales forces that
compete with their authorized distributors. These sales forces, as well as
those of various distributors, compete for the same small and medium sized
business customers that Telecomm targets. Telecomm competes as a
full-service provider of its customers' telecommunications needs, as well
as quality, price and selection of equipment and services.
USE OF ESTIMATES: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results may differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Management has determined that the
carrying values of financial instruments, primarily accounts receivable,
notes receivable (Note 3), accounts payable and debt (Note 6), approximate
fair value.
7
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily of
accounts receivable. Ameritech and its subsidiaries accounted for 71% and
62% of the Company's revenues for 1996 and 1995, respectively. The Company
has potential for risk of loss of receivables and earnings should Ameritech
not perform to the contract. The Company establishes an allowance for
possible losses based upon factors surrounding the credit and historical
information. An allowance for doubtful accounts of approximately $370,000
was established in 1996 to cover losses or chargebacks related to accounts
receivable.
The Company maintains various bank accounts and at times, amounts may be in
excess of FDIC insurance limits.
PROPERTY AND EQUIPMENT: Property and equipment is recorded at cost, less
accumulated depreciation. Depreciation is computed principally by using
straight-line and accelerated methods over estimated useful lives of 5 to
10 years. The provision for amortization of leasehold improvements is
based on the term of the lease or the estimated useful lives, whichever is
shorter.
REVENUE RECOGNITION: All revenues are recognized when earned and are
recorded net of estimated cancellations and chargebacks.
INVENTORY: Inventory consists of purchased equipment for installation
contracts and is recorded at lower of cost (first-in, first-out) or market
value.
INTANGIBLE ASSETS: Customer lists are being amortized on a straight-line
basis over their estimated useful lives of 15 years. The Company's policy
is to evaluate the intangible assets based on a review of such factors as
the occurrence of a significant adverse event or change in the environment
in which the business operates or if the expected future net cash flows
(undiscounted and without interest) would become less than the carrying
amount of the asset. An impairment loss would be recorded in the period
such determination is made based on the fair value of the related
businesses.
INCOME TAXES: The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the use of the liability method of
computing deferred income taxes, whereby deferred income taxes are recorded
to reflect the income tax consequences on future years of temporary
differences between the income tax and financial reporting bases of assets
and liabilities as of the balance sheet date. Under the liability method,
deferred income taxes are adjusted for tax rate changes as they occur.
This method also provides for the current recognition of the expected
income tax benefits from net operating losses if it is expected such income
tax benefits are more likely than not to be realized.
RECLASSIFICATIONS: Certain items in the 1995 financial statements of the
Company have been reclassified to conform to the current year's
presentation.
8
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITIONS:
On September 7, 1995, the Company issued 1,000,000 shares of its common
stock for all of the outstanding common stock of AND. This acquisition has
been accounted for by the pooling-of-interests method, and accordingly, the
financial statements for the years ended December 31, 1996 and 1995 reflect
the combined results of the businesses.
On January 26, 1996, the Company issued 400,000 shares of its common stock
for all of the outstanding common stock of Seraphim Information Systems,
Inc. This acquisition has been accounted for by the pooling-of-interests
method and accordingly, the financial statements for the years ended
December 31, 1996 and 1995 reflect the combined results of the businesses.
The following summary presents the results of operations of the two
previously separate companies for the year ended December 31, 1995 that are
included in the Company's consolidated results of operations:
THE COMPANY SERAPHIM
----------- --------
Year ended December 31, 1995:
Net revenues $ 4,842,610 $ 802,711
Net income $ 175,254 $ 29,833
As a result of the combination, the net assets and liabilities of the two
previously separate companies were pooled and certain adjustments were made
to conform the differing revenue recognition policies of the two companies.
As a result of these conforming adjustments, accounts receivable, accrued
bonuses and other current liabilities, income taxes payable and net income
of the previously separate companies, now presented in the consolidated
financial statements increased by $183,496, $156,862, $9,380 and $17,254,
respectively.
9
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITIONS, CONTINUED:
Additionally, the following unaudited summary reconciles the previously
reported revenues and earnings of the Company with those that are included
in the accompanying consolidated results of operations for the year ended
December 31, 1995:
NET REVENUES NET INCOME
------------ ----------
As previously reported $ 4,842,610 $ 175,254
Adjustments as a result of the combination 619,215 12,579
Conforming adjustments 183,496 17,254
------------ ----------
As currently reported $ 5,645,321 $ 205,087
------------ ----------
------------ ----------
3. NOTE RECEIVABLE:
In conjunction with the 1994 disposal of a previous subsidiary, the Company
was issued a note receivable of $580,000, payable in 35 monthly
installments of $20,000 (including accrued interest at 13%) through
December, 1997. As of December 31, 1996, the balance of this receivable
was $400,000. The note is collateralized by Company stock owned by the
shareholders of Telephone Communications, Ltd. The balance was paid during
the first quarter of 1997. Additionally, a note receivable for $59,469 was
recorded at the time of sale. This balance was forgiven during 1996.
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1996 and 1995, consists of the
following:
1996 1995
---------- ----------
Office furniture, fixtures and equipment $ 498,898 $ 282,989
Transportation equipment 219,304 212,523
Leasehold improvements 2,150
---------- ----------
720,352 495,512
Less: accumulated depreciation 237,640 131,215
---------- ----------
$ 482,712 $ 364,297
---------- ----------
---------- ----------
Depreciation expense charged to operations for the years ended December 31,
1996 and 1995, amounted to $112,531 and $63,597, respectively.
10
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INTANGIBLE ASSETS:
Intangibles assets at December 31, 1996 and 1995 are as follows:
1996 1995
--------- ---------
Customer lists $ 99,482 $ 99,482
Less accumulated amortization 18,238 11,606
--------- ---------
$ 81,244 $ 87,876
--------- ---------
--------- ---------
6. DEBT:
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note payable to a financial institution entered
on November 25, 1996 for $400,000 and
collateralized by blanket filing on corporate
assets with specific filings to cover present
and future contract service for business
acquisitions. Interest accrues at 0.5% over
the financial institutions prime rate (prime
rate was 8.25% at December 31, 1996). The note
requires interest only payments for three months
of $8,262 with principal and interest payable
in 47 monthly installments of $9,907 commencing
February 28, 1997 and maturing on February 27,
2001. The final payment shall include any
unpaid principal and accrued interest. $ 400,000 -
Unsecured notes payable to financial institution -
due in monthly installments of $4,787 (including
interest at 9.5%). - $ 68,695
Vehicle and equipment loans payable in monthly
installments ranging from $295 to $1,000, (including
interest ranging from 8.5% to 14.5%) through
November 1999, secured by vehicles and equipment
with a net book value of $179,364 and $165,514 at
December 31, 1996 and 1995, respectively 165,259 166,593
---------- ----------
Total long-term debt 565,259 235,288
Less current portion 175,823 98,168
---------- ----------
$ 389,436 $ 137,120
---------- ----------
---------- ----------
</TABLE>
Maturities of long-term debt are as follows:
FISCAL YEAR
-----------
1997 $ 175,823
1998 181,044
1999 179,478
2000 21,505
2001 7,409
----------
$ 565,259
----------
----------
11
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. DEBT, CONTINUED:
The fair market value of the Company's long term debt is estimated based on
the current rates offered to the Company for debt of the same remaining
maturities. At December 31, 1996 and 1995, the fair value of the long term
debt approximates the amount recorded in the financial statements.
The Company also has lines of credit with Peoples Bank and NBD for an
amount up to $600,000, of which $113,384 and $126,000 were outstanding at
December 31, 1996 and 1995, respectively.
The line of credit with Peoples Bank bears interest at the financial
institution's prime plus 0.5% (prime rate was 8.25% and 8.75% at December
31, 1996 and 1995, respectively) and matures on December 31, 1999.
Interest is payable monthly and is secured by all assets of the Company.
The most restrictive covenant requires the Company to maintain certain debt
service coverage. The line of credit with NBD bears interest of 1.5% over
the financial institution's prime rate (the prime rate was 8.25% and 8.5%
at December 31, 1996 and 1995, respectively) and is due on demand by the
financial institution. Interest is payable monthly and is secured by
accounts receivable, inventory, and equipment.
