-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KuZ5CjT6O9EJMojJy0CNsoRydSvgCndLvs553LJQOZLTJI+v9hgjNIetTKVgnL6H 6YgnpakAuCfsBigaFRFPdg== 0001012870-98-000662.txt : 19980317 0001012870-98-000662.hdr.sgml : 19980317 ACCESSION NUMBER: 0001012870-98-000662 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980313 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAVOIR TECHNOLOGY GROUP INC/DE CENTRAL INDEX KEY: 0000715842 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 942414428 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11560 FILM NUMBER: 98565686 BUSINESS ADDRESS: STREET 1: 254 E HACIENDA AVENUE CITY: CAMPBELL STATE: CA ZIP: 95008 BUSINESS PHONE: 4083790177 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN MICRO TECHNOLOGY INC /DE DATE OF NAME CHANGE: 19970811 FORMER COMPANY: FORMER CONFORMED NAME: SAVOIR TECHNOLOGY GROUP INC DATE OF NAME CHANGE: 19970806 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN MICRO TECHNOLOGY INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED ................................... DECEMBER 31, 1997 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 0-11560 ---------------- SAVOIR TECHNOLOGY GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2414428 STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 254 E. HACIENDA AVENUE, CAMPBELL, CA 95008 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (408) 379-0177 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------- SECURITIES REGISTERED UNDER 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 at least the past 90 days. YES [X] NO [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $53,180,404 on March 11, 1998. The aggregate number of outstanding shares of Common Stock, par value $0.01, of the registrant was 5,489,258 shares as of March 11, 1998. DOCUMENTS INCORPORATED BY REFERENCE None. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SAVOIR TECHNOLOGY GROUP, INC. INDEX TO 1997 FORM 10-K
ITEM NO. PAGE -------- ---- PART I................................................................... 1 ITEM 1. BUSINESS.............................................. 1 ITEM 2. PROPERTIES............................................ 14 ITEM 3. LEGAL PROCEEDINGS..................................... 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS... 15 PART II.................................................................. 15 ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS................................... 15 ITEM 6. SELECTED FINANCIAL DATA............................... 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 17 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........... 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................... 42 PART III................................................................. 42 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.... 42 ITEM 11. EXECUTIVE COMPENSATION................................ 44 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................ 48 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........ 49 PART IV.................................................................. 50 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........................................... 50
---------------- This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding future events and the Company's plans and expectations that involve risks and uncertainties. When used in this Report, the words "estimate," "project," "intend," "expect" and "anticipate" and similar expressions are intended to identify such forward-looking statements. Such statements are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from those projected. Factors that may cause or contribute to such differences include, but are not limited to, those discussed below under "Risk Factors," as well as those discussed elsewhere in this Report and in the documents incorporated herein by reference. In light of the important factors that can materially affect results, including those set forth in this paragraph and below, the inclusion of forward-looking information herein should not be regarded as a representation by the Company or any other person that the objectives or plans for the Company will be achieved. The reader is therefore cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. Savoir Technology Group, Inc. (the "Company") undertakes no obligation to publicly release updates or revisions to these statements. PART I ITEM 1. BUSINESS Except for historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include, but are not limited to, statements regarding future events and the Company's plans and expectations. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in "--Risk Factors" as well as those discussed elsewhere in this Report. GENERAL The Company is a value-added wholesale distributor of commercial mid-range servers, peripheral equipment (including wireless networking equipment, storage products, printers and terminals) and software. The Company believes that it is one of the top three distributors of IBM's AS/400 and RS/6000 commercial mid-range servers. The Company also distributes commercial mid- range servers, peripheral equipment and software manufactured by Unisys, NCR, Data General and Telxon. The Company primarily distributes commercial mid- range servers and related products to VARs who generally incorporate commercial applications software and sell integrated computer systems to end user customers. The Company also integrates and configures personal computers, workstations and departmental servers for OEMs, and provides and remarkets installation and technical support services. Through seven acquisitions and internal growth, the Company has expanded its products and services, increased its geographic market coverage, strengthened its management and technical personnel and increased its operating leverage. As a result, the Company's net sales increased from $106.5 million in 1995 to $237.9 million in 1997, representing compound annual growth of 49.5%, while its operating income improved from a loss (excluding restructuring charges) of $648,000 in 1995 to income of $6.8 million in 1997. PRODUCTS AND VENDORS The Company's net sales are derived primarily from the activities of two business divisions, the Mid-Range Systems Division and the Computer and Peripherals Group. Mid-Range Systems Division. The distribution of commercial mid-range servers in 1997 accounted for approximately 75% of the Company's net sales. The principal goal of the Company's commercial mid-range systems distribution business is to provide customers with rapid, accurate delivery of products as well as to provide quality configuration and technical support. Products distributed by the Company include mid-range servers which run on Unix, OS/400 and NT operating systems, peripheral equipment (including wireless networking equipment, storage products, printers and terminals) and software. In addition to selling new equipment, the Company also distributes refurbished IBM AS/400 equipment. Within the Mid-Range Systems Division, the Company represents five major manufacturers: IBM; Data General; NCR; Unisys; and Telxon. During the years ended December 31, 1995, 1996 and 1997, approximately 30%, 50% and 65%, respectively, of the Company's net sales were generated from the sale of IBM products. The Company's mid-range IBM product line includes the AS/400 and RS/6000 families of mid-range servers. The Company believes that it is one of the top three distributors of IBM commercial mid-range servers. Recently, the Company was named IBM's Distributor of the Year for the second half of 1997, as one of IBM's Premier Business Partners and as one of several distributors to qualify for IBM's Authorized Assembly Program ("AAP"). The AAP certification allows the Company to utilize its integration facilities to assemble custom RS/6000 configurations, allowing for shorter delivery times to customers and a reduction in required inventory levels of pre- configured systems. 1 Computer and Peripherals Group. The Company offers OEMs and its departmental server customers a single source for their hardware, software and service needs through its Computers and Peripherals Group ("CPG"), CPG accounted for approximately 25% of the Company's net sales in 1997. Through CPG, the Company offers its customers a wide variety of value-added systems integration services up to, and including, the actual installation at the end user site (e.g., "turnkey" systems assembly of departmental servers, workstations, hardware and software "bundling" and light manufacturing). CPG's more advanced products include fault tolerant software, serial port expansion devices and disk striping and mirroring solutions for the SCO/UNIX operating environments. Products assembled and manufactured by the Company include special purpose PC-based subcomponents of larger systems, private-label departmental and small enterprise servers and related peripherals. CPG sources components manufactured by DIGI International, Inc., IBM, Sony Electronics, Inc., The Santa Cruz Operation, Inc. ("SCO"), Toshiba America Electronic Components, Inc. and Wyse Technologies, Inc., among others. Through CPG, the Company also specializes in building systems pursuant to long-term contracts for companies seeking fully compatible configurations that remain consistent over time. VALUE-ADDED SERVICES In addition to the products it offers, the Company also provides a variety of value-added services, including the following: Integration Services. The Company performs light manufacturing or technical integration services, ranging from simple hardware and software integration, burn-in and testing to building customized systems to the customer's specifications. Technical Support Services. The Company currently offers its customers pre-sale technical assistance, configuration review and verification, consulting services, network design, implementation and installation services and site planning, telephone support and help desk, patch/bug isolation and identification, certification requirements and preparation and system administration assistance. The Company also remarkets certain vendor maintenance and consulting services and reseller training programs. Logistical and Inventory Management Services. The Company offers ordering and purchasing services, including order acknowledgment, order management, contract purchasing and end-of-life buy programs. The Company also offers inventory services such as expedited delivery, kitting and bill-of-material services, warehousing and storage services, bonded inventory programs, consignment programs and customer on-site operations. The Company offers various delivery options and services, including drop shipments, blind shipments, custom packaging, consolidated shipping services, special handling services, personnel services and exporting assistance. Additionally, in the near future, the Company expects to implement an automated system by which customers can access status information on product orders that are being drop shipped directly to such customers by the vendor. Marketing Services. The Company makes current and updated information on its products and services available to its customers through its fax broadcast service and its web site. The Company also customizes and provides Internet web sites for certain of its customers. In addition, the Company offers ready to execute demand generation campaigns, assistance with such campaigns, assistance with organizing advertising campaigns and joint marketing funds. Financing, Credit and Leasing Services. The Company offers its customers various financing and credit options, including open account terms, electronic funds transfer, standby letters of credit, security interest/UCC filings, personal guarantees, end user lock box services and bid bonds. The Company also offers end user financing programs through third parties, including leasing programs, joint purchase orders, payment agreements and inventory financing programs. 2 CUSTOMERS The Company's customers currently include approximately 800 active accounts. Except for Sirius Computer Solutions, Ltd. ("Sirius"), which accounted for approximately 11% of the Company's net sales in 1997, no single customer accounted for more than 5% of the Company's net sales in 1997. The Company segments its significant customers into the following three broad categories: Value-Added Resellers. VARs typically install their own or other vendors' software, configure completed systems and integrate their service offerings with hardware which can be supplied by the Company. For example, Sirius purchases IBM mid-range servers from the Company and typically bundles these servers with software provided by J.D. Edwards. Sirius is therefore generally able to provide its end user customers with a complete turnkey computer systems package. In addition, NxTrend purchases IBM, Data General and Unisys mid-range servers from the Company and bundles its proprietary distribution applications software with these mid-range products for sale to its end user customers. OEMs. These manufacturers, served by the Company through CPG, integrate or have the Company integrate the Company's products with their own prior to distribution to their end user customer. One example of the Company's OEM customers is Melita International, Inc. ("Melita"), a provider of customer contact and telephone call management systems. Melita utilizes the Company to configure its proprietary software on a preconfigured system which can be shipped directly to Melita's customer. In addition, customers such as Tektronix, Inc. and Wang Laboratories, Inc. have found it more efficient to outsource certain specialized products to the Company as opposed to creating an internal infrastructure for themselves. Systems Integrators. Systems integrators focus on delivering non-industry specific solutions to the end user customer. Such solutions may include electronic commerce, networking, Intranet/Internet configurations, as well as application-specific solutions. For example, Q.I.V. Systems, Inc. designs and installs network systems solutions in a variety of application environments that incorporate commercial mid-range servers purchased from the Company. SALES AND MARKETING In general, the Company focuses on selling and marketing high-quality commercial mid-range servers and integrated computer system products from a relatively small number of vendors. The Company's sales, sales support and product management organizations are generally organized by vendor into autonomous business units that sell and support only products offered by that particular vendor. The Company believes that its customers require ongoing support from technically trained sales professionals who are dedicated to a particular vendor, and, in certain instances, to a particular product line, and who can provide technical support on the increasingly complex mid-range servers and systems offered by the Company's vendors. The Company sells and supports IBM mid-range products through its Business Partner Solutions, Inc. subsidiary and Data General, NCR and Unisys