7. INCOME TAXES:
The provision (benefit) for income taxes consist of the following at
December 31, 1996 and 1995:
1996 1995
---------- -----------
Federal $ 5,853 $ 150,668
State and local 15,013 43,000
Deferred - federal 297,784 (56,100)
Deferred - state and local 52,550 -
---------- -----------
$ 371,200 $ 137,568
---------- -----------
---------- -----------
The following is a reconciliation of income taxes computed at the federal
statutory rate with income taxes recorded by the Company at December 31,
1996 and 1995:
1996 1995
---------- -----------
Statutory Federal income tax rate 34.0 % 34.0 %
State and local taxes (net of federal tax effect) 4.8 8.2
"S" corporation income not subject to tax - 2.4
Non-deductible items 2.2 1.1
Other (.8) (5.6)
---------- -----------
Effective tax rate 40.2 % 40.1 %
---------- -----------
---------- -----------
12
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES, CONTINUED:
The tax effect of the significant temporary differences which comprise the
deferred tax assets and liabilities at December 31, 1996 and 1995 are as
follows:
1996 1995
----------- -----------
Assets - deferred accounts receivable $ 539,800 $ -
Liabilities - installment sale 121,400 153,000
Liabilities - accrued bonuses (148,000) -
Other (3,966) 5,900
----------- -----------
Net deferred tax liability $ 509,234 $ 158,900
----------- -----------
----------- -----------
8. STOCKHOLDERS EQUITY DATA:
Earnings per common share are computed on the basis of the weighted average
number of shares outstanding. As of December 31, 1995, 125,000 shares of
common stock issued to employees are restricted until such time as
specified performance targets are achieved. These performance criteria
were achieved at December 31, 1996, and therefore, all shares are now
unrestricted, except as provided by law.
On May 23, 1996, the Company's Board of Directors approved authorization
for an additional 10,000,000 shares of common stock, thus increasing the
number of shares authorized to 20,000,000.
9. STOCK-BASED COMPENSATION PLANS:
The 1995 Stock Option Plan provides for the grant of non-qualified options;
the exercise price established at $.50 per share to approximate fair
market value on the date of grant. Restricted stock awards vest over a
specific period of time not more than 2 years. The plan's expiration date
is July 5, 2005.
There were 300,000 shares of common stock reserved for stock option awards
at December 31, 1996 and 1995, respectively.
The following are the shares exercisable at the corresponding exercise
price at December 31, 1996 and 1995, respectively: 140,939 at $.50 and
33,000 at $.50.
13
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCK-BASED COMPENSATION PLANS, CONTINUED:
A summary of the status of the Company's stock options as of December 31,
1996 and 1995 changes during the year ended on those dates is presented
below:
WEIGHTED
SHARES (IN AVERAGE
THOUSANDS) EXERCISE PRICE
----------- --------------
Outstanding at December 31, 1994
Granted 300,000 $ .50
Exercised -
Expired -
-
----------- --------------
Outstanding at December 31, 1995 300,000 .50
Granted -
Exercised -
Expired -
----------- --------------
Outstanding at December 31, 1996 300,000 $ .50
----------- --------------
----------- --------------
FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123") was issued by the FASB in 1995 and, if fully adopted, changes the
methods for the recognition of cost related to stock option plans.
Adoption of SFAS 123 is optional. As a result, the Company continues to
apply APB opinion No. 25 and related Interpretations in accounting for its
plans. However in accordance with SFAS 123, pro forma disclosures as if
the Company adopted the cost recognition requirements under SFAS 123 in
1995 are presented below.
The fair value of each option granted during the year ended 1995 is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used to calculate both 1996 and 1995: (1)
Average dividend yield of 0%, (2) expected volatility of 120%, and (3)
expected life of 5 years. The month-end yields for a five year treasury
strip (equivalent zero coupon) were used for the risk-free interest rate.
This rate was 5.89% for 1995. There were no options granted in 1996.
Had the Company used the fair value methodology for determining
compensation expense, the Company's net income and net income per common
share would not have changed from amounts reported in the accompanying
financial statements.
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to
1995 and additional awards in future years are anticipated.
14
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. RELATED PARTY TRANSACTIONS:
The Company currently leases office and warehouse space through an entity
partially owned by a director/shareholder. The lease agreement calls for
monthly payments of $2,400 through November 1998. Rent expense related to
this lease amounted to $28,800 for the years ended 1996 and 1995.
A director/shareholder of the Company is also an officer, director and
shareholder of Long-Tell Communications, Inc., (see Note 14) a reseller of
long distance telephone services. Certain sales personnel of Teleco also
act as independent contractors for and receive commissions from Long-Tell
Communications, Inc.
At December 31, 1996, certain funds aggregating $400,000 were due from
related parties. The balance was paid during the first quarter 1997.
Additionally, a note receivable for $59,469 was recorded at the time of
sale. This balance was forgiven during 1996.
11. EMPLOYEE BENEFIT PLAN:
The Company sponsors a 401(k) plan that covers substantially all eligible
employees. Contributions to the Plan are discretionarily determined by the
Company's management. For the year ended December 31, 1996, contributions
totalled $7,240. There were no contributions to the Plan during 1995.
12. FOURTH QUARTER ADJUSTMENTS (UNAUDITED):
As a result of a change in the commission payment program in June 1996,
during the fourth quarter 1996, the Company performed an evaluation of the
Ameritech receivable balance. As a result of this review, adjustments to
revenue totalling $916,288 were recorded. These adjustments related to the
long-term receivables and certain bonus and accelerators due to the Company
upon reaching predetermined level of sales. If these adjustments were
recorded when earned, they would have the following effect on net revenues
and net income as previously reported:
<TABLE>
<CAPTION>
UNAUDITED
---------------------------------------------
AS
PREVIOUSLY
REPORTED ADJUSTMENTS RESTATED
------------ ----------- ------------
<S> <C> <C> <C>
Net revenues:
For the three months ended September 30, 1996 $ 2,588,107 $ 298,170 $ 2,886,277
------------ ----------- ------------
------------ ----------- ------------
Net income:
For the three months ended September 30, 1996 $ 161,944 $ 298,170 $ 460,114
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
15
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. COMMITMENTS AND CONTINGENCIES:
The Company and its subsidiaries lease office space, equipment and vehicles
under operating leases. Leases that expire are generally expected to be
renewed or replaced by other leases.
At December 31, 1996 future minimum rental payments applicable to
noncancelable operating leases were as follows:
1997 $ 127,344
1998 95,064
1999 43,350
----------
Total minimum lease payments $ 265,758
----------
----------
Rental expense for all operating leases was $206,211 and $90,262 in 1996
and 1995, respectively.
The Company is subject to legal proceedings and claims in the ordinary
course of its business that have not been finally adjudicated.
Ameritech is investigating allegations of forged customer signatures on
customer contracts for Ameritech's long distance services and products sold
by NCS as a sales representative of Ameritech.
No litigation has been commenced or is anticipated by management.
Ameritech has not, nor does management anticipate, additional adjustments.
There are no other claims that, in the opinion of management, would
materially affect the financial position or results of operations of the
Company.
16
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. SUBSEQUENT EVENTS:
On January 2, 1997, the Company acquired Northeastern Communication System,
Inc. ("NCS") under the provisions of a Stock Purchase Agreement. The
Company plans on accounting for this transaction as a purchase. Under the
terms of this agreement, the Company issued 400,000 shares of its common
stock, $400,000 in cash and assumed $365,772 of NCS's liabilities for all
of the outstanding common stock of NCS. Unaudited proforma financial
information (assuming the acquisition was effected on January 1, 1995) is
as follows:
TELECOMM NCS PROFORMA
------------ ------------- ------------
Year ended December 31, 1995:
Net revenues $ 5,645,321 $ 2,118,821 $ 7,764,142
Net income (loss) $ 205,087 $ (195,832) $ 9,255
Year ended December 31, 1996
Net revenues $ 10,560,785 $ 1,967,058 $ 12,527,843
Net income (loss) $ 552,226 $ (250,472) $ 301,754
In management's opinion, the proforma financial information is not
necessarily indicative of the results of operations that would have
occurred had the acquisition of NCS taken place on such date or of future
results of operations of the combined businesses under the combined
ownership of the Company.
Additionally, on January 2, 1997 the Company entered into a Stock Purchase
Agreement to purchase all of the outstanding stock of Long-Tell, Inc. of
Mentor, Ohio. Under the terms of this agreement, the Company issued
112,500 shares of its common stock, $25,000 cash and a $200,000 note
(bearing interest at a fixed rate of 9% and maturing January 2, 2002).
All of the shares issued in NCS and Long-Tell acquisitions have certain
restrictions that prohibit being traded until certain conditions are met.
On March 3, 1997, the Company signed a letter of intent to merge with
Unitel, Inc., a computer and telephone systems integrater. The merger is
subject to the execution of a definitive merger agreement and completion of
due diligence. Management continues to review this proposed transaction
and anticipates completion in the latter half of 1997.
17
F-19
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The current officers and directors of Telecomm are listed below. Each
has been duly elected or appointed to serve in the capacities set forth opposite
their respective names.
DATE SERVICE AS DIRECTOR POSITIONS WITH
NAME AGE OR OFFICER COMMENCED REGISTRANT
---- --- -------------------- ----------
Michael J. Toth 53 April 1994 Director
James M. Lowery 49 January 1996 Director
February 1997 Chairman
Frank Campanale 41 July 1995 Treasurer and Chief
Financial Officer
Deborah J. Heaton 42 April 1994 Vice President and
Secretary
Rita Koridek 42 February 1997 Director and
Vice President
Steven W. Smith 36 October 1993 Director
Raymond W. Sheets, Jr. 32 October 1993 Director
Peter Olk 49 February 1997 Director and
Vice President
Paul Stoyanoff 40 February 1997 Director and
Vice President
MICHAEL J. TOTH. Mr. Toth served as the Chairman of Telecomm from July
1995 to February 1997, and as a Director since July 1994. He has also been
President and a Director of Teleco since
9
<PAGE>
its inception. Mr. Toth has been for more than the past five years the
President, a Director and controlling shareholder of ASI, from which Teleco
acquired its operating assets in April 1994.
JAMES M. LOWERY. Mr. Lowery became Chairman of Telecomm in February 1997
and has been President of Seraphim since August 1992 and a Director of Telecomm
since July 1995. Previously, he was employed by Ameritech as Director of
Channel Management for the authorized distributors in Ameritech's marketing
area.
PETER OLK. Mr. Olk has served on the Board of Directors of Telecomm since
February 1997. From January 1992 to February 1997, he served as President and a
member of the Board of Directors of Northeastern Communications Systems, Inc.
RITA KORIDEK. Ms. Koridek has served as a Director of Telecomm since
February 1997 and as a Regional Vice President since January 1996. From January
1995 to January 1996, she was a partner in Seraphim and from January 1995 to
January 1997 she owned and managed St. James Sales and Consulting Group, an
Ameritech pay phone distributorship in Illinois. From December 1993 to January
1995, Ms. Koridek served as a Vice President of Ameritech.
FRANK CAMPANALE. Mr. Campanale has been Treasurer and Chief Financial
Officer of AND since August 1992 and Treasurer and CFO of Telecomm since July
1995. From 1989-91, he was the owner of Executive Services, an accounting and
bookkeeping service in Indiana.
PAUL STOYANOFF. Mr. Stoyanoff has served as a Director and Vice President
for Telecomm since February 1997. Prior to such time, he had served as the
Managing Vice President of A.N.D. since October 1994. From October 1990 to
October 1994, Mr. Stoyanoff served as a Regional Sales Manager for Tone
Commander Systems of Redmond, Washington.
DEBORAH J. HEATON. Ms. Heaton has been a Vice President of Telecomm since
April 1994 and of Teleco since its inception and for more than the past five
years has been the Vice President of ASI.
STEVEN W. SMITH. Mr. Smith has been a Director of Telecomm since October
18, 1993. From 1991 to December 31, 1994, he was also President and Chairman of
the Board of Directors of TCI. From 1989 to 1991 he was Vice President of
Technical Communications, Inc., a company engaged in the telecommunications
industry.
RAYMOND W. SHEETS, JR. Mr. Sheets has been a Director of Telecomm since
October 18, 1993. From 1991 to December 31, 1994, he was also Vice President,
Treasurer, Secretary and a Director of TCI.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Michael J. Toth failed to file three Form 4's to report four dispositions
of Common Stock by him. Such transactions were reported on a Form 5 for Mr.
Toth, which was filed with the Securities and Exchange Commission on February 3,
1997.
10
<PAGE>
Both Raymond W. Sheets, Jr. and Stephen W. Smith failed to file three Form
4's to report 9 dispositions of Common Stock each, throughout 1996, and one Form
4 to report the acquisition of Common Stock from Telecomm.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the aggregate annual remuneration of
Michael J. Toth, Chairman, James M. Lowery, President of Telecomm's Data
Division and Rita Koridek, Vice President for Telecomm's fiscal year ended
December 31, q1996. No other officer of the Company earned or received
remuneration in excess of $100,000 in fiscal year 1996.
CAPACITIES IN WHICH
NAME OF INDIVIDUAL REMUNERATION WAS RECEIVED SALARY BONUS (1)(2)
- ------------------ ------------------------- ------ ------------
Michael J. Toth Chairman $100,126 -0-
James M. Lowery President of Telecomm's $66,000 $86,000
Data Division (3)
Rita Koridek Vice President $65,000 $65,000
- --------------------------
(1) Includes commissions earned in fiscal year.
(2) Omits certain bonuses that may have been earned in fiscal 1996 but were not
calculable by the most recent practicable date of preparation of this Form
10-KSB.
(3) Subsequent to year end 1996, Mr. Lowery became Chairman of Telecomm.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of May 29, 1997
regarding ownership of Common Stock by each person known to Telecomm to
beneficially own more than 5% of Telecomm's Common Stock, each director and
executive officer of Telecomm, and directors and executive officers as a group.
11
<PAGE>
NAME AND ADDRESS(1) AMOUNT PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNED OF CLASS
- -------------- ------------------- ----- --------
Common Stock Michael J. Toth 460,000 4.8%
Common Stock Rita Koridek 190,000 2.0%
AND Industries
80 South LaGrange Rd.,
Suite #5
LaGrange, IL 60525
Common Stock James M. Lowery 190,000 2.0%
AND Industries
80 South LaGrange Rd.,
Suite #5
LaGrange, IL 60525
Common Stock Frank Campanale 147,501 1.5%
Common Stock Deborah J. Heaton 280,000 2.9%
Common Stock Steven W. Smith 2,061,000 21.4%
9241 Ravenna Road, Suite C9
Twinsburg, Ohio 44087
Common Stock Raymond W. Sheets, Jr. 2,061,000 21.4%
9241 Ravenna Road, Suite C9
Twinsburg, Ohio 44087
Common Stock Peter Olk 378,400 3.9%
Common Stock All officers and 5,767,901 58.8%
directors as a group
- ------------------------
(1) Address is the business address of Telecomm unless otherwise included.
12
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Telecomm's Mentor, Ohio facilities are leased from an entity which is owned
in part by Michael J. Toth, an officer and director and stockholder of Telecomm.
Mr. Toth was also an officer, director and stockholder of Long-Tell
Communications, Inc. ("Long Tell"), a reseller of long distance telephone
services. Certain sales personnel of Teleco also acted as independent
contractors of Long-Tell and received commissions from Long-Tell for sales in
fiscal 1996. Telecomm purchased all of the outstanding stock of Long-Tell on
January 2, 1997.
On April 30, 1996 Telecomm loaned Mr. Toth $100,000, which loan accrued
interest at a rate of 9.0% per annum. The principal of the loan was paid in
full on June 30, 1996. A balance of $1,500, representing interest, remains
outstanding.
The assets of TCI, a subsidiary of the Company, were sold to Telephone
Communications, Ltd., a corporation owned by Messrs. Smith and Sheets,
stockholders and directors of Telecomm, effective December 31, 1994. In
consideration for such sale, Messrs. Smith and Sheets issued Telecomm a
promissory note in the principal amount of $580,000, payable in 35 monthly
installments of $20,000. On January 2, 1997, Telecomm forgave the then
remaining balance of this promissory note, which was $59,469, in consideration
for the payment of the remaining balance of $400,000 then due.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
A. INDEX TO EXHIBITS
-----------------
Exhibit
Number Description
- ------ -----------
2.1 Merger Agreement dated September 5, 1995 regarding Authorized Network
Distributors, Inc.(1)
2.2 Merger Agreement dated January 23, 1996 regarding Seraphim Information
Systems, Inc.(2)
3.4 By-Laws of Registrant.(3)
- ---------------------------
(1) Filed as an exhibit to Telecomm's Current Report on Form 8-K dated
September 7, 1995, and incorporated herein by reference.
(2) Filed as an exhibit to Telecomm's Current Report on Form 8-K dated
January 25, 1996, and incorporated herein by reference.
(3) Filed as an exhibit to Telecomm's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
13
<PAGE>
3.5* Amended and Restated Certificate of Incorporation of the Registrant,
dated October 1, 1996
10.1* Non-Exclusive Authorized Distributor Agreement between Telecomm and
Ameritech.
21* Subsidiaries of Registrant.
27* Financial Data Schedule
B. REPORTS ON FORM 8-K.
None.
* Filed herewith
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELECOMM INDUSTRIES CORP.
By: /s/ James M. Lowery
--------------------------------------
James M. Lowery, Chairman
And: /s/ Frank Campanale
------------------------------------
Frank Campanale, Treasurer and
Chief Financial and Accounting Officer
Date: June 16, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Michael J. Toth Director June 16, 1997
- -------------------------
Michael J. Toth
/s/ Rita Koridek Director and June 16, 1997
- ------------------------- Vice President
Rita Koridek
/s/ James M. Lowery Director and June 16, 1997
- ------------------------- Chairman
James M. Lowery
/s/ Steven W. Smith Director June 16, 1997
- -------------------------
Steven W. Smith
/s/ Raymond W. Sheets, Jr. Director June 16, 1997
- -------------------------
Raymond W. Sheets, Jr.