mid-range products through its Western Micro Technology division. Sales professionals require the technical expertise to work with customers and the Company's mid- range product purchasing specialists to provide the computer system solutions that their customers and, ultimately the end user, require. The Company's sales professionals participate in vendor-sponsored training and certification programs. Within the mid-range distribution business units, the Company maintains a salesperson to technical support person ratio of approximately 4 to 1. The Company utilizes directed telemarketing programs, maintains a database of current and potential customers, participates in cooperative advertising with vendors, participates in trade shows and advisory councils and utilizes print media as part of its sales and marketing efforts. Within CPG, the Company sells primarily to OEMs. Technical expertise within CPG's sales force is critical during the relatively long sales cycles required to develop new commercial products. Once the products are developed, the ongoing forecasting, manufacture, delivery and installation of these systems must be carefully managed and reviewed. Within CPG, the Company maintains a salesperson to technical support person ratio of 3 approximately 2 to 1. In general, due to the complex nature of the products offered by CPG, new customers are primarily solicited using targeted print advertising and customer referrals. As of December 31, 1997, the Company had approximately 90 direct sales personnel. The Company has a national presence served by its sales offices in Campbell and Irvine, California, Colorado Springs, Colorado, Chicago, Illinois, Boston, Massachusetts and San Antonio, Texas. The Company's sales offices are supported by centralized marketing departments located in Chicago and San Antonio. The Company generally compensates its sales personnel based on attainment of specified gross profit margins, return on assets and inventory turns. OPERATIONS AND INFRASTRUCTURE Information Systems The Company's corporate information system is a scalable, centralized processing system capable of supporting numerous operational functions, including purchasing, receiving, order processing, shipping, inventory management, sales analysis and accounting. The Company's customers and sales representatives rely on the information system for on-line, real-time information on product pricing, inventory availability and order status. The fully integrated modular system provides customers and sales representatives on-line access to the status of IBM's backlog of shipments the Company expects to receive, thereby significantly reducing back office telephone investigation time. After product pricing and availability have been determined, the integrated order entry system automatically places an order for shipment or allocates the inventory to the assembly operations, if so required. The system then instructs warehouse personnel to pull products for shipment and informs them as to the location of the inventory. In order to optimize the use of warehouse space, the Company uses a random access system whereby inventory is stored in the first available location within the warehouse. The Company believes that its business systems, including its computer systems, are not subject to the Year 2000 problem. The Company anticipates that in the second quarter of 1998, it will undertake conversion of the information systems at its San Antonio, Texas locations to its corporate information system in Campbell, California. Inventory Control For both the Mid-Range Systems Division and CPG, the Company's computer systems automatically determine price and availability of inventory and can allocate inventory to bills of material. The Company currently has two discrete inventory control systems. The first is maintained in San Antonio, Texas and manages the Company's IBM AS/400 and Telxon product inventories. The second is located in Campbell, California and tracks all IBM RS/6000, Data General, NCR, Unisys and CPG inventories at the Company's locations throughout the United States. Under both systems, inventories are overseen by a dedicated group of product specialists, assigned by product line, whose responsibility it is to appropriately manage inventory levels and turnover. A significant portion of these specialists' compensation is paid based upon the attainment of certain prescribed inventory management benchmarks. The Company anticipates that the San Antonio inventory system will be converted into the corporate inventory control system in Campbell, California in the second quarter of 1998. Warehouse and Integration Facilities; Shipping The Company maintains inventory stocking locations in Irvine and Fremont, California, Chicago, Illinois and San Antonio, Texas. In addition, the Company has a major integration facility in Fremont, California, adjacent to its warehouse, with other integration facilities in Irvine, Chicago and San Antonio. The Company's Fremont integration facility is ISO 9002 certified and the Company intends to seek ISO 9002 certification for its Irvine facility. The Company presently ships products from its warehouses via FedEx, UPS and other common carriers. In addition, certain products that the Company distributes are drop-shipped to the Company's customers by its vendors. See "Risk Factors--Dependence on Third Party Shippers." 4 Financial Services The Company provides a number of flexible leasing and financing alternatives to its customers, including a variety of leasing options, inventory flooring options and end user lock-box arrangements. The Company also maintains credit insurance to enable it to more effectively manage the risk of extending credit to its customers. See "Risk Factors--Extension of Credit to Customers Without Requiring Collateral." COMPETITION The markets in which the Company operates are highly competitive. Competition is based primarily on product availability, price, credit availability, speed of delivery, ability to tailor specific solutions to customer needs, breadth and depth of product lines and services, technical expertise and pre- and post-sale service and support. Increased competition may result in further price reductions, reduced gross profit margins and loss of market share, any of which could materially and adversely affect the Company's business, financial condition and results of operations. Through the Mid-Range Systems Division, the Company competes with national, regional and local distributors, including, but not limited to, Gates/Arrow Commercial Systems, a division of Arrow Electronics, Inc., Hamilton Hall-Mark Computer Products, a subsidiary of Avnet, Inc., and Pioneer Standard Electronics, Inc. (which recently announced its intention to acquire Dickens Data Systems, Inc.), and, in some limited circumstances, its own vendors. In the distribution of storage products, the Company competes with national, regional and local distributors. Through CPG, the Company competes with contract manufacturers, systems integrators and certain assemblers of computer products. The Company has experienced, and expects to continue to experience, increased competition from current and potential competitors, many of which have substantially greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger customer base than the Company. Accordingly, such competitors or future competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their products than the Company. Competitors which are larger than the Company may be able to obtain more favorable pricing and terms from vendors than the Company. As a result, the Company may be at a disadvantage when competing with these larger companies. If the Company fails to compete effectively, the Company's business, financial condition and results of operations would be materially and adversely affected. See "Risk Factors--Substantial Competition." EMPLOYEES As of February 28, 1998, the Company had approximately 373 full-time employees. The Company is not a party to any collective bargaining agreement and considers its employee relations to be good. 5 RISK FACTORS Dependence Upon IBM and Vendor Concentration. The Company's business, financial condition and results of operations are highly dependent upon the Company's relationship with IBM and upon the continued market acceptance of IBM commercial mid-range servers. During the years ended December 31, 1995, 1996 and 1997, approximately 30%, 50% and 65%, respectively, of the Company's net sales were generated from the sale of IBM products, and the Company expects the percentage to increase in 1998. The Company's non-exclusive agreement with IBM may be unilaterally modified by IBM upon 30 days' written notice, is subject to a 90-day renewal notice, provides no franchise rights and may not be assigned by the Company. The continued consolidation of wholesale distributors of commercial mid-range servers may also result in IBM raising the sales volume threshold required to maintain most favorable volume discount status. In furtherance of its business strategy, and in order to maintain most favorable volume discount status with IBM, the Company has recently completed several acquisitions and is actively engaged in an ongoing search for additional acquisitions and potential equity investments for similar purposes. However, there can be no assurance that the Company will be successful in completing any future acquisitions or in making any such equity investments. The failure by the Company to complete other acquisitions or make equity investments, or to otherwise increase its sales volume through internal growth, could result in the Company's inability to maintain most favorable volume discount status with IBM, which would, in turn, have a material adverse effect on the Company's relationship with IBM and on the Company's business, financial condition and results of operations. Any disruption, change or termination in the Company's relationship with IBM or in the manner in which IBM distributes its products, the failure of IBM to develop new products which are accepted by the Company's customers, the failure by the Company to maintain certain operational and administrative capabilities, the failure by the Company to maintain sufficient sales volumes of certain IBM products to maintain most favorable volume discount status or the addition of other wholesale distributors by IBM would have a material adverse effect upon the Company's business, financial condition and results of operations. The balance of the Company's net sales is derived from the sale of products from a limited number of other vendors. During the years ended December 31, 1995, 1996 and 1997, approximately 22%, 28% and 19%, respectively, of the Company's net sales were derived from the sale of products manufactured by Data General, NCR and Unisys, collectively. To become an authorized distributor for these vendors, the Company typically enters into a non- exclusive agreement that is cancelable by either party upon 30 to 120 days' prior written notice. Any disruption, change or termination in the Company's relationship with any such vendor or in the manner in which any such vendor distributes its products, the failure of any such vendor to develop new products which are accepted by the Company's customers, the failure by the Company to maintain certain operational and administrative capabilities, the failure by the Company to maintain sufficient sales volumes of certain vendors' products to maintain most favorable volume discount status or the addition of other wholesale distributors by any such vendor would have a material adverse effect upon the Company's business, financial condition and results of operations. As is typical in its industry, the Company receives volume discounts and market development funds from most of its vendors. These volume discounts directly affect the Company's gross profits. In addition, market development funds are typically used by the Company to offset a portion of its sales and marketing expenses. Any change in the availability of these discounts or market development funds or the failure of the Company to obtain vendor financing on satisfactory terms and conditions would have a material adverse effect on the Company's business, financial condition and results of operations. Fluctuations in Operating Results. The Company's quarterly net sales and operating results may vary significantly as a result of a variety of factors, including, but not limited to, changes in the supply and demand for commercial mid-range servers, peripheral equipment, software and related services, the cost, timing and integration of acquisitions, the addition or loss of a key vendor or customer, the introduction of new technologies, changes in manufacturers' prices, price protection policies or stock rotation privileges, changes in market development funds, changes in the level of operating expenses, product supply shortages, disruption of warehousing or shipping channels, inventory adjustments, increases in the amount of accounts receivable written 6 off, price competition and changes in the mix of products sold through distribution channels and in the mix of products purchased by OEMs. Operating results could also be adversely affected by general economic and other conditions affecting the timing of customer orders and capital spending, a downturn in the market for commercial mid-range servers and order cancelations or rescheduling. In addition, historically a substantial portion of the Company's net sales has been made in the last few days of a quarter. Accordingly, the Company's quarterly operating results are difficult to predict and delays in the closing of sales near the end of a quarter could cause quarterly net sales to fall substantially short of anticipated levels and, to a greater degree, adversely affect profitability. Thus, the Company believes that period-to-period comparisons of the Company's operating results are not necessarily meaningful and should not be relied upon as an indication of future performance. The Company's future operating results are expected to fluctuate as a result of these and other factors, which could have a material adverse effect on the Company's business, financial condition and results of operations and on the price of the Common Stock. It is possible that in future periods the Company's operating results may be below the expectations of securities analysts and investors. In such event, the market price of the Common Stock would likely be materially and adversely affected. Substantial Competition. The markets in which the Company operates are highly competitive. Competition is based primarily on product availability, price, credit availability, speed of delivery, ability to tailor specific solutions to customer needs, breadth and depth of product lines and services, technical expertise and pre- and post-sale service and support. Increased competition may result in further price reductions, reduced gross profit margins and loss of market share, any of which could materially and adversely affect the Company's business, financial condition and results of operations. Through