/s/ Frank Campanale Treasurer and Chief Financial June 16, 1997
- ------------------------- and Accounting Officer
Frank Campanale
15
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TELECOMM INDUSTRIES CORP.
________________
FIRST: The name of the Corporation is Telecomm Industries Corp.
SECOND: The address of its registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the business is to engage in the business of
financing, leasing, selling, servicing and maintenance of any and all
kinds of business machines, equipment, supplies and accessories, and
any and all other products connected with or related thereto, and to
engage in all allied and incidental lines of business.
To act as consultants and engage, on its own behalf or for
others, in research, appraisal, analysis, programming, development and
other activities relating to the application, operation, repair,
functioning, use and other services relating to data processing
systems and components of data processing and computing machines of
every kind, nature and description, and in connection therewith, but
not by way of limitation, prepare and submit analyses,
interpretations, evaluations and recommendations in the fields of data
processing and computer system technology and programming techniques.
To own, operate and conduct educational institutions for the
purpose of providing a curriculum and courses related to computer
sciences, data processing, programming and similar related activities.
To produce, present, distribute, purchase, sell, furnish or
otherwise dispose of motion and still pictures relating to television
systems and to sell or lease such television equipment and systems and
other related audio-visual aids.
In general, to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The number of shares that the Corporation shall be authorized to
issue is 20,000,000, having a par value of $0.01 each.
FIFTH: The Corporation is to have perpetual existence.
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[caad 214]
<PAGE>
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more
committees, each committee to consist of two or more of the directors
of the Corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution or in the by-laws
of the Corporation, shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs of
the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; provided, however, the
by-laws may provide that in the absence or disqualification of any
member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in that place
of any such absent or disqualified member.
When and as authorized by the affirmative vote of the holders of
a majority of the stock issued and outstanding having voting power
given at a stockholders' meeting duly called upon such notice as is
required by statute, or when authorized by the written consent of the
holders of a majority of the voting stock issued and outstanding, to
sell, lease or exchange all or substantially all of the property and
assets of the Corporation, including its good will and its corporate
franchises, upon such terms and conditions and for such consideration,
which may consist in whole or in part of money or property including
shares of stock in, and/or other securities of, any other corporation
or corporations, as its Board of Directors shall deem expedient and
for the best interests of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or any creditor or
stockholder thereof, or on the application of any receiver or
receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for
this Corporation under the provisions of Section
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<PAGE>
279 of Title 8 of the Delaware Code, order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all
the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of this Corporation, as the case may be, and
also on this Corporation.
EIGHTH: The Corporation shall to the full extent permitted by Section 145
of the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
NINTH: Meetings of stockholders may be held within or without the State
of Delaware, as the by-laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the
by-laws of the Corporation. Elections of directors need not be
written ballot unless the by-laws of the Corporation shall so provide.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon stockholders herein are granted subject
to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its President and attested by its Secretary as of this 1st day of
October, 1996.
Telecomm Industries Corp.
By: /s/ Michael J. Toth
----------------------------------------
Michael J. Toth
Chairman
Attest:
/s/ Deborah Heaton
- ------------------------------
Deborah Heaton
Secretary
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<PAGE>
NON-EXCLUSIVE
AUTHORIZED DISTRIBUTOR AGREEMENT
BETWEEN
AMERITECH
AND
COMPANY
AUTHORIZED DISTRIBUTOR
E-4
<PAGE>
TABLE OF CONTENTS
1.0 APPOINTMENT OF DISTRIBUTORSHIP . . . . . . . . . . . . . . . . 1
2.0 TERRITORY. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.0 EXCLUSIVITY. . . . . . . . . . . . . . . . . . . . . . . . . . 1
4.0 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5.0 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . 1
6.0 AUTHORIZED DISTRIBUTOR DUTIES. . . . . . . . . . . . . . . . . 1
7.0 AMERITECH'S DUTIES . . . . . . . . . . . . . . . . . . . . . . 1
8.0 SALES AND COMMISSION . . . . . . . . . . . . . . . . . . . . . 12
9.0 THE PARTIES' RELATIONSHIP. . . . . . . . . . . . . . . . . . . 1
10.0 FACILITIES AND MATERIALS . . . . . . . . . . . . . . . . . . . 1
11.0 TRADEMARKS AND TRADE NAMES . . . . . . . . . . . . . . . . . . 1
12.0 OWNERSHIP OF INFORMATION AND CONFIDENTIALITY . . . . . . . . . 1
13.0 CUSTOMER PROPRIETARY NETWORK INFORMATION (CPNI) . . . . . . . 1
14.0 AUDITING AND INSPECTING OF DISTRIBUTOR'S RECORDS . . . . . . . 1
15.0 AGREEMENT NOT TO COMPETE . . . . . . . . . . . . . . . . . . . 17
16.0 GENERAL CONDITIONS . . . . . . . . . . . . . . . . . . . . . . 19
ANNEX A TERRITORY . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ANNEX B PRODUCTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
EXHIBIT 1 VOICE NETWORK PRODUCTS AND SERVICES . . . . . . . . . . . 24
EXHIBIT 2 USAGE PRODUCTS AND SERVICES . . . . . . . . . . . . . . . 25
EXHIBIT 3 CUSTOMER PREMISES EQUIPMENT (CPE) . . . . . . . . . . . . . 26
EXHIBIT 4 DATA PRODUCTS AND SERVICES. . . . . . . . . . . . . . . . . 27
ANNEX C COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . 28
EXHIBIT 1 OBJECTIVES. . . . . . . . . . . . . . . . . . . . . . . . . 45
ANNEX D CO-OP AND 5-STAR PROGRAM. . . . . . . . . . . . . . . . . . . 46
i
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<PAGE>
ANNEX E CODE OF BUSINESS CONDUCT FOR ADS. . . . . . . . . . . . . . . 47
ANNEX F HOUSE ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . 48
ii
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<PAGE>
NON-EXCLUSIVE
AUTHORIZED DISTRIBUTOR AGREEMENT
BETWEEN AMERITECH
AND
COMPANY
This Authorized Distributor Agreement made in duplicate this __ day of
__________, 19__ by and between Ameritech Corporation, a Delaware corporation
with offices at 225 West Randolph, Chicago, IL 60606 (hereinafter "Ameritech")
and Telecomm Industries, with offices at 1665 W. Quincy Avenue, Suite 151,
Naperville, IL, 60540, (hereinafter "Authorized Distributor" or "AD" (the
"Agreement").
RECITALS
WHEREAS, Ameritech is engaged in providing communications services;
WHEREAS, AD represents and warrants that it is qualified to market and sell
Ameritech communication services and has sufficient knowledge of Ameritech
communications services to do so;
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein, the parties agree as follows:
1.0 APPOINTMENT OF DISTRIBUTORSHIP
1.1 GRANT. Ameritech hereby grants to AD, upon the terms and conditions
hereafter set forth, the following non-exclusive rights in the territory
designated under Annex A ("Territory").
(a) The right to promote, market, and solicit orders for
Ameritech products and services identified under Annex B and
with all Exhibits thereto (hereinafter "Product" or
"Products"), said Annex with Exhibits is incorporated by
reference herein, and may be amended from time-to-time by
Ameritech in its sole discretion. Each amendment shall be
deemed to have been included as if originally set forth
under the Annex (hereinafter this right is called
"Distribute" or "Distribution"). In no event shall AD have
the right to Distribute within the Territory, identified in
the contract, Ameritech products which are not authorized
under Annex B or for which AD and Ameritech have not entered
into a separate distribution Agreement.
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<PAGE>
(b) The right to represent to others its status as an Ameritech
Authorized Distributor.
1.2 PRODUCTS. Ameritech reserves the right to promote, market and sell
its Products, including, but not limited to, the right to send technical or
sales personnel to any place inside or outside the Territory to assist in
contacting potential customers, soliciting business and promoting the sale of
its products and services. In addition, Ameritech reserves the right to appoint
other ADs or may use such other means as it sees fit to Distribute its products
and services in the Territory.
1.3 SUBDISTRIBUTORS. The AD acknowledges that only those distributors who
are specifically and directly authorized in writing by Ameritech are permitted
to function and represent themselves as Ameritech Authorized Distributors. The
AD shall not appoint or in any way authorize anyone to distribute or represent
themselves as authorized to distribute or sell as an agent or "authorized"
Ameritech Distributor, and AD shall not sell Products to any such distributor,
representative or agent nor shall AD process orders with Ameritech for network
service products marketed or sold by any such distributor, representative or
agent unless such person(s) have been certified under standards solely set by
Ameritech, and the individual has been registered by Ameritech, and such
authorization shall have been previously and expressly approved in writing by
Ameritech. In the event that the AD violates this provision, Ameritech shall
have the right, in addition to any other right that Ameritech may have, to
terminate this Agreement immediately.
1.4 BRANCH LOCATIONS. The AD agrees that marketing and sales of the
Products requires the AD to maintain, at all times during this Agreement, a
physical presence and a formal place of business in the Territory. If AD
desires to market and/or sell Products outside the Territory, AD agrees it is
not authorized to do so without prior written approval by Ameritech.
Ameritech's approval may be conditioned, at its sole discretion, on one or all
of the following:
(a) Ameritech and AD enter into a separate Distribution Agreement whereby
Ameritech makes a separate grant or appointment in the new Territory;
(b) AD's annual sales commitment and sales objective level is modified by
Ameritech to recognize the new Territory(ies), said modification,
in content and form, will be at Ameritech's sole discretion.
(c) AD submits to Ameritech written documentation regarding the AD's
2
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<PAGE>
proposed activities and objectives in the marketing and
sales of the Products in the new Territory(ies); said
documentation will be deemed satisfactory at Ameritech's
sole discretion.
In the event AD violates this provision, Ameritech shall have the right, in
addition to any other right that the Company may have, to terminate this
Agreement immediately.
1.5 HOUSE ACCOUNTS. AD is not granted the right to Distribute Products to
accounts identified by Ameritech as House Accounts. AD will be provided a list
of House Accounts from time-to-time, and Ameritech may amend such list in its
sole discretion. AD will have ninety (90) days from the date an account is
designated by Ameritech as a House Account to close all pending sales activity.
AD will not be awarded commission on any sale made to a House Account after
ninety (90) days from the date the account is so designated. Ameritech shall
notify AD of House Account designation according to Annex F hereunder
("Notice").
1.6 RESELLER. In no event is AD granted the right or authority to sell
Products to anyone whom the AD knows, or should have known, is not at the time
of sale or within two (2) years thereafter, the end user of the Product.
1.7 AD accepts the appointment granted above and agrees to comply with all
the terms and conditions of the Agreement.
2.0 TERRITORY
2.1 The AD's non-exclusive geographic territory is set forth in Annex A,
which is incorporated by reference herein. Annex A may be amended from
time-to-time by Ameritech at Ameritech's sole discretion and such amendment
shall be deemed to have been included as if originally set forth under Annex A.
AD will be given thirty (30) days notice prior to the effective date of any
amendment.
2.2 Ameritech and AD may in certain cases agree that AD will have the
right to Distribute to a customer outside the Territory. AD shall have no
right to Distribute outside the Territory without prior written approval of
Ameritech. In no event shall AD have the right to Distribute any Ameritech
Product which AD is not specifically authorized to Distribute under the
Agreement.
3
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<PAGE>
3.0 EXCLUSIVITY
Ameritech may terminate this Agreement immediately if Ameritech knows or
has a reasonable belief that the AD is marketing, selling or in some way
promoting the sale and use of intraLATA telecommunications services which are
competitive with Ameritech.
4.0 TERM
This Agreement shall commence when executed by both parties and, shall
continue in full force for a period of two (2) years unless sooner terminated
by either party as provided herein. This Agreement will terminate without
notice at the end of the term; an extension of the relationship beyond that
date will require mutual signing of a new agreement.
5.0 TERMINATION
5.1 TERMINATION
(a) Either party may terminate this Agreement for any reason
upon thirty (30) days written notice to the other party.
(b) Ameritech may terminate this Agreement in whole or in part
upon fifteen (15) days written notice in the event AD fails
to perform or commits a breach of any term or condition of
this Agreement. The parties agree this shall be deemed
termination for cause.
(c) Notwithstanding 5.1(a) and (b) above, it is agreed that
Ameritech may terminate this Agreement without notice in the
event of: (i) an assignment by the AD for the benefit of
creditors; (ii) the institution of voluntary or involuntary
proceedings against the Authorized Distributor in
bankruptcy, or under any other insolvency or similar law
which is not dismissed within sixty (60) days; (iii) the
dissolution of the Authorized Distributor; (iv) an attempted
assignment of this Agreement by the Authorized Distributor
without Ameritech's prior written consent; (v) any sale,
transfer or relinquishment of any substantial interest in
the ownership or any substantial change in management of the
AD;
4
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<PAGE>
(vi) serious delinquency on any AD account with Ameritech.
"Serious delinquency" is determined solely by Ameritech at its
discretion but in no event will be delinquency of less than
ninety (90) days; (vii) submission by the AD to Ameritech of any
false or fraudulent reports or statements including, but not
limited to, any false or fraudulent claims for credits or
reimbursement under the "Co-Op" or "5 Star Programs";
(viii) submission of any sales agreement by the AD, any of its
representatives, or its agents which is subsequently found to
contain forged customer signatures or of which the customer
denies any knowledge of placing an order with AD.
5.2 All indebtedness of the AD to Ameritech shall become due and payable
immediately upon notice of expiration or termination for any reason of this
Agreement. Indebtedness includes, but is not limited to, commission payments to
be returned to Ameritech, and the amount due on all orders or invoices for
customer premises equipment ("CPE"). Ameritech reserves the right to refuse to
install or ship any CPE Products, install or provide any non-CPE Products which
appear on an order from AD which is unfulfilled or not completed on or before
the date of the expiration or termination of this Agreement.
5.3 Upon termination or expiration of this Agreement, however brought
about, the AD shall no longer be an Authorized Distributor of Ameritech's
products. The AD agrees:
(a) To provide to Ameritech within three (3) business days from
the termination or expiration of this Agreement a detailed
report of all work in progress under this Agreement,
including but not limited to pending sales and
installations;
(b) To remove and return to Ameritech or destroy at Ameritech's
sole option any material, including but not limited to; manuals,
catalogues, brochures, advertising copy, and training material;
(c) The AD shall remove and discontinue the use of any sign or
any other designation containing any of Ameritech's trademarks or
trade names. Should such trademarks or trade names be printed on
any of the AD's letterhead or other written documents, the written
documents shall promptly be reprinted so as to remove any such
trademarks or trade names of Ameritech. This includes, but is not
limited to; AD's duty to ensure that all publishers and others who
may identify, list or publish AD's identity or name as a marketer,
promoter or
5
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<PAGE>
supporter of Ameritech Products are notified that such identification
or publication is prohibited as of the date this Agreement is
terminated or expired. Publishers means, but is not limited to;
publishing of telephone directories, yellow pages, association
directories, or membership rolls;
(d) Comply with all terms set forth under Annex B, incorporated
by reference herein, which sets forth AD's responsibilities
upon termination of its right to distribute the Ameritech
Product;
5.4 Upon termination Ameritech at its sole discretion will designate
itself or another AD to act as successor to AD in providing Ameritech Products
and servicing of Ameritech Products to customers "in progress" at time of
termination and customers whose agreements for Ameritech Products are still in
effect.
5.5 Upon termination or expiration of this Agreement, the treatment of
commission residuals is governed by Annex C, Section 3.
6.0 AUTHORIZED DISTRIBUTOR DUTIES
6.1 The AD agrees to use its best efforts to promote, encourage and
increase the sale to and acceptance by customers of the Products within the
Territory.
6.2 The Distributor shall satisfy the minimum annual and quarterly sales
performance standards as set forth under Annex C, Exhibit 1. Annex C, Exhibit 1
may be amended at Ameritech's discretion and each such amendment shall be deemed
to have been included as if originally set forth on Exhibit 1.
6.3 The Distributor shall comply with Ameritech policies and practices
issued by Ameritech from time-to-time regarding, but not limited to; order
processing, Product Methods and Procedures, quality and location of advertising,
placement and promotion of Ameritech Products, and Distribution Commission
Policies and Procedures.
6.4 AD agrees that Ameritech's business reputation is one of its most
valuable assets. Distributor will always employ a high degree of integrity in
selling to its customers and will not, by act or omission, tarnish that
reputation. AD agrees to comply at all times with the Ameritech Authorized
Distribution Code of Business
6
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<PAGE>
Conduct incorporated by reference herein as Annex E, which may be modified by
Ameritech from time-to-time and such modification shall be construed as if
set forth originally herein. In addition, AD agrees to:
(a) Not mislead customers either by advertising, oral statement, or
otherwise;
(b) Not use Ameritech's brand to entice, for bait and switch, or any
similar purposes.
(c) Not refer to or in any way disparage other Ameritech
Distributors in advertising or promotional materials, or at
any time during the selling process whether in oral or
written communications to any potential or existing
Ameritech customer.