the Mid-Range Systems Division, the Company competes with national, regional and local distributors, including, but not limited to, Gates/Arrow Commercial Systems, a division of Arrow Electronics, Inc., Hamilton Hall-Mark Computer Products, a subsidiary of Avnet, Inc., and Pioneer Standard Electronics, Inc. (which recently announced its intention to acquire Dickens Data Systems, Inc.), and, in some limited circumstances, its own vendors. In the distribution of storage products, the Company competes with national, regional and local distributors. Through CPG, the Company competes with contract manufacturers, systems integrators and certain assemblers of computer products. The Company has experienced, and expects to continue to experience, increased competition from current and potential competitors, many of which have substantially greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger customer base than the Company. Accordingly, such competitors or future competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their products than the Company. Competitors which are larger than the Company may be able to obtain more favorable pricing and terms from vendors than the Company. As a result, the Company may be at a disadvantage when competing with these larger companies. If the Company fails to compete effectively, the Company's business, financial condition and results of operations would be materially and adversely affected. Reliance on Sirius Computer Solutions, Ltd. During the year ended December 31, 1997 and the quarter ended December 31, 1997, sales to Sirius accounted for approximately 11% and 23%, respectively, of the Company's net sales. The Company's sales to Sirius are made under the Industry Remarketer Affiliate Agreement between the Company and Sirius dated as of September 30, 1997 (the "Sirius Agreement"), pursuant to which the Company appointed Sirius as one of its industry remarketer affiliates of IBM products. The Sirius Agreement provides that Sirius may not enter into any similar arrangement with any third party for the purpose of selling IBM products to its end user customers and also provides a favorable pricing structure to Sirius. The Sirius Agreement expires on September 30, 2000, but may be terminated earlier under certain conditions, not including termination at will. Any disruption, change or termination of the Company's relationship with Sirius or a reduction in purchases from the Company by Sirius could have a material adverse effect upon the Company's business, financial condition and results of operations. 7 Integration Risks Relating to Acquisitions. Since December 1994, the Company has completed seven acquisitions, and on November 22, 1997, the Company entered into an Agreement and Plan of Reorganization with MCBA Systems, Inc. ("MCBA") (the "MCBA Agreement") which contemplates that MCBA will become a wholly owned subsidiary of the Company upon consummation of the proposed acquisition of MCBA by the Company (the "MCBA Acquisition"). The MCBA Acquisition is expected to be consummated by March 31, 1998. The respective obligations of the Company and MCBA to consummate the MCBA Acquisition, however, are subject to the satisfaction of various customary conditions set forth in the MCBA Agreement. There can be no assurance that the Company and MCBA will be able to satisfy in a timely manner any or all of the conditions precedent to closing the MCBA Acquisition. In addition, the MCBA Agreement may be terminated for various reasons or no reason, including, but not limited to, termination by either party at will if the MCBA Acquisition has not been consummated by March 31, 1998. The combination of the Company's business and acquired businesses requires, among other things, integration of the respective management teams and sales and other personnel, coordination of sales and marketing efforts, conversion of computer systems (including inventory control, order entry and financial reporting) and integration of the businesses' products and physical facilities. The difficulties of such integration may be increased by the necessity of coordinating geographically separate organizations. The integration of certain operations will require the dedication of management resources which may temporarily divert attention away from the day-to-day business of the combined company. There can be no assurance that such coordination and integration will be accomplished smoothly or successfully. The inability of management to integrate the operations of acquired businesses successfully could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, during the integration phase, aggressive competitors may undertake to attract customers and to recruit key employees through various incentives. There can be no assurance that acquisitions will not materially and adversely affect the selling patterns of vendors and the buying patterns of present and potential customers of the Company and that such effect will not materially and adversely affect the Company's business, financial condition and results of operations. The Company's ability to achieve the anticipated benefits of the proposed MCBA Acquisition, the acquisition of Star Management Services, Inc. ("SMS") completed on September 30, 1997 (the "SMS Acquisition") or any other acquisition depends in part upon whether the integration of the business of the Company and any acquired business is accomplished in an efficient and effective manner, and there can be no assurance that this will occur. The SMS Acquisition and other prior acquisitions and investments have placed, and will continue to place, substantial demands on the Company's management team and financial resources. The integration of the operations of SMS and the other acquired companies has on occasion been slower, more complex and more costly than originally anticipated. The Company will encounter similar uncertainties and risks with respect to any future acquisitions and investments, including the proposed MCBA Acquisition. Although the Company expects to realize cost savings and sales enhancements as a result of the recent and proposed acquisitions, there can be no assurance that such savings or enhancements will be realized in full or when anticipated, or that any such cost savings will not be offset by increases in other expenses or operating losses. Uncertainty of Future Acquisitions and Expansion. Acquisitions have played an important role in the implementation of the Company's business strategy, and the Company believes that additional acquisitions are important to its growth, development and continued ability to compete effectively in the marketplace. The Company evaluates potential acquisitions and strategic investments on an ongoing basis. No assurance can be given as to the Company's ability to compete successfully for available acquisition or investment candidates or to complete future acquisitions and investments or as to the financial effect on the Company of any acquired businesses or equity investments. Future acquisitions and investments by the Company may involve significant cash expenditures and may result in increased indebtedness, interest and amortization expense or decreased operating income, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, future growth will require additional financing to fund the working capital requirements of the Company's business and to finance future acquisitions and strategic equity 8 investments, if any. There can be no assurance that the Company will be able to raise financing on satisfactory terms and conditions, if at all. See "-- Future Capital Needs; Uncertainty of Additional Financing." If businesses are acquired through the issuance of equity securities, the percentage ownership of the stockholders of the Company will be reduced and stockholders may experience additional dilution. Should the Company be unable to implement successfully its acquisition and investment strategy, its business, financial condition and results of operations could be materially and adversely affected. Management of Growth. Since 1995, the Company has experienced significant growth in the number of its employees and in the scope of its operating and financial systems, resulting in increased responsibilities for the Company's management. In addition, the SMS Acquisition, which was completed in September 1997, increased the Company's employee base by approximately 140 persons to 373 employees as of February 28, 1998. To manage future growth effectively, the Company will need to continue to improve its operational, financial and management information systems, procedures and controls and expand, train, motivate, retain and manage its employee base. There can be no assurance that the Company will be successful in managing any future expansion or identifying, attracting and retaining key personnel, and failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Key Personnel. The Company's future success depends in part on the continued service of its key management, sales and marketing personnel and its ability to identify and hire additional personnel. Competition for qualified management, sales and marketing personnel is intense and there can be no assurance that the Company can retain and recruit adequate personnel to operate its business. The success of the Company is largely dependent on the skills, experience and efforts of its key personnel, particularly P. Scott Munro, Chairman of the Board, Chief Executive Officer, President and Secretary, and Carlton Joseph Mertens II, Chief Executive Officer and President of the Company's subsidiary, Business Partner Solutions, Inc., both of whom have entered into employment agreements with the Company. The loss of either of these individuals or other key personnel could have a material adverse effect on the Company's business, financial condition and results of operations. The Company maintains life insurance on Messrs. Munro and Mertens in the amounts of $7.9 million and $10.0 million, respectively. The Company is contractually obligated to apply any proceeds from these policies in the following order: (i) to repay the credit advance from IBMCC (as defined herein) and (ii) to repay any amounts outstanding under the Company's Subordinated Notes (as defined herein). Future Capital Needs; Uncertainty of Additional Financing. The Company's operations to date have required substantial amounts of working capital to finance accounts receivable and product inventories. Although the Company believes it has sufficient funds, or alternate sources of funds, to carry on its business as presently conducted through 1998, the Company will need to raise additional amounts through public or private debt or equity financings in order to achieve the growth contemplated by the Company's business plan. There can be no assurance that additional financing of any type will be available on acceptable terms, or at all, and failure to obtain such financing could have a material adverse effect upon the Company's business, financial condition and results of operations. Dependence on Availability of Credit and IBMCC Credit Facility. In order to obtain necessary working capital, the Company relies primarily on a line of credit that is collateralized by substantially all of the Company's assets. As a result, the amount of credit available to the Company may be adversely affected by numerous factors beyond the Company's control, such as delays in collection or deterioration in the quality of the Company's accounts receivable, economic trends in the technology industry, interest rate fluctuations and the lending policies of the Company's creditors. Any decrease or material limitation on the amount of capital available to the Company under its line of credit or other financing arrangements will limit the ability of the Company to fill existing sales orders or expand its sales levels and, therefore, would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, any significant increases in interest rates will increase the cost of financing to the Company and could have a material adverse effect on the Company's business, financial condition and results of operations. The Company is dependent on 9 the availability of accounts receivable financing on reasonable terms and at levels that are high relative to its equity base in order to maintain and increase its sales. There can be no assurance that such financing will continue to be available to the Company in the future or available under terms acceptable to the Company. The inability of the Company to have continuous access to such financing at reasonable costs would materially and adversely impact the Company's business, financial condition, results of operations and cash flows. The Company has primarily funded its working capital requirements through a $75.0 million Inventory and Working Capital Agreement (the "IBMCC Credit Facility") with IBM Credit Corporation ("IBMCC"), which credit line was temporarily increased to $85.0 million through January 31, 1998. At December 31, 1997, the outstanding principal balance under the IBMCC Credit Facility was approximately $71.7 million, of which $65.1 million represented product purchases and $6.6 million represented interest-bearing cash advances. In addition, the Company has an outstanding credit advance under the IBMCC Credit Facility in the amount of $10.0 million (the "IBMCC Credit Advance"). Borrowings under the IBMCC Credit Facility are collateralized by substantially all assets of the Company, including accounts receivable, inventories and equipment. The IBMCC Credit Facility provides that the outstanding interest- bearing cash advance balance (excluding the IBMCC Credit Advance) is subject to an annual interest rate of prime plus 1.875% (10.375% at February 28, 1998) and expires on September 30, 1999. IBMCC may terminate the IBMCC Credit Facility at any time upon the occurrence of, and subsequent failure to cure, an "Event of Default" (as such term is defined in the IBMCC Credit Facility and the Note Purchase Agreement (as defined herein)). In the event of such termination, the outstanding borrowings under the IBMCC Credit Facility become immediately due and payable in their entirety. The termination of the IBMCC Credit Facility and the subsequent inability of the Company to secure a replacement credit facility on terms and conditions similar to those contained in the IBMCC Credit Facility would have a material adverse effect on the Company's business, financial condition and results of operations. Limitations Upon Incurrence of Additional Indebtedness. The terms of the IBMCC Credit Facility and the Note Purchase Agreement dated September 30, 1997 with Robert Fleming, Inc. and Canpartners Investments IV, LLC, as purchasers (together, the "Purchasers"), and Canpartners Investments IV, LLC, as agent for the Purchasers (the "Note Purchase Agreement"), require that the Company obtain the consent of IBMCC and the Purchasers of the Company's subordinated notes issued pursuant to the Note Purchase Agreement (the "Subordinated Notes") prior to incurring certain additional indebtedness, including any additional senior or subordinated debt. The