6.5 INQUIRIES, QUOTATIONS AND CUSTOMER RELATIONS
(a) AD shall promptly transmit any inquiries relative to
Products in the manner prescribed by Ameritech.
(b) AD agrees to make available to Ameritech the names and
addresses of all purchasers of Ameritech products and agrees
not to disclose the names and addresses of such purchasers
to any other person, firm or corporation unless otherwise
authorized hereunder.
6.6 AD shall furnish Ameritech such financial statements as may be
reasonably requested by Ameritech's credit manager for Ameritech's
confidential use in evaluating the AD's credit. In the event AD is
authorized to sell CPE pursuant to Annex B, Exhibit 3 hereunder, Ameritech
has the right to deny shipment of goods to AD upon the Ameritech credit
manager's findings of unsatisfactory credit and AD's inability to provide
adequate assurances within five (5) days of Ameritech's notification of
unsatisfactory credit.
6.7 AD agrees to indemnify and hold Ameritech harmless from any claims
or losses, including attorney's fees, arising out of any acts or omissions of
the AD in connection with the AD's possession, distribution, use,
demonstration of or statements (whether oral or written) with respect to the
Products, or with respect to any representation or warranty given, or
allegedly given, by AD with respect to the Products, whether such
representation is oral or written, express or implied other than set forth
elsewhere under this Agreement (including of Annexes attached hereto).
7
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<PAGE>
6.8 AD agrees to indemnify and hold Ameritech harmless from, for and
against any loss, damages, liability and claim, including without limitation,
reasonable attorney's fees and other costs incident to any claim, suit,
action or other proceeding which arises out of or results from any and all
willful acts and omissions of AD, its employees, agents and assigns while
acting under this Agreement.
7.0 AMERITECH'S DUTIES
7.1 Ameritech shall from time-to-time furnish to the AD such quantities
of catalogues, brochures, pamphlets, promotional and other materials
pertaining to the products and services as Ameritech deems to be appropriate
to assist AD in promoting and developing the sale and acceptance of the
products and services in the Territory.
7.2 Ameritech agrees to use reasonable efforts to promote, encourage and
increase the sale to and acceptance by customers of the products and services
within the Territory.
7.3 Ameritech shall conduct such sales and installation training
programs at a local or regional level for the AD's sales force as Ameritech
may deem appropriate and beneficial to it and its ADs.
7.4 Ameritech shall pay commissions to AD pursuant to terms set forth
elsewhere in this Agreement.
7.5 Ameritech will provide Co-Operative advertising under its "Ameritech
Authorized Distributor Co-Op Program" ("Co-Op"). The terms, conditions,
limitations and obligations of the parties under the Co-Op program are set
forth in the document titled, "The Co-Op and 5-Star Program" dated "March 15,
1996," which is incorporated herein as if set forth in its entirety as Annex
D. The program shall be modified, up to and including discontinuance of the
program in whole or in part, by Ameritech in its sole discretion, and such
modification shall be construed as if set forth originally herein.
7.6 Ameritech, on an annual basis, will provide AD with "Partners in
Excellence" criteria which sets forth Performance Categories which Ameritech
will use to evaluate and rate AD's performance for the purpose of identifying
those ADs whose performance qualifies it to use the designation and status
as an "Ameritech 5-Star Authorized Distributor" ("5-Star") and to receive the
benefits associated with 5-Star status.
8
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<PAGE>
8.0 SALES AND COMMISSION
8.1 Ameritech agrees to pay AD commission pursuant to Annex C hereunder.
8.2 Ameritech shall pay commission to AD on sales of Products within the
Territory; and will only pay commission for sales out of Territory as
provided for elsewhere in this Agreement. In no event will Ameritech pay
commission on sale of Products to a purchaser whom the AD knew or should have
known would not be the end user.
8.3 Commissions are earned and paid by Ameritech to AD pursuant to Annex C.
8.4 Ameritech reserves the right to make special arrangements with AD
with respect to commission on an individual account sale without invalidating
this Agreement, and such arrangements are not to be considered as
establishing a precedent.
8.5 AD has no authority to bind Ameritech and all orders are subject to
acceptance by Ameritech in the manner from time-to-time prescribed by
Ameritech, therefore, AD shall not be awarded commission on any sale or order
until so accepted. Acceptance will not be unreasonably withheld. Ameritech
as supplier has the right to refuse any order from AD for any reason which
Ameritech deems sufficient and AD shall not be entitled to any commission on
any order so refused.
8.6 In the event of a commission discrepancy between the sales reflected
on an AD's sales and/or commission report and the sales submitted to and
approved by Ameritech, AD may request an audit of Ameritech's records on the
commission paid to AD. The AD may employ such assistance as it deems
desirable to conduct the audit, but may not use the assistance of (i) a
person or an entity that competes or whose employer competes with Ameritech;
(ii) that is the principal outside auditor of a competitor of Ameritech
(unless such auditor is also the AD's principal outside auditor); or, (iii)
is someone to whom Ameritech reasonably objects to performing any such audit.
AD shall cause any person or firm retained to provide such assistance to
execute a non-disclosure agreement in favor of Ameritech. If the audit
reveals that Ameritech made an error in its favor totaling twenty-five
percent (25%) or more of the year to date commissions earned reported on the
most current Ameritech commission report, Ameritech will bear the expense of
the audit provided AD submits evidence of actual expense.
9
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<PAGE>
9.0 THE PARTIES' RELATIONSHIP
9.1 The AD is and will hold itself out to be an independent contractor
and not an agent, partner or employee of Ameritech. The AD shall not be
authorized to make any promise, warranty or representation on Ameritech's
behalf with respect to the Products, or any other matter, except as expressly
authorized in writing by Ameritech. AD acknowledges that it has awarded no
fee to Ameritech in connection with this Appointment, and Ameritech has not
provided AD with any marketing plan or system.
9.2 The AD acknowledges its separate responsibility for all applicable
federal, state, and local taxes for itself and any of its employees, and
agrees to indemnify and hold Ameritech harmless from any claim or liability
therefor.
10.0 FACILITIES AND MATERIALS
AD represents and warrants that it has adequate facilities, equipment,
means of transportation, sales force, distribution capabilities and business
office and clerical staff necessary to promote the sale of Products and to
perform the services required by this Agreement. Ameritech reserves the
right to obtain access to AD's facilities to examine facilities and materials
during AD's regular business hours. AD also represents that none of the
above items has been specifically acquired or obtained for the performance of
this Agreement.
11.0 TRADEMARKS AND TRADE NAMES
11.1 Ameritech hereby grants to AD a limited, non-exclusive,
non-transferable, non-sublicenseable, royalty-free right to use in the
Territory the AMERITECH trade names, trademarks, and service marks,
(hereinafter, "the Marks") as set forth in Annex D, in conjunction with the
Products, subject to the limitations set forth herein.
11.2 High product and service quality and accurate reproduction of the
Marks are uppermost. The AD agrees to display the Marks in a manner that
will cause the Marks to be identified as the trademarks or trade names of
Ameritech and to display such trademarks or trade names using only the
lettering, styles, designs or other indicia approved by Ameritech. AD must
comply with Ameritech's Identity Guidelines, set forth under Annex D hereto,
in its use of the Marks. Ameritech may at its sole discretion modify the
Identity Guidelines from time-to-time.
10
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<PAGE>
11.3 AD must provide Ameritech for approval samples of all packaging,
advertising and other materials bearing the Marks before it sells, uses, or
publishes them. Ameritech will attempt to answer promptly. With respect to
such packaging and other materials (except advertising), if Ameritech does
not respond within sixty (60) days of receipt they will be disapproved. With
respect to advertising, if Ameritech does not respond within thirty (30) days
the advertising will be considered approved. AD will not change from the
approved product, packaging, advertising or other usage without first
obtaining written approval.
11.4 AD is authorized only to use the Marks in conjunction with Ameritech
products and services, the quality of which has been approved. The AD will
comply with all applicable governmental regulations. Ameritech may inspect,
observe, and/or review the licensed products and/or services on AD's premises
during business hours.
11.5 AD acknowledges the substantial value of the Marks and the goodwill
associated therewith and acknowledges that such goodwill is a property right
belonging to Ameritech. AD recognizes that Ameritech is the owner of the
Marks, and that nothing contained in this Agreement is intended as an
assignment or grant to the AD of any right, title, or interest in or to the
Marks. AD shall not do anything inconsistent with Ameritech's ownership of
the marks, and all use of the marks by AD shall inure to the benefit of and
be on behalf of Ameritech. AD shall not adopt, use (other than the licensed
right provided for herein), register, or seek to register any name or mark
anywhere in the world which is identical to any of the Marks or which is
confusingly similar thereto, or so similar thereto as to constitute a
colorable imitation thereof or to suggest some association, sponsorship,
and/or endorsement by Ameritech. AD will not alter, modify, dilute, or
misuse the Marks, bring them into disrepute, or challenge Ameritech's rights
in them. AD shall cooperate with Ameritech as may be reasonably necessary
for Ameritech to protect, prosecute or defend its rights with respect to the
Marks.
11.6 Ameritech shall have the sole right to engage in infringement or
unfair competition proceedings to the extent that they involve the Marks. AD
shall promptly notify Ameritech of the particulars of any suit or claim
brought against AD based on its use of the Marks and of any suspected
infringement of or challenge to the validity, registration, or Ameritech's
ownership of the Marks of which AD becomes aware. Ameritech may, in its sole
discretion, institute or defend proceedings as it shall deem fit. If
Ameritech undertakes the prosecution or defense of any litigation relating to
the Marks, AD agrees to execute any and all documents and to do whatever acts
and things as may, in the opinion of counsel for Ameritech, be necessary or
advisable to carry out the prosecution or defense, or to settle any such
claim or suit. If, in Ameritech's sole judgment, any claim or suit for
infringement brought by a third party can be avoided or resolved by the
discontinuation of the use of a Mark by the AD, Ameritech shall so notify the
AD and the AD shall discontinue all use of the Mark pursuant to paragraph
11.8 herein.
11
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<PAGE>
11.7 AD will not use the Marks in its business except in accordance
with this Agreement and will not combine the Marks with any other marks,
names, or symbols without Ameritech's written consent. The AD shall refrain
from using any name, trademark, trade name, logo, slogan, label, title or
insignia, or one confusingly similar thereto, now or hereafter owned, adopted
or used by Ameritech (whether registered or unregistered) in any manner, or
any medium, or for any other reason than that approved by Ameritech, and
shall refrain from any use in any geographic area outside of the Territory.
AD will not use any of the Marks, or any part of any of the marks, as an
Internet domain name.
11.8 Upon expiration or termination of this Agreement for any reason,
AD shall immediately discontinue use of any trademark, trade name, logo,
slogan, label, title or insignia now or hereafter owned, adopted or used by
Ameritech (whether registered or unregistered), and destroy all printed
materials (including but not limited to business cards, letterhead,
promotional and advertising materials, store signage, vehicle signage, and
customer premises stickers and signage) bearing any of the marks.
11.9 No license granted hereunder shall be assignable or transferable
in any manner whatsoever, nor shall AD have any right to grant any
sublicense.
11.10 Ameritech shall indemnify and hold AD harmless from any and all
damage or expense resulting from valid trademark infringement claims with
respect to any of the Marks used by the AD pursuant to this Agreement,
provided, however, that:
(a) Ameritech is given notice within ten (10) days after
the AD received notice of such claim or suit for
infringement, together with full information with
respect thereto, and complete control of the defense
and any settlement thereof; and
(b) AD's use of the Mark(s) which gives rise to a claim is
a permitted use in accordance with this Agreement.
11.11 No other rights are granted to AD to use any trademarks, trade
names, service marks or service names of Ameritech or its affiliates. Further,
no licenses, warranties, or indemnifications, express or implied, under any
patents, copyrights, or any trade secrets are granted to AD.
11.12 This Section 11 and all its subsections shall survive any
termination or expiration of this Agreement.
12
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<PAGE>
12.0 OWNERSHIP OF INFORMATION AND CONFIDENTIALITY
12.1 All business information and materials containing information
disclosed to AD by Ameritech or its representative, agent or employee or
otherwise learned by the AD heretofore or hereafter, including, but not
limited to, lists of present or prospective customers or of persons that have
or shall have dealt with Ameritech or purchased products through the AD or
otherwise; management information reports; details of contracts, operational
methods, plans or strategies; business acquisition plans; new personnel
acquisition plans; and other business affairs of Ameritech and any of its
affiliates, are and shall be treated by the AD as Ameritech confidential
information during the period of this Agreement and at all times thereafter.
That information shall not be disclosed by AD to any person except officers
and employees of the AD requiring that information or materials to perform
services pursuant to this Agreement, and shall not be used for the benefit of
the AD except in connection with services rendered pursuant to this
Agreement. The AD shall require all officers, employees and agents to whom
that information is disclosed to agree, to the same extent as the AD has
agreed, to maintain the confidentiality of the information and materials and
not disclose that information or those materials to others. The AD shall be
liable to Ameritech for damages caused by any breach of this provision or by
any unauthorized disclosure of that confidential information and those
materials by its officers, employees or agents.
12.2 Ameritech and AD agree that AD will disclose and identify
information as Confidential Information during the term of this Agreement,
including, but not limited to financial information statements. Ameritech
agrees that AD Confidential Information will protect the disclosure of such
information to the same extent it protects its own Confidential Information.
In no event is Ameritech authorized to disclose AD Confidential Information
outside of Ameritech without prior written approval of AD.
12.3 The obligations of Section 12.1 and 12.2 shall not apply to any
information and materials covered under section 11.1 which is: (i) available
to the public through no breach of this Agreement; (ii) is required by law or
regulation to be disclosed, but only to the extent and for the purposes of
such required disclosed; or, (iii) is disclosed in response to a valid order
of a court or other governmental body of the United States with jurisdiction
over such order, but only to the extent of and for the purposes of such order
and only if the AD first notifies Ameritech of the order and permits
Ameritech to seek an appropriate protective order.
12.4 All subscriber and customer information, which includes, but is
not limited to, subscriber and customer lists; use of products and services;
billing and related information; and, subscriber and customer satisfaction
information, all of which is collectively referred to as "Subscriber
Information" is the exclusive property of Ameritech and is to be used by AD
only for purposes of this Agreement, and promptly returned to Ameritech upon
termination or expiration of this Agreement.
12.5 This Section 12 and all its subsections shall survive the
termination or expiration of this Agreement.
13
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<PAGE>
12.6 The terms of the Agreement are Confidential Information of Ameritech
and AD.
13.0 CUSTOMER PROPRIETARY NETWORK INFORMATION (CPNI)
AD shall comply with all Customer Proprietary Network Information ("CPNI")
legal and regulatory requirements as interpreted by Ameritech and provided by
Ameritech from time-to-time.
14.0 AUDITING AND INSPECTING OF DISTRIBUTOR'S RECORDS
During the term of this Agreement and for one (1) year after termination
or expiration of this Agreement, Ameritech reserves the right to obtain
access to and examine fully the books, records and account of all
transactions and activities covered by this Agreement with reasonable notice
to AD and during AD's regular business hours.
15.0 AGREEMENT NOT TO COMPETE
15.1 During the term of this Agreement and for one (1) year after the
expiration or termination for any reason of this Agreement, AD, its
directors, officers, and shareholders (except those holding stock in the AD
corporation whose stock is publicly traded and which is subject to the
reporting requirements of the Securities Exchange Act of 1934 and then only
to the extent of owning not more than 10% of the issued and oustanding shares
of such corporation), collectively and individually, shall not:
a) Solicit a customer or an account to buy or install any
products or services which are of a similar type or serve
the same purpose or perform the same function as the
products and services covered by this Agreement if the AD
earned any commission for a sale to that customer or account
during the term of this Agreement.
b) Try to persuade any such customer to buy or install any
products or services described in (a) above from anyone but
Ameritech directly, including, but not limited to, other
Ameritech ADs, distributors, or representatives.
14
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<PAGE>
c) Use for its own purposes, or sell, convey, or transfer in
any way, any Ameritech information covered under Section 12
and Section 13 herein to any third party.
The purpose of this Section is to protect Ameritech's customer
relationships and Ameritech's customer information. AD agrees that these
commitments are necessary to protect Ameritech's legitimate business interests.
15.2 The AD and its shareholders and officers, jointly and severally,
acknowledge and agree that the remedy at law for any breach, or threatened
breach, of any of the provisions of this Section 15 will be inadequate, and
the AD and its shareholders jointly and severally covenant and agree that
Ameritech shall in addition to any other rights or remedies which Ameritech
may have, be entitled to such equitable and injunctive relief as may be
available from any court of competent jurisdiction for any violation of these
provisions. In the event that any of the provisions of this Section 15 shall
be determined by a court of competent jurisdiction to be in violation of
applicable law for any reason whatsoever, then any such provision or
provisions shall not be deemed to be void, but shall be deemed to be
automatically amended so as to comply with applicable law. All rights,
remedies and relief available to Ameritech shall be exercised at Ameritech's
sole option.
15.3 The parties agree that this Section 15 shall not apply to the
Products under Annex B, Exhibit 3 or any other customer provided equipment.
16.0 GENERAL CONDITIONS
16.1 This Agreement shall be executed in duplicate but shall not be
binding upon Ameritech until a copy is signed by AD and executed by Ameritech.