Company may incur additional indebtedness without such consent through capital leases and general business commitments insofar as the terms thereof are commercially reasonable and consistent with prior business practices. The IBMCC Credit Facility and the Company's anticipated cash flows may not provide sufficient funding to achieve the growth contemplated by the Company's business plan. Accordingly, the Company may need to obtain the consent of IBMCC and the Purchasers of the Subordinated Notes prior to incurring any additional indebtedness. While the Company has no reason to believe that such consents will be withheld, there can be no assurance that the Company will obtain such consents. Failure to obtain such consents or to obtain an alternate credit facility or to refinance the Subordinated Notes in order to allow the Company to incur additional indebtedness in an amount sufficient to achieve the growth contemplated by the Company's business plan could have a material adverse effect on the Company's business, financial condition and results of operations. Rapid Technological Change, Price Reductions and Inventory Risk. The markets for products sold by the Company are extremely competitive and are characterized by declining selling prices over the life of a particular product and rapid technological change. Since the Company acquires inventory in advance of product shipments, and because the markets for the Company's products are volatile and subject to rapid technological and price changes, there is a risk that the Company will forecast incorrectly and stock excessive or insufficient inventory of particular products. The Company's business, like that of other wholesale distributors, is subject to the risk that the value of its inventory will be adversely affected by price reductions by manufacturers or by technological changes affecting the usefulness or desirability of its product inventory. It is the policy of many manufacturers of technology products to protect wholesale distributors such as the Company from the loss in value of inventory due to technological change or reductions in the manufacturers' prices. Under the terms of most of the 10 Company's agreements, vendors will generally credit the Company for inventory losses resulting from the vendor's price reductions if the Company complies with certain conditions. In addition, generally under such agreements, the Company has the right to return for credit or exchange for other products a portion of its slow moving or obsolete inventory items within designated periods of time. There can be no assurance that, in every instance, the Company will be able to comply with all necessary conditions or manage successfully such price protection or stock rotation opportunities, if available. Also, a manufacturer which elects to terminate a distribution agreement generally will repurchase its products carried in a wholesale distributor's inventory. These industry practices are sometimes not included in written agreements and do not protect the Company in all cases from declines in inventory value, excess inventory or product obsolescence. There can be no assurance that manufacturers will continue such practices or that the Company will be able to manage successfully its existing and future inventories. Historically, the Company has not experienced losses due to obsolete inventory in excess of established inventory reserves. Significant declines in inventory value in excess of established inventory reserves or dramatic changes in prevailing technology could have a material adverse effect on the Company's business, financial condition and results of operations. Certain major systems vendors, including IBM, have developed and will continue to implement programs which allow the Company to assemble systems from components provided by the vendors. While the Company has developed the ability to integrate and configure computer products, the process of assembling large volumes of systems from components will require new business practices by the Company. It is also uncertain how the vendors will apply policies related to price protection, stock rotation and other protections against the decline in inventory value of such system components. There can be no assurance that the Company will be successful in the integration and configuration of computer products or that certain vendors will apply the same price protection and stock rotation policies to the Company's component inventories. Low Profit Margins. As a result of price competition, the Company has low gross profit and operating income margins. These low margins magnify the impact on operating results of variations in net sales and operating costs. The Company has partially offset the effects of its low gross profit margins by increasing net sales, availing itself of large volume purchase discount opportunities and reducing selling, general and administrative expenses as a percentage of net sales. However, there can be no assurance that the Company will maintain or increase net sales, continue to avail itself of large volume purchase discount opportunities or further reduce selling, general and administrative expenses as a percentage of net sales in the future. Future gross profit margins may be materially and adversely affected by changes in product mix, vendor pricing actions and competitive and economic pressures. Product Supply Shortages. The Company is dependent upon the supply of products available from its vendors. From time to time, the industry has experienced product shortages due to vendors' difficulty in projecting demand for certain products distributed by the Company. When such product shortages occur, the Company typically receives an allocation of product from the vendor. There can be no assurance that vendors will be able to maintain an adequate supply of products to fulfill all of the Company's orders on a timely basis. Failure to obtain adequate product supplies, if such supplies are available to competitors, would have a material adverse effect on the Company's business, financial condition and results of operations. Extension of Credit to Customers Without Requiring Collateral. The Company sells products to a broad geographic and demographic base of customers and offers unsecured credit terms to its customers. To reduce credit risk, the Company performs ongoing credit evaluations of its customers, maintains an allowance for doubtful accounts and has credit insurance. Sirius accounted for more than 10% of the Company's outstanding accounts receivable at December 31, 1997. No other single customer accounted for more than 5% of the Company's outstanding accounts receivable balance at December 31, 1997. Historically, the Company has not experienced losses from write-offs in excess of established reserves. Should the Company's customers increase the rate at which they default on payments due to the Company, and should the Company be unable to collect such amounts, it could have a material adverse effect on the Company's business, financial condition and results of operations. 11 Seasonality. The computer distribution industry experiences seasonal trends and, within each quarter, generally tends to sell a substantial amount of its products in the last few days of the quarter. The Company's largest vendor, IBM, sells approximately 35-40% of its products in the last calendar quarter, and such continuing pattern could have an effect on the Company's quarterly net sales. Historically, a substantial portion of the Company's net sales has been made in the last few days of a quarter. Due to the Company's recent significant growth through acquisitions and the Company's increased dependence on the sale of IBM products, variations experienced by IBM and the Company may be magnified in the future and could have a material adverse effect on the Company's business, financial condition and results of operations. Expanding Service Capabilities. The Company is expanding the nature and scope of its value-added services. There can be no assurance that new value- added services will be integrated successfully with the Company's commercial mid-range server and related products distribution business. If the Company is unable to effectively provide value-added services, it may be unable to compete effectively for the business of certain customers which require the provision of such services as a condition to purchasing products from the Company. In addition, the Company will be subject to risks, commonly associated with a value-added services business, including dependence on reputation, fluctuations in workload and dependence on the ability to identify, recruit and retain qualified technical personnel. The expansion of the Company's value-added services is expected to require a significant capital investment, including an increase in the number of technical employees. There can be no assurance that one or more of such factors will not have a material adverse effect on the Company's business, financial condition and results of operations. Dependence On Third-Party Shippers. The Company presently ships a majority of its products from its warehouses via Federal Express Corporation ("FedEx"), but also ships via United Parcel Service of America, Inc. ("UPS") and other common carriers. In addition, certain products that the Company sells are drop shipped to its customers via these carriers. Changes in shipping terms or the inability of FedEx, UPS or any other third-party shipper to perform effectively (whether as a result of mechanical failure, casualty loss, labor stoppage, other disruption or any other reason) could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company can maintain favorable shipping terms or replace such shipping services on a timely or cost-effective basis. Planned International Expansion. Although the Company to date has not generated significant net sales from international operations, one of the elements of its business strategy is to expand internationally. The Company was recently authorized to distribute IBM's AS/400 products in Canada. There can be no assurance that the Company will be able to expand successfully its international business. Certain risks inherent in doing business on an international level include, but are not limited to, management of remote operations, unexpected changes in regulatory requirements, export restrictions, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, political instability, fluctuations in currency exchange rates and potentially adverse tax consequences, any of which could adversely impact the success of the Company's international operations. There can be no assurance that one or more of such factors will not have a material adverse effect on the Company's future international operations and, consequently, on the Company's business, financial condition and results of operations. Risk Associated With Potential "Year 2000" Problems of Third Parties. It is possible that the currently installed computer systems, software products or other business systems of the Company's vendors or customers, working either alone or in conjunction with other software or systems, will not accept input of, store, manipulate and output data in the year 2000 or thereafter without error or interruption (commonly known as the "Year 2000 problem"). The Company believes that its business systems, including its computer systems, are not subject to the Year 2000 problem; however, the Company has begun to query its vendors and customers as to their progress in identifying and addressing problems that their computer systems may face in correctly processing date information as the Year 2000 approaches. However, there can be no assurance that the Company will identify all such Year 2000 problems in the computer systems of its vendors or customers in advance of their occurrence or that they will be able to successfully rectify any problems that are discovered. The expenses of the Company's 12 efforts to identify and address such problems, or the expenses or liabilities to which the Company may become subject as a result of such problems, are not expected to have a material adverse effect on the Company's business, financial condition or results of operations. The purchasing patterns of existing and potential customers, however, may be affected by Year 2000 problems, which could cause fluctuations in the Company's sales volumes and could have a material adverse effect on the Company's business, financial condition and results of operations. 13 ITEM 2. PROPERTIES The Company leases all facilities used in its business. The following table summarizes the principal properties occupied by the Company:
APPROXIMATE LEASE SQUARE EXPIRATION LOCATION PRINCIPAL USE FOOTAGE DATE -------- ------------- ----------- ---------- Campbell, California....................... Corporate Headquarters 36,000 2000 and Sales Office San Antonio, Texas(1)...................... Business Partner 27,000 1998 Solutions, Inc. Corporate Headquarters and Sales, Marketing and Technical Support Office Fremont, California........................ Warehouse, Distribution 66,500 2003 and Integration Center Irvine, California......................... Warehouse, Distribution 41,000 2004 and Integration Center and Sales Office San Antonio, Texas(1)...................... Warehouse, Distribution 30,000 1998 and Integration Center Burr Ridge, Illinois (a suburb of Chicago). Warehouse, Distribution, 16,900 2003 Integration Center and Sales, Marketing and Technical Support Office Framingham, Massachusetts (a suburb of 11,200 2000 Boston)................................... Sales Office Colorado Springs, Colorado................. Sales Office 2,500 1999
- -------- (1) It is currently anticipated that the operations housed in these locations will be moved by July 1998 to a single new 87,000 square foot facility in San Antonio, Texas, which has been leased by the Company through 2008. The Company believes its facilities are suitable for their uses and are generally adequate to support the Company's current level of operations. The Company believes that lease extensions or replacement space may be obtained for all of its leased facilities upon the expiration of the current lease terms, in most cases at rates not materially higher than those currently in effect. 14 ITEM 3. LEGAL PROCEEDINGS The Company is not presently a party to any litigation that is material to the Company. The Company is involved in various other investigations and claims arising in the normal conduct of its business, none of which, in the opinion of the Company, will have a material adverse effect on the Company's business, financial condition and results of operations or its ability to conduct business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) Common Stock Price Range The Company's Common Stock is quoted on The Nasdaq National Market under the symbol "SVTG." Prior to November 24, 1997, the Common Stock was quoted on The Nasdaq National Market under the symbol "WSTM." The following table sets forth, for the periods indicated, high and low sales prices for the Common Stock as reported by The Nasdaq National Market.
HIGH LOW ------ ----- YEAR ENDED DECEMBER 31, 1996 First Quarter................................................. $ 7.07 $4.38 Second Quarter................................................ 11.38 6.25 Third Quarter................................................. 9.13 5.88 Fourth Quarter................................................ 12.38 8.00 YEAR ENDED DECEMBER 31, 1997 First Quarter................................................. $14.50 $9.50 Second Quarter................................................ 13.50 8.63 Third Quarter................................................. 12.75 8.00 Fourth Quarter................................................ 11.63 9.00
(b) On March 11, 1998, the closing sale price of the Common Stock on the Nasdaq National Market was $11.50 per share. As of March 11, 1998, there were approximately 300 stockholders of record and approximately 1,800 beneficial stockholders of the Common Stock. The Company has never declared or paid any cash dividends on the Common Stock. The Company currently anticipates that it will retain all available funds for use in the operation of its business, including possible acquisitions, and does not intend to pay any cash dividends in the foreseeable future. 15 ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share data)
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1993(1) 1994(1) 1995 1996 1997 ------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Net sales..................... $96,843 $119,285 $106,462 $131,697 $237,884 Cost of goods sold............ 79,802 102,662 93,416 114,389 205,089 ------- -------- -------- -------- -------- Gross profit.................. 17,041 16,623 13,046 17,308 32,795 Selling, general and administrative expenses...... 16,373 16,958 13,694 13,716 25,969 Restructuring costs........... 1,510 -- 3,600 -- -- ------- -------- -------- -------- -------- Operating income (loss) -- continuing operations....... (842) (335) (4,248) 3,592 6,826 Interest expense.............. 535 884 850 978 3,181 ------- -------- -------- -------- -------- Income (loss) before income taxes--continuing operations. (1,377) (1,219) (5,098) 2,614 3,645 Income tax expense (benefit).. (286) (217) -- 276 335 ------- -------- -------- -------- -------- Income (loss) from continuing operations................... (1,091) (1,002) (5,098) 2,338 3,310 Discontinued operations, net of tax....................... 524 387 -- -- -- ------- -------- -------- -------- -------- Net income (loss)............. $ (567) $ (615) $ (5,098) $ 2,338 $ 3,310 ======= ======== ======== ======== ======== Net income (loss) per share:(2) --Basic...................... $ (0.16) $ (0.17) $ (1.36) $ 0.55 $ 0.57 --Diluted.................... (0.16) (0.17) (1.36) 0.52 0.55 Number of shares used in per share calculations:(2) --Basic...................... 3,474 3,669 3,756 4,255 4,902 --Diluted.................... 3,474 3,669 3,756 4,513 5,976 Other Data: EBITDA(3)..................... $ 24 $ 222 $ (3,721) $ 4,575 $ 9,496 Depreciation and amortization. 866 557 527 983 2,670 AS OF DECEMBER 31, ---------------------------------------------- 1993 1994 1995 1996 1997 ------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital............... $12,021 $ 12,334 $ 7,312 $ 7,448 $ 6,454 Total assets.................. 34,975 37,898 35,899 63,276 186,888 Short-term debt............... 6,131 9,261 7,126 11,335 15,579 Long-term debt, less current portion...................... 52 65 117 53 22,330 Stockholders' equity.......... 13,976 14,424 11,004 15,714 47,080
- -------- (1) Amounts for 1993 and 1994 have been restated to reflect the 1994 discontinuation of the testing division and the 1994 acquisition of First Computer Corporation accounted for as a pooling of interests. (2) See Note 7 of Notes to Consolidated Financial Statements for information concerning the computation of net income (loss) per share. (3) EBITDA represents earnings from continuing operations before interest income and expense (including amortization of deferred financing costs), income taxes, depreciation, amortization of goodwill and non-cash stock option compensation expenses. EBITDA is presented because it is a widely accepted financial indicator of a leveraged company's ability to service and/or incur indebtedness and because management believes that EBITDA is a relevant measure of the Company's ability to generate cash without regard to the Company's capital structure or working capital needs. EBITDA as presented may not be comparable to similarly titled measures used by other companies, depending upon the non-cash charges included. When evaluating EBITDA, investors should consider that EBITDA: (i) should not be considered in isolation but together with other factors which may influence operating and investing activities, such as changes in operating assets and liabilities and purchases of property and equipment; (ii) is not a measure of performance calculated in accordance with generally accepted accounting principles; (iii) should not be construed as an alternative or substitute for income from operations, net income or cash flows from operating activities in analyzing the Company's operating performance, financial condition or cash flows; and (iv) should not be used as an indicator of the Company's operating performance or as a measure of its liquidity. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report. Except for historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Such forward- looking statements include, but are not limited to, statements regarding future events and the Company's plans and expectations. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed previously in "Risk Factors," as well as those discussed elsewhere in this Report or incorporated herein by reference. OVERVIEW Recognizing the consolidation trend in the commercial mid-range systems distribution industry, the Company commenced its acquisition strategy in December 1994 with the acquisition of First Computer Corporation. Since then, the Company has focused upon expanding its commercial mid-range server distribution business through internal growth and strategic acquisitions. On July 26, 1995, the Company sold its electronic components distribution assets to Reptron Electronics Inc. The transaction, valued at approximately $12.5 million, consisted of a $9.2 million payment in cash and the assumption of $3.3 million in accounts payable. Since December 1995, the Company has completed an additional six acquisitions, which have expanded the Company's products and services, increased its geographic market coverage, strengthened its management and technical personnel and increased its operating leverage. The following table summarizes the Company's acquisition history:
ESTIMATED EARNOUT INITIAL CONSIDERATION ACTUAL EARNOUT PAID(1) POTENTIAL CONSIDERATION(1) ------------------------ -------------------------- -------------------------------- ACQUISITION TRANSACTION SHARES OF SHARES OF SHARES OF TARGET DATE CASH COMMON STOCK CASH COMMON STOCK CASH COMMON STOCK ----------------------- ----------- ----------- ------------ --------- --------------- -------------- ----------------- Star Management Services, Inc. ("SMS")(2)............. 9/30/97 $49,500,000 460,000 -- -- $ 5,000,000 -- Target Solutions, Inc. ("TSI")(3)............. 3/17/97 -- 220,273 -- -- -- -- International Data Products, LLC ("IDP")(4)............. 11/29/96 265,000 -- -- -- -- 140,000 Star Technologies, Inc. ("STI")(5)............. 11/7/96 -- 113,263 -- 48,721 -- 60,000 R&D Hardware Systems Company of Colorado ("R&D")(6)............. 1/2/96 1,000,000 125,000 -- 78,587 -- -- International Parts, Inc. ("IPI")(7)........ 11/18/95 -- 300,000 -- 42,516 -- -- First Computer Corporation ("FCC")(8). 12/1/94 34 328,943 -- -- -- --
- -------- (1) As of March 11, 1998. (2) The $49.5 million cash consideration is to be paid in three installments, with $42.2 million paid at closing and two subsequent payments of $3.7 million to be made on the first and second anniversaries of the closing, respectively. For the eleven months ended September 30, 1997, SMS had audited revenue of $86.5 million and operating income of $1.1 million. (3) For the year ended December 31, 1996, TSI had unaudited revenue of $16.0 million and net income of approximately $200,000. The TSI agreement provides for a total earnout potential consideration of $10,000,000 in cash and stock. See Note 11 of Notes to Consolidated Financial Statements. (4) Excludes assumed liabilities of $424,000. For the year ended December 31, 1995, IDP had unaudited revenue of $4.6 million and net income of approximately $2,000. The IDP agreement provides for a total earnout potential consideration of 140,000 shares of Common Stock. See Note 11 of Notes to Consolidated Financial Statements. (5) For the year ended June 30, 1996, STI had unaudited revenue of $7.5 million and net income of approximately $40,000. (6) For the year ended December 31, 1995, R&D had unaudited revenue of $9.6 million and net income of approximately $446,000. (7) For the year ended December 31, 1994, IPI had unaudited revenue of $15.2 million and net income of approximately $90,000. (8) For the year ended December 31, 1993, FCC had unaudited revenue of $6.1 million and net income of approximately $23,000. 17 INCOME TAXES Due to the utilization of net operating loss carryforwards generated in 1995 and years prior, the Company's effective tax rate was 10.6% and 9.2% in 1996 and 1997, respectively, as compared to a normal combined effective tax rate of approximately 40% for federal and state income taxes. As of December 31, 1997, the Company has utilized substantially all of its available federal net operating loss carryforward amounts. Due to the utilization of these carryforwards and the significant amount of non-tax deductible amortization expense related to goodwill incurred in certain acquisitions, the Company expects its effective tax rate to approximate 50% in 1998. RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain income and expense items as a percentage of net sales:
FISCAL YEAR ENDED DECEMBER 31, ----------------------------------- 1995 1996 1997 ---------- ---------- ---------- Net sales................................. 100.0% 100.0% 100.0% Cost of goods sold........................ 87.7 86.9 86.2 ---------- ---------- ---------- Gross profit............................ 12.3 13.1 13.8 Selling, general and administrative expenses................................. 12.4 9.7 9.8 Depreciation and amortization expense..... 0.5 0.7 1.1 Restructuring costs....................... 3.4 0.0 0.0 ---------- ---------- ---------- Total operating expenses.............. 16.3 10.4 10.9 ---------- ---------- ---------- Operating income (loss)............... (4.0) 2.7 2.9 Interest expense.......................... 0.8 0.7 1.4 ---------- ---------- ---------- Income (loss) before income taxes......... (4.8) 2.0 1.5 Income tax expense........................ 0.0 0.2 0.1 ---------- ---------- ---------- Net income (loss)......................... (4.8)% 1.8% 1.4% ========== ========== ==========
COMPARISONS OF YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 Net Sales. Net sales consists of sales of commercial mid-range servers, integrated personal computers, workstations, peripheral equipment, storage products, software and remarketed installation and technical support services, net of sales discounts and returns. Net sales increased by 80.6% to $237.9 million in 1997 from $131.7 million in 1996, and by 23.7% in 1996 from $106.5 million in 1995. Net sales in 1995 included $28.2 million in net sales from the Company's former electronic components distribution business, which was sold in July 1995. Excluding the net sales of the electronic components distribution business, net sales in 1996 increased 68.2% from $78.3 million in 1995. The growth in net sales resulted primarily from additions to the Company's sales force, increased marketing efforts, increased integration and storage product sales in CPG and the acquisitions of IPI, R&D, STI, IDP, TSI and SMS. Gross Profit. Cost of sales is comprised of purchase costs, net of early payment and volume discounts and product freight. Gross profit as a percentage of net sales is affected by several factors including the mix of high margin and low margin products and services and the proportion of large orders on which the Company extends volume discounts to customers. Gross profit increased by 89.5% to $32.8 million in 1997 from $17.3 million in 1996, and by 32.7% in 1996 from $13.0 million in 1995. Gross profit in 1995 includes $4.1 million in gross profit from the former electronic components distribution business. Excluding the gross profit of the electronic components distribution business, gross profit increased 94.4% in 1996 from $8.9 million in 1995. Gross profit as a percentage of net sales was 13.8% in 1997, 13.1% in 1996 and 12.3% in 1995 (11.4% excluding the electronic components distribution business). The increase in gross profit as a percentage of net sales in 1996 18 and 1997 was a result of a greater mix of higher margin products and services, including integration and technical support services, as well as increased volume discounts provided by certain vendors. Operating Expenses. Operating expenses include: salaries and commissions paid to sales representatives; compensation paid to marketing, product management, technical and administrative personnel; depreciation of infrastructure costs, including the Company's information system and leasehold improvements; amortization of intangibles resulting from goodwill recorded from acquisitions; facility lease expenses; telephone and data line expenses and provision for bad debt losses. Fluctuations in operating expenses as a percentage of net sales can result from planned expenditures by the Company for additional sales, marketing, technical support and administrative personnel, efficiencies gained through higher sales volumes and resulting economies of scale and the timing of acquisitions. Selling, general and administrative expenses (excluding depreciation and amortization expense) increased by 83.5% to $23.3 million in 1997 from $12.7 million in 1996, and decreased 3.3% in 1996 from $13.2 million in 1995. Selling, general and administrative expenses as a percentage of net sales were 9.8% in 1997, 9.7% in 1996 and 12.4% in 1995. In 1997, selling, general and administrative expenses as a percentage of net sales were essentially the same as in 1996, despite rapid net sales growth and the addition of personnel and infrastructure costs from acquisitions. The Company expects to achieve additional economies of scale in selling, general and administrative expenses in 1998 as the Company continues to integrate the acquisition of SMS which was completed on September 30, 1997. Selling, general and administrative expenses as a percentage of net sales decreased in 1996 from 1995 primarily due to elimination of the personnel and infrastructure relating to the electronic components distribution business. Depreciation and amortization expense increased by 171.6% to $2.7 million in 1997 from $1.0 million in 1996, and by 86.5% in 1996 from $500,000 in 1995. Depreciation and amortization expense as a percentage of net sales was 1.1% in 1997, 0.7% in 1996 and 0.5% in 1995. In 1997, depreciation and amortization expense as a percentage of net sales increased over 1996 due to higher amortization expense as a result of increased goodwill related to acquisitions and higher depreciation costs incurred as a result of leasehold improvements and computer equipment additions. In 1996, depreciation and amortization expense as a percentage of net sales increased over 1995 primarily due to higher amortization expense as a result of increased goodwill related to acquisitions. Restructuring costs incurred by the Company in 1995 related to the divestiture of the Company's former electronic components distribution business. The $3.6 million charge taken in 1995, 3.4% of net sales, consisted of $1.4 million for write-offs of goodwill, $1.2 million for severance and other related exit charges and $1.0 million for component inventory reserves. Operating Income (Loss). Operating income increased by 90.0% to $6.8 million in 1997 from $3.6 million in 1996. In 1995, the Company had an operating loss of $4.2 million. The increase in operating income in 1996 and 1997 resulted from higher net sales and increased gross profit as a percentage of net sales, operating expense control and economies of scale. Operating income (loss) as a percentage of net sales was 2.9% in 1997, 2.7% in 1996 and (4.0%) in 1995. Interest Expense. Interest expense increased by 225.3% to $3.2 million in 1997 from $1.0 million in 1996, and by 15.1% in 1996 from $850,000 in 1995. The increase in interest expense in 1996 and 1997 resulted from increased borrowings in order to fund acquisitions, principally the acquisition of SMS on September 30, 1997, infrastructure additions, expanded operations and overall growth. Income Taxes. Income tax expense was $335,000, $276,000 and $0 in 1997, 1996 and 1995, respectively, reflecting effective tax rates of 9.2%, 10.6% and 0%, respectively. The Company's effective tax rate differed from statutory rates due to the utilization of net operating loss carryforwards from losses generated in 1995 and prior. 19 Net Income (Loss). Net income increased by 41.6% to $3.3 million in 1997 from $2.3 million in 1996. The Company incurred a net loss of $5.1 million in 1995. Net income (loss) as a percentage of net sales was 1.4% in 1997, 1.8% in 1996 and (4.8%) in 1995. QUARTERLY RESULTS OF OPERATIONS The following tables set forth certain unaudited quarterly financial data and such data expressed as a percentage of net sales for the quarters of 1996 and 1997. In the opinion of management, this information has been presented on the same basis as the audited consolidated financial statements appearing elsewhere in this Report, and all necessary adjustments (consisting only of normal recurring adjustments) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period.
1996 1997 ---------------------------------- ----------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............... $27,617 $32,364 $33,940 $37,776 $35,950 $39,886 $46,139 $115,909 Cost of goods sold...... 24,037 28,458 29,443 32,451 29,981 33,293 39,297 102,518 ------- ------- ------- ------- ------- ------- ------- -------- Gross profit........... 3,580 3,906 4,497 5,325 5,969 6,593 6,842 13,391 ------- ------- ------- ------- ------- ------- ------- -------- Selling, general and administrative expenses............... 2,727 2,929 3,297 3,780 4,410 5,213 4,967 8,709 Depreciation and amortization........... 211 234 254 284 393 356 504 1,417 ------- ------- ------- ------- ------- ------- ------- -------- Total operating expenses.............. 2,938 3,163 3,551 4,064 4,803 5,569 5,471 10,126 ------- ------- ------- ------- ------- ------- ------- -------- Operating income....... 642 743 946 1,261 1,166 1,024 1,371 3,265 Interest expense........ 237 197 242 302 432 496 604 1,649 ------- ------- ------- ------- ------- ------- ------- -------- Income before income taxes................. 405 546 704 959 734 528 767 1,616 Income tax expense...... 34 60 61 121 191 121 -- 23 ------- ------- ------- ------- ------- ------- ------- -------- Net income............. $ 371 $ 486 $ 643 $ 838 $ 543 $ 407 $ 767 $ 1,593 ======= ======= ======= ======= ======= ======= ======= ======== Diluted net income per share................. $ 0.09 $ 0.11 $ 0.14 $ 0.18 $ 0.11 $ 0.08 $ 0.15 $ 0.19 ======= ======= ======= ======= ======= ======= ======= ======== Number of shares (diluted) used in per share calculation..... 4,326 4,529 4,476 4,708 4,977 5,196 5,144 8,194 ======= ======= ======= ======= ======= ======= ======= ======== AS A PERCENTAGE OF NET SALES ----------------------------------------------------------------------- Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold...... 87.0 87.9 86.8 85.9 83.4 83.5 85.2 88.5 ------- ------- ------- ------- ------- ------- ------- -------- Gross profit........... 13.0 12.1 13.2 14.1 16.6 16.5 14.8 11.5 ------- ------- ------- ------- ------- ------- ------- -------- Selling, general and administrative expenses............... 9.9 9.1 9.7 10.0 12.3 13.1 10.8 7.5 Depreciation and amortization........... 0.8 0.7 0.8 0.8 1.1 0.9 1.0 1.2 ------- ------- ------- ------- ------- ------- ------- -------- Total operating expenses.............. 10.7 9.8 10.5 10.8 13.4 14.0 11.8 8.7 ------- ------- ------- ------- ------- ------- ------- -------- Operating income....... 2.3 2.3 2.7 3.3 3.2 2.5 3.0 2.8 Interest expense........ 0.9 0.6 0.6 0.8 1.2 1.2 1.3 1.4 ------- ------- ------- ------- ------- ------- ------- -------- Income before income taxes................. 1.4 1.7 2.1 2.5 2.0 1.3 1.7 1.4 Income tax expense...... 0.1 0.2 0.2 0.3 0.5 0.3 -- -- ------- ------- ------- ------- ------- ------- ------- -------- Net income............. 1.3% 1.5% 1.9% 2.2% 1.5% 1.0% 1.7% 1.4% ======= ======= ======= ======= ======= ======= ======= ========
The Company's quarterly net sales and operating results may vary significantly as a result of a variety of factors, including, but not limited to, changes in the supply and demand for commercial mid-range servers, peripheral equipment, software and related services, the cost, timing and integration of acquisitions, the addition or loss of a key vendor or customer, the introduction of new technologies, changes in manufacturers' prices, price protection policies or stock rotation privileges, changes in market development funds, changes in the level of operating expenses, product supply shortages, disruption of warehousing or shipping channels, inventory 20 adjustments, increases in the amount of accounts receivable written off, price competition, changes in the mix of products sold through distribution channels and in the mix of products purchased by OEMs. Operating results could also be adversely affected by general economic and other conditions affecting the timing of customer orders and capital spending, a downturn in the market for commercial mid-range servers, and order cancelations or rescheduling. In addition, the computer distribution industry experiences both seasonal trends and, within each quarter, tends to sell a substantial amount of its products at the end of the quarter. For example, the Company's largest vendor, IBM, sells approximately 35-40% of its products in the last calendar quarter. Historically, a substantial portion of the Company's net sales has been made in the last few days of a quarter. Accordingly, the Company's quarterly results of operations are difficult to predict and delays in the closing of sales near the end of a quarter could cause quarterly net sales to fall substantially short of anticipated levels and, to a greater degree, adversely affect profitability. Thus, the Company believes that period-to-period comparisons of the Company's operating results are not necessarily meaningful and should not be relied upon as an indication of future performance. The Company's future operating results are expected to continue to fluctuate as a result of these and other factors, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Fluctuations in Operating Results." LIQUIDITY AND CAPITAL RESOURCES The Company has required substantial capital to finance accounts receivable, inventories, capital expenditures and acquisitions, and has financed these requirements primarily through borrowings under credit facilities, cash generated from operations and recently, the issuance and sale of Series A Preferred Stock and Subordinated Notes. In September 1997, the Company negotiated with IBMCC to increase the IBMCC Credit Facility line from $35.0 million to $75.0 million. The line was subsequently increased on a temporary basis to $85.0 million through January 31, 1998. Product purchases from IBM and cash advances from IBMCC are directly charged to the credit line and are paid by the Company based on payment terms outlined in the IBMCC Credit Facility. Borrowings under the IBMCC Credit Facility are based on eligible accounts receivable and inventory, as defined. The IBMCC Credit Facility is renewable in September 1999 and contains restrictive covenants which include the maintenance of minimum current, tangible net worth and times interest earned ratios, as defined. As of December 31, 1996 and 1997, the Company had outstanding borrowings under the IBMCC Credit Facility of $27.2 million and $71.7 million, respectively. Of the total outstanding borrowings, $11.2 million and $6.6 million represented cash advances at December 31, 1996 and 1997, respectively. Cash advances bear interest at the prime rate plus 1.875% (10.375% at December 31, 1997). Based on eligible assets, as of December 31, 1997, the Company had additional borrowings available under the IBMCC Credit Facility of approximately $12.5 million. On September 30, 1997, the Company entered into the Note Purchase Agreement, pursuant to which the Company sold $15.7 million of Subordinated Notes to the Purchasers, granted to the Purchasers warrants (the "Warrants") to purchase an aggregate of 400,000 shares of the Common Stock and granted to the Purchasers 10 shares of Series B Preferred Stock. The Subordinated Notes, which are subordinated to the Company's primary lender, IBMCC, bear interest at 13.5% annually, include an original issue discount, fully earned upon funding, of $700,000, and are due September 30, 2000. The Company may prepay the Subordinated Notes at 107% of the principal balance subsequent to September 30, 1997, 106% subsequent to September 30, 1998 and 105% subsequent to September 30, 1999. On or after March 31, 2000, the Purchasers may request redemption of up to 50% of the Subordinated Notes issued at 100% of the principal amount. The Warrants issued pursuant to the Note Purchase Agreement have an exercise price of $7.50 per share and expire on September 30, 2004. On each anniversary, the Warrant price may be reset to 87.5% of the price, as defined, of the Common Stock if the market price of the Common Stock is less than $7.50. The Note Purchase Agreement required the Company to register the Common Stock underlying the Warrants on a registration statement on Form S-3. The Series B Preferred Stock issued to the Purchasers allows the holders of the Series B Preferred Stock to elect one member to the Company's Board of Directors if there is a default or event of default, as defined, in the Note Purchase Agreement. The Note Purchase Agreement contains restrictive covenants which include minimum fixed charge 21 coverage ratio, minimum income, minimum consolidated net worth and maximum capital expenditures. The Company used the proceeds from the issuance of the Subordinated Notes to consummate the SMS Acquisition. On September 30, 1997, the Company executed an amendment to its IBMCC Credit Facility, pursuant to which the Company obtained the IBMCC Credit Advance to consummate the SMS Acquisition. The IBMCC Credit Advance bears interest at the rate of prime plus 2% (10.5% at December 31, 1997) and is due in four installments through September 30, 1999. As part of the amendment, the Company granted IBMCC warrants to purchase 100,000 shares of the Common Stock. The warrants issued to IBMCC are the same, in all respects, to the Warrants issued to the Purchasers. Operating activities for 1997 provided cash in the amount of $5.9 million. For this period, cash was provided primarily as a result of net income of $3.3 million, depreciation and amortization of $2.7 million, and a $32.3 million increase in accounts payable, partially offset by a $23.3 million increase in accounts receivable and a $7.5 million increase in inventories. Favorable accounts payable terms with IBMCC and increased leasing of product purchases by customers through IBMCC and third party leasing vendors, which decreased the average days to collect customer receivables, resulted in the generation of cash in 1997. For 1996, net cash in the amount of $1.0 million was used in operating activities, primarily as a result of higher levels of accounts receivable and inventories, increased sales volume and acquisitions, partially offset by an increase in accounts payable. Investing activities for 1997 used cash in the amount of $37.7 million. For this period, cash was used for the acquisitions of SMS and TSI, the equity investment in Q.I.V. Systems, Inc. and continuing leasehold and computer hardware and software investments made at the headquarters, sales office and warehouse and integration center sites. For 1996, net cash in the amount of $2.8 million was used in investing activities, primarily for the acquisitions of R&D, IDP and STI and infrastructure additions. Cash provided by financing activities for 1997 was $34.4 million, consisting primarily of borrowings under the Note Purchase Agreement and the IBMCC Credit Advance totaling $23.1 million and the issuance of Series A Preferred Stock totaling $19.1 million, partially offset by the Company's reduction in short- term borrowings by $8.4 million. For 1996, cash provided by financing activities was $3.7 million, resulting primarily from an increase in short- term borrowings to fund working capital requirements. The Company believes it has sufficient funds, or alternate sources of funds, to carry on its business as presently conducted through 1998. See "Risk Factors--Future Capital Needs; Uncertainty of Additional Financing." YEAR 2000 COMPLIANCE The Company believes that its business systems, including its computer systems, are not subject to the Year 2000 problem; however, the Company has begun to query its vendors and customers as to their progress in identifying and addressing problems that their computer systems may face in correctly processing date information as the Year 2000 approaches. See "Risk Factors-- Risks Associated With Potential "Year 2000" Problems of Third Parties." BACKLOG Although the Company receives purchase orders for products to be delivered to customers over a specified time period, there can be no assurance that such orders will result in sales, as most orders are subject to revision or cancellation without penalty. Consequently, the Company does not believe that backlog is a meaningful indicator of sales for future periods. 22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Savoir Technology Group, Inc. Campbell, California We have audited the accompanying consolidated balance sheets of Savoir Technology Group, Inc. and subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 audits 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 Savoir Technology Group, Inc. and subsidiaries as of December 31, 1996 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. San Jose, California January 30, 1998, except for Note 14, as to which the date is February 17, 1998 23 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, ----------------- 1996 1997 ------- -------- ASSETS Current assets: Cash....................................................... $ 384 $ 2,919 Trade accounts receivable, net of allowance for doubtful accounts of $319 in 1997 and $411 in 1996................. 25,943 76,664 Inventories................................................ 26,142 36,841 Other current assets....................................... 2,254 7,388 ------- -------- Total current assets..................................... 54,723 123,812 Property and equipment, net.................................. 3,276 4,920 Excess of cost over acquired net assets and other intangibles, net............................................ 4,937 57,537 Other assets................................................. 