16.2 All Recitals, Annexes, Exhibits and Appendices to this Agreement
are fully incorporated into this Agreement.
16.3 This Agreement contains the entire agreement of the parties and
cancels all prior agreements by and between Ameritech and AD relating to the
subject matter hereof, whether written or oral, and all such prior agreements
are hereby deemed terminated by mutual consent of the parties.
16.4 With respect to the Annexes and Exhibits thereto, except for Annex C,
Sections 3A paragraph 1 and 3A paragraph 2 revisions or modifications may be
made by Ameritech unilaterally and shall become effective
15
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<PAGE>
without the requirement of acknowledgment or any other act by AD ten (10)
calendar days following written notice by Ameritech.
16.5 The failure of Ameritech to enforce at any time any provision of
this Agreement, or to exercise any option which is herein provided, or to
require or fail to require at any time performance by the AD of any provision
herein, shall in no way affect the validity of, or act as a waiver of this
Agreement, or any part hereof, or any right of Ameritech thereafter to
enforce it.
16.6 Any notice or other communication required by this Agreement will
be deemed to have been duly given if deposited in the mail, postage prepaid,
and addressed to the party entitled to receive it at the address set forth
below.
(a) IF TO AMERITECH SERVICES
Ameritech
225 W. Randolph, Floor 19A
Chicago, IL 60606
Attn.: Alternate Channels
with a copy to:
---------------------------------
---------------------------------
---------------------------------
Attn.:
---------------------------
(b) IF TO AD
Telecomm Industries
1665 W. Quincy Avenue, Suite 151
Naperville, IL 60540
ATTN: Andrew Gorogiani
16.7 All Section headings and captions used in this Agreement are for
convenience or reference only and are not intended to define or limit the
scope of any provisions in this Agreement.
16
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<PAGE>
16.8 Ameritech shall have the right to set-off against any payment due
by Ameritech to AD any amount(s) owed to Ameritech by AD. Upon termination
or expiration of this Agreement for any reason, AD shall pay any amount due
to Ameritech immediately through set-off or otherwise.
16.9 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors, heirs, personal representatives and
assigns and shall not be directly or indirectly assigned or transferred by
the AD in whole or in part without the express written consent of Ameritech.
IN WITNESS WHEREOF, AND INTENDING TO BE LEGALLY BOUND, THE UNDERSIGNED
AUTHORIZED PARTIES HAVE DULY EXECUTED THIS AGREEMENT EFFECTIVE ON THE DATE.
AMERITECH SERVICES, INC.
by /s/ Cathy Poulton
--------------------------------
Signature
Cathy Poulton
--------------------------------
Name Typed or Printed
its GENERAL MANAGER ALTERNATE CHANNELS
--------------------------------
date JUNE 4, 1996
--------------------------------
AUTHORIZED DISTRIBUTOR
TELECOMM INDUSTRIES CORP.
--------------------------------
Firm Name Typed or Printed
by /s/ Andrew Gorogiani
--------------------------------
Signature
Andrew Gorogiani
--------------------------------
Name Typed or Printed
its President
--------------------------------
date 5/29/96
--------------------------------
17
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<PAGE>
Annex A
ANNEX A TERRITORY
This Annex to the Non-Exclusive Authorized Distributor Agreement Between
Ameritech And Telecomm Industries ("AD") dated 5/29/96 (the "Agreement").
AD is hereby granted the right to Distribute pursuant to its Agreement
with Ameritech dated 5/29/96 in the Territory hereunder. AD's right under
the Agreement and this Annex is contingent on full execution of the Agreement
and the signature of both parties at the end of this Annex. The treatment of
sales made by AD outside of the Territory specifically identified herein are
governed by the rules and limitations found elsewhere in the Agreement.
STATE: Illinois
AREA CODES: 312; 708; 847; 630 (MSA1); 217; 309
If a business unit is not listed here specifically, sales by AD to
customers classified by Ameritech as served by that business unit are
considered out of Territory sales for purpose of this Agreement.**
SBS
--------------------------------------
EBS
--------------------------------------
CBS
--------------------------------------
--------------------------------------
*Any area code split will result in automatic inclusion of the new area
codes unless AD is otherwise notified in writing by Ameritech.
**Key - CBS means customers of the Custom Business Services business unit
EBS means customers of the Enhanced Business Services business unit
SBS means customers of the Small Business Services business unit
18
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<PAGE>
Annex A
ANNEX A TERRITORY
This Annex to the Non-Exclusive Authorized Distributor Agreement Between
Ameritech And Telecomm Industries ("AD") dated 5/29/96 (the "Agreement").
AD is hereby granted the right to Distribute pursuant to its Agreement
with Ameritech dated 5/29/96 in the Territory hereunder. AD's right under
the Agreement and this Annex is contingent on full execution of the Agreement
and the signature of both parties at the end of this Annex. The treatment of
sales made by AD outside of the Territory specifically identified herein are
governed by the rules and limitations found elsewhere in the Agreement.
STATE: Indiana
AREA CODES: 219; 317; 812
If a business unit is not listed here specifically, sales by AD to
customers classified by Ameritech as served by that business unit are
considered out of Territory sales for purpose of this Agreement.**
SBS
--------------------------------------
EBS
--------------------------------------
CBS
--------------------------------------
--------------------------------------
*Any area code split will result in automatic inclusion of the new area
codes unless AD is otherwise notified in writing by Ameritech.
**Key - CBS means customers of the Custom Business Services business unit
EBS means customers of the Enhanced Business Services business unit
SBS means customers of the Small Business Services business unit
19
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<PAGE>
Annex A
ANNEX A TERRITORY
This Annex to the Non-Exclusive Authorized Distributor Agreement Between
Ameritech And Telecomm Industries ("AD") dated 5/29/96 (the "Agreement").
AD is hereby granted the right to Distribute pursuant to its Agreement
with Ameritech dated 5/29/96 in the Territory hereunder. AD's right under
the Agreement and this Annex is contingent on full execution of the Agreement
and the signature of both parties at the end of this Annex. The treatment of
sales made by AD outside of the Territory specifically identified herein are
governed by the rules and limitations found elsewhere in the Agreement.
STATE: Ohio
AREA CODES: 216; 614; 513; 216, 330-Akron/Canton/Youngstown
If a business unit is not listed here specifically, sales by AD to
customers classified by Ameritech as served by that business unit are
considered out of Territory sales for purpose of this Agreement.**
SBS
--------------------------------------
EBS
--------------------------------------
CBS
--------------------------------------
--------------------------------------
*Any area code split will result in automatic inclusion of the new area
codes unless AD is otherwise notified in writing by Ameritech.
**Key - CBS means customers of the Custom Business Services business unit
EBS means customers of the Enhanced Business Services business unit
SBS means customers of the Small Business Services business unit
20
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<PAGE>
[Redacted]
21
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<PAGE>
Annex E
ANNEX E CODE OF BUSINESS CONDUCT FOR ADS
This Annex to the Non-Exclusive Authorized Distributor Agreement Between
Telecomm Industries ("AD") and Ameritech dated 5/29/96.
1. Every Authorized Distributor has the professional responsibility of fair
dealing towards Ameritech's customers, past and present, fellow Authorized
Distributors, and the general public.
2. Every Authorized Distributor has the professional responsibility of
adhering to generally accepted standards of accuracy and truth.
3. An Authorized Distributor shall not place itself in a position where the
Authorized Distributor's interest is, or may be, in conflict with its duty to
the customer or Ameritech.
4. Each Authorized Distributor shall safeguard the confidence of both
present and former clients, and shall not disclose or use these confidences
to disadvantage or prejudice such clients.
5. An Authorized Distributor shall not intentionally disseminate false or
misleading information, and each Authorized Distributor is obligated to use
appropriate means to avoid dissemination of false or misleading information.
6. An Authorized Distributor shall not disparage the professional reputation
or practice of another Authorized Distributor.
7. Each Authorized Distributor's employees shall be treated as individuals
with respect to their dignity and recognition of their merit.
22
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<PAGE>
Annex F
ANNEX F HOUSE ACCOUNTS
This Annex to the Non-Exclusive Authorized Distributor Agreement Between
Telecomm Industries ("AD") and Ameritech dated 5/29/96.
23
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<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
1. Centel Corporation, an Ohio corporation d/b/a Teleco and a wholly
owned subsidiary of the registrant;
2. Authorized Network Distributors, Inc., an Ohio corporation and a
wholly owned subsidiary of the registrant.
E-30
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 238312
<SECURITIES> 0
<RECEIVABLES> 3962481
<ALLOWANCES> 0
<INVENTORY> 616147
<CURRENT-ASSETS> 4030227
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<BONDS> 0
0
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<COMMON> 96428
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<TOTAL-LIABILITY-AND-EQUITY> 5607703
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