340 619 ------- -------- Total assets........................................... $63,276 $186,888 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable.............................................. $11,277 $ 7,063 Current portion of long-term debt.......................... 58 8,516 Accounts payable........................................... 33,956 96,143 Accrued expenses........................................... 1,984 5,636 ------- -------- Total current liabilities................................ 47,275 117,358 Long-term debt, less current portion......................... 53 22,330 Other........................................................ 234 120 Commitments and contingencies (Notes 4, 9 and 11) -- -- Stockholders' equity: Preferred stock, $0.01 par value; 10,000,000 shares authorized; issued and outstanding: 2,242,500 shares Series A and 10 shares Series B at December 31, 1997; liquidation preference of $21,444 at December 31, 1997 -- 18,132 Common stock, $0.01 par value; 25,000,000 shares authorized; issued and outstanding: 5,357,678 shares in 1997 and 4,488,131 shares in 1996......................... 17,959 27,983 Retained earnings (deficit)................................ (2,245) 965 ------- -------- Total stockholders' equity............................... 15,714 47,080 ------- -------- Total liabilities and stockholders' equity............. $63,276 $186,888 ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 24 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, --------------------------- 1995 1996 1997 -------- -------- -------- Net sales.......................................... $106,462 $131,697 $237,884 Cost of goods sold................................. 93,416 114,389 205,089 -------- -------- -------- Gross profit..................................... 13,046 17,308 32,795 -------- -------- -------- Selling, general and administrative expenses....... 13,694 13,716 25,969 Restructuring costs................................ 3,600 -- -- -------- -------- -------- 17,294 13,716 25,969 -------- -------- -------- Operating income (loss).......................... (4,248) 3,592 6,826 Interest expense................................... 850 978 3,181 -------- -------- -------- Income (loss) before income taxes................ (5,098) 2,614 3,645 Income tax expense................................. -- 276 335 -------- -------- -------- Net income (loss)................................ $ (5,098) $ 2,338 $ 3,310 ======== ======== ======== Net income (loss) per share: Basic............................................ $ (1.36) $ 0.55 $ 0.57 ======== ======== ======== Diluted.......................................... $ (1.36) $ 0.52 $ 0.55 ======== ======== ======== Number of shares used in per share calculations: Basic............................................ 3,756 4,255 4,902 ======== ======== ======== Diluted.......................................... 3,756 4,513 5,976 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 25 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED STOCK COMMON STOCK RETAINED ----------------- ----------------- EARNINGS SHARES AMOUNT SHARES AMOUNT (DEFICIT) TOTAL --------- ------- --------- ------- --------- ------- Balances, January 1, 1995................... -- $ -- 3,702,007 $13,909 $ 515 $14,424 Exercise of stock options.............. -- -- 7,981 18 -- 18 Issuance of common stock in business combination.......... -- -- 300,000 1,660 -- 1,660 Net loss.............. -- -- -- -- (5,098) (5,098) --------- ------- --------- ------- ------- ------- Balances, December 31, 1995................... -- -- 4,009,988 15,587 (4,583) 11,004 Exercise of stock options.............. -- -- 92,157 331 -- 331 Issuance of common stock in business combinations......... -- -- 366,789 1,949 -- 1,949 Issuance under employee stock purchase plan........ -- -- 19,197 92 -- 92 Net income............ -- -- -- -- 2,338 2,338 --------- ------- --------- ------- ------- ------- Balances, December 31, 1996................... -- -- 4,488,131 17,959 (2,245) 15,714 Exercise of stock options.............. -- -- 24,375 74 -- 74 Issuance of common stock in business combinations......... -- -- 809,898 6,825 -- 6,825 Issuance under employee stock purchase plan........ -- -- 31,044 256 -- 256 Issuance of preferred stock and common stock warrants, net of offering costs.... 2,242,500 18,132 -- 1,000 -- 19,132 Dividend on preferred stock................ -- -- 4,230 50 (100) (50) Common stock warrants issued in connection with debt offerings.. -- -- -- 1,330 -- 1,330 Tax benefit from exercise of stock options.............. -- -- -- 489 -- 489 Net income............ -- -- -- -- 3,310 3,310 --------- ------- --------- ------- ------- ------- Balances, December 31, 1997................... 2,242,500 $18,132 5,357,678 $27,983 $ 965 $47,080 ========= ======= ========= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 26 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------- 1995 1996 1997 ------- ------- -------- Cash flows from operating activities: Net income (loss)................................ $(5,098) $ 2,338 $ 3,310 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 527 983 2,670 Gain on sale of equipment...................... (68) (11) -- Provision for doubtful accounts receivable..... 291 120 472 Deferred taxes................................. -- -- (1,551) Accretion on long-term debt obligations........ -- -- 344 Provision for restructuring costs.............. 3,600 -- -- Change in assets and liabilities: Accounts receivable.......................... 421 (9,648) (23,282) Inventories.................................. 2,035 (9,831) (7,505) Other current assets......................... (110) (478) (1,564) Other assets................................. (154) (484) -- Accounts payable............................. 4,001 15,591 32,312 Accrued expenses and other liabilities....... (1,726) 403 655 ------- ------- -------- Net cash provided by (used in) operating activities................................ 3,719 (1,017) 5,861 ------- ------- -------- Cash flows from investing activities: Acquisition of businesses, net of cash acquired.. -- (640) (35,166) Proceeds from sale of equipment.................. 192 22 -- Acquisition of other assets...................... -- -- (988) Acquisitions of property and equipment........... (1,364) (2,200) (1,592) ------- ------- -------- Net cash used in investing activities...... (1,172) (2,818) (37,746) ------- ------- -------- Cash flows from financing activities: Net proceeds (repayments) from short-term borrowings...................................... (2,135) 3,434 (8,414) Payments on long-term debt obligations........... (123) (184) (236) Proceeds from exercise of stock options.......... 18 331 74 Proceeds from employee stock purchase plan....... -- 92 256 Proceeds from issuance of long-term debt, net of issuance cost................................... -- -- 23,099 Proceeds from issuance of preferred stock and warrants, net................................... -- -- 19,082 Proceeds from equipment loans.................... 101 -- 559 ------- ------- -------- Net cash provided by (used in) financing activities................................ (2,139) 3,673 34,420 ------- ------- -------- Net increase (decrease) in cash.................... 408 (162) 2,535 Cash--beginning of period.......................... 138 546 384 ------- ------- -------- Cash--end of period................................ $ 546 $ 384 $ 2,919 ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 27 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Operations: Savoir Technology Group, Inc. (the Company), formerly Western Micro Technology, Inc., is a value-added distributor of commercial mid-range servers (file servers and workstations), peripheral equipment and a full range of storage products and software. The Company also integrates and configures personal computers, work- stations and departmental servers, as well as provides and remarkets installation and technical support services. Prior to July 26, 1995, the Company's operations also included the distribution of electronic components (see Note 12). The Company's primary sales office and distribution center, from which it ships products to customers throughout the United States, is located in Northern California. In addition to the Northern California location, the Company has distribution centers in Texas, Massachusetts, Southern California and Illinois and has sales offices throughout the United States. The principal customers of the Company are value-added-resellers, systems integrators and original equipment manufacturers located in the United States. Consolidated Financial Statement Presentation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including Star Management Services, Inc. (SMS) which the Company acquired in a purchase combination on September 30, 1997 (see Note 11). All significant intercompany accounts and transactions have been eliminated. Estimates: In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain Risks and Concentrations: The Company maintains cash balances with four major financial institutions. The Company sells its products to a broad geographic and demographic base of customers, extends trade credit, and generally does not require supporting collateral. To reduce credit risk, the Company performs ongoing credit evaluations of its customers, maintains an allowance for doubtful accounts and has credit insurance. One customer accounted for more than 10% of the outstanding accounts receivable balance at December 31, 1997. No other customer accounted for more than 10% of the outstanding accounts receivable balance at December 31, 1996 and 1997. Revenues are concentrated with a relatively limited number of customers and the providers of certain systems are concentrated among a few manufacturers. The loss of a major customer or the interruption of certain supplier relationships could adversely affect operating results. During the years ended December 31, 1995, 1996 and 1997, approximately 30%, 50% and 65%, respectively, of the Company's revenue was generated from the sale of products purchased from one of the Company's vendors, International Business Machines Corporation (IBM). Fair Value of Financial Instruments: The carrying amounts of the Company's financial instruments including cash, accounts receivable, notes payable, accounts payable and accrued expenses approximate fair value due to their short maturity. Revenue Recognition: The Company records revenue, net of allowance for estimated returns, at the time of product shipment. 28 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: Inventories: Inventories, consisting primarily of purchased product held for resale, are stated at the lower of cost or net realizable value. Cost is determined using average and specific cost methods. The Company's inventories include high technology computer systems that may be specialized in nature and subject to rapid technological obsolescence. The Company does, however, have certain return privileges with many of its vendors. While the Company attempts to minimize the required inventories on hand and considers technological obsolescence when estimating required reserves to reduce recorded amounts to market values, it is reasonably possible that such estimates could change in the near term. Property and Equipment: Property and equipment are recorded at cost. Depreciation is recorded on a straight-line basis over the estimated useful lives, typically two to ten years. Leasehold improvements are amortized over the useful lives of the improvements or lease term, whichever is shorter. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in income. Excess of Cost over Acquired Net Assets and Other Intangibles: The excess cost over acquired net assets is being amortized on a straight- line basis over 15 and 20 year periods. Other intangibles are being amortized on a straight-line basis over their estimated useful lives which is typically 3 to 5 years. Amortization expense was $39,000, $292,000 and $1,400,000, in 1995, 1996 and 1997, respectively. The Company reviews the carrying value of excess costs over acquired net assets and other intangibles for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. At December 31, 1997, the net unamortized balance of goodwill is not considered to be impaired. Income Taxes: The Company accounts for its income taxes using the liability method under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized. Market Development Funds: Primary vendors provide the Company with market development funds in an amount that is generally based on purchases of the vendors' products and services. These funds typically range from 1% to 3% of such purchases and are required to be used to market and promote the vendors' products and services. The Company records these funds when earned as a reduction to offset direct costs of marketing, selling, general, and administrative expenses. Stock-Based Compensation: The Company accounts for stock-based compensation using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." 29 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: Net Income (Loss) Per Share: The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share", effective December 31, 1997. SFAS 128 requires the presentation of basic and diluted earnings per share (EPS). Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon exercise of stock options and conversion of preferred stock outstanding. All prior period earnings per share amounts have been restated to comply with SFAS 128. Reclassifications: Certain amounts in the financial statements have been reclassified to conform with the current year's presentation. These classifications did not change previously reported total assets, liabilities, stockholders' equity or net income (loss). Recent Accounting Pronouncements: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." This statement establishes requirements for disclosure of comprehensive income and becomes effective for the Company for fiscal years beginning after December 15, 1997, with reclassification of earlier financial statements for comparative purposes. Comprehensive income generally represents all changes in stockholders' equity except those resulting from investments or contributions by stockholders. The Company is evaluating alternative formats for presenting this information, but does not expect this pronouncement to materially impact the Company's results of operations. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes Statement of Financial Accounting Standards No. 14, "Financial Reporting for Segments of a Business Enterprise." The new standard becomes effective for fiscal years beginning after December 15, 1997, and requires that comparative information from earlier years be restated to conform to the requirements of this standard. The Company is evaluating the requirements of SFAS 131 and the effects, if any, on the Company's current reporting and disclosures. 2. LONG LIVED ASSETS: Property and equipment consist of the following (In thousands):
DECEMBER 31, -------------- 1996 1997 ------ ------ Computer and office equipment................................ $4,728 $8,286 Leasehold improvements....................................... 682 1,190 ------ ------ 5,410 9,476 Accumulated depreciation and amortization.................... (2,134) (4,556) ------ ------ $3,276 $4,920 ====== ======
30 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. LONG LIVED ASSETS, CONTINUED: Excess of cost over acquired net assets and other intangibles (In thousands):
DECEMBER 31, --------------- 1996 1997 ------ ------- Excess of cost over net assets acquired..................... $4,668 $55,528 Other intangibles........................................... 600 3,740 ------ ------- 5,268 59,268 Accumulated amortization.................................... (331) (1,731) ------ ------- $4,937 $57,537 ====== =======
3. BORROWING ARRANGEMENTS: Notes Payable (In thousands):
DECEMBER 31, -------------- 1996 1997 ------- ------ Working capital line.......................................... $11,277 $6,645 Other......................................................... -- 418 ------- ------ $11,277 $7,063 ======= ======
The Company has an inventory and working capital financing agreement (the IBMCC Credit Facility) with IBM Credit Corporation (IBMCC), an affiliate of IBM, whereby purchases from IBM and cash advances from IBMCC are directly charged to the IBMCC Credit Facility and are paid by the Company based on payment terms outlined in the agreement. Total borrowings under the IBMCC Credit Facility are based on eligible accounts receivable and inventory, as defined, and are limited to $75,000,000, temporarily increased to $85,000,000 through January 31, 1998. The IBMCC Credit Facility is renewable in September 1999 and contains restrictive covenants which include the maintenance of minimum current ratio, tangible net worth and times interest earned ratios, as defined and is collateralized by substantially all assets of the Company. As of December 31, 1996 and 1997, the Company had outstanding borrowings under this agreement of $27,286,000 and $71,661,000, respectively. Of the total outstanding borrowings, $11,277,000 and $6,645,000 represented cash advances at December 31, 1996 and 1997, respectively with the remainder included in accounts payable which amounted to $16,009 and $65,016, respectively. Cash advances bear interest at prime (8.50% as of December 31, 1997) plus 1.875%. Based on eligible assets, as of December 31, 1997, the Company had borrowings available of approximately $12,500,000. The weighted average interest rates for the Company's cash advances during 1996 and 1997 were 9.2% and 10.23%, respectively. Long-Term Debt (In thousands):
DECEMBER 31, ------------- 1996 1997 ---- ------- Subordinated notes payable................................... $-- $15,700 IBMCC loan................................................... -- 10,000 SMS seller notes............................................. -- 7,350 Other........................................................ 111 528 --- ------- 111 33,578 Less discount................................................ -- (2,732) --- ------- 111 30,846 Less amount due within one year.............................. (58) (8,516) --- ------- Long-term debt due after one year............................ $53 $22,330 === =======
31 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. BORROWING ARRANGEMENTS, CONTINUED: Principal payments for long-term debt at December 31, 1997 are as follows: 1998................................................................. $ 8,787 1999................................................................. 8,803 2000................................................................. 15,834 2001................................................................. 131 2002................................................................. 23 ------- $33,578 =======
On September 30, 1997, the Company entered into a note purchase agreement (the "Note Purchase Agreement") with Robert Fleming, Inc. and Canpartners Investments IV, LLC, as purchasers (together, the "Purchasers") and Canpartners Investments IV, LLC, as agent for the Purchasers. Pursuant to the Note Purchase Agreement, the Company sold $15,700,000 of secured notes to the Purchasers, granted to the Purchasers warrants to purchase 400,000 shares of the Company's Common Stock, and granted to the Purchasers ten shares of newly authorized and issued Series B Preferred Stock. The notes, which are subordinated to the Company's primary lender, IBMCC, bear interest at 13.5% annually, include an original issue discount, fully earned upon funding, of $700,000 and are due September 30, 2000. The Company may prepay the notes at 107% of the principal balance subsequent to September 30, 1997, 106% subsequent to September 30, 1998 and 105% subsequent to September 30, 1999. On or after March 31, 2000, the Purchasers may request redemption of up to 50% of the notes issued at 100% of the principal amount. The warrants issued pursuant to the Note Purchase Agreement have a purchase price of $7.50 and expire in seven years. On each anniversary the warrant price may be reset to 87.5% of the price, as defined, of the Company's Common Stock if the market price is less than $7.50. The warrants issued in connection with the notes were determined to have a fair market value of $1,064,000, which has been charged, along with the original issue discount, to discount on notes payable. The discount is being charged to interest expense on a straight-line basis over the life of the notes. The Series B Preferred Stock issued to the purchasers allows the holders of the Series B Preferred Stock to elect one member to the Company Board of Directors if there is a default or event of default, as defined, on the Note Purchase Agreement. The Note Purchase Agreement contains restrictive covenants which include minimum fixed charge coverage ratio, minimum income, minimum consolidated net worth and maximum capital expenditures, as defined. The Company was not in compliance with the maximum capital expenditure covenants at December 31, 1997 and received a waiver for this specific violation. The Company used the proceeds from the notes to consummate the SMS acquisition (see Note 11). On September 30, 1997, the Company executed an amendment to the IBMCC Credit Facility. Pursuant to the amendment of the IBMCC Credit Facility, the Company obtained an additional loan of $10,000,000 to consummate the acquisition of SMS. The loan bears interest at prime (8.5% as of September 30, 1997) plus 2% and is due in four installments through September 30, 1999. As part of the amendment, the Company granted IBMCC warrants to purchase 100,000 shares of the Company's Common Stock. The warrants issued to IBMCC are the same, in all respects, to the warrants issued to the Purchasers of the Note Agreement. These warrants were determined to have a fair value of $266,000, which has been charged against the face value of the loan. The discount is being charged to interest expense over the life of the loan. In connection with the acquisition of SMS (see Note 11), the Company is obligated to pay the two selling stockholders of SMS cash payments totaling $3,675,000 on the first and second anniversary of the acquisition, September 30, 1998 and 1999. The non-interest-bearing notes have been discounted using the Company's effective borrowing rate of 10.375%. The total discount to the face value of the notes was $1,047,000 and is being charged to interest expense over the life of the notes. 32 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. OPERATING LEASE COMMITMENTS: The Company leases its warehouse and office space under operating leases. These leases expire through 2004 and provide for payment of insurance, maintenance and property taxes. In addition, the Company leases certain equipment under operating leases and rental arrangements extending for periods of up to five years. The total rent expense, net of sublease income, was $934,000, $722,000 and $1,600,000 for 1995, 1996 and 1997, respectively. Future minimum rental commitments for all noncancelable operating leases are as follows (In thousands):
YEARS ENDING DECEMBER 31, --------------------------------------------------------------------- 1998................................................................. $1,462 1999................................................................. 1,324 2000................................................................. 1,111 2001................................................................. 985 2002................................................................. 1,003 Thereafter........................................................... 542 ------ $6,427 ======
5. INCOME TAXES: The provision for (benefit from) income taxes consist of the following (In thousands):
FEDERAL STATE TOTAL ------- ----- ------- 1997: Current........................................... $ 1,578 $ 308 $ 1,886 Deferred.......................................... (1,301) (250) (1,551) ------- ----- ------- $ 277 $ 58 $ 335 ======= ===== ======= 1996: Current........................................... $ 223 $ 53 $ 276 Deferred.......................................... -- -- -- ------- ----- ------- $ 223 $ 53 $ 276 ======= ===== ======= 1995: Current........................................... -- -- -- Deferred.......................................... -- -- -- ------- ----- ------- $ -- $ -- $ -- ======= ===== =======
33 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INCOME TAXES, CONTINUED: The Company's effective tax rate differs from the U.S. federal statutory tax rate as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ------- ------- ------- Statutory tax (benefit) rate.................. (34)% 34 % 34 % Goodwill and other nondeductible expenses..... 11 4 15 Benefit resulting from utilization of federal NOL.......................................... -- (33) (17) State taxes, net of federal benefit........... -- 6 8 Change in valuation reserve................... 23 -- (35) Other......................................... -- -- 4 ------- ------- ------- -- % 11 % 9 % ======= ======= =======
The components of the net deferred tax asset are as follows (In thousands):
DECEMBER 31, --------------- 1996 1997 ------- ------ Deferred tax assets: Accounts receivable reserve................................. $ 93 $ 518 Accumulated depreciation.................................... 83 85 Uniform inventory capitalization............................ 248 221 Inventory reserve........................................... 314 285 Other nondeductible reserves................................ 124 289 Other....................................................... 111 73 Net operating losses........................................ 915 80 Valuation allowance......................................... (1,888) -- ------- ------ $ -- $1,551 ======= ======
Realization of the net deferred tax assets as of December 31, 1997 is dependent on generating sufficient taxable income to offset future deduction of the related items. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax assets will be realized. At December 31, 1997, the Company had net operating loss carryforwards of approximately $1,600,000 available to offset future taxable income for state tax purposes. The operating loss carryforwards expire from 1998 to 2002, if not utilized. 6. STOCKHOLDERS' EQUITY: Stockholders' Equity; In August of 1997, the stockholders of the Company approved an amendment of the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock from 10,000,000 to 25,000,000. The stockholders also approved the change of the Company's state of incorporation from California to Delaware. Preferred Stock Private Placement: On September 18, 1997, the Company completed the private placement of 1,121,250 units (the "Units"). Each Unit consists of two shares of the Company's Series A Preferred Stock, par value $0.01 per share, for an aggregate of 2,242,500 shares, at a purchase price of $9.5625 per share, and one Common Stock purchase warrant (which expires in five years), par value $0.01 per share, for an aggregate of 1,125,250 shares, at a purchase price of $.125 per warrant and exercisable at a price of $9.6875 per share. The Series A Preferred Stock has an eight percent (8%) cumulative dividend, payable in cash or Company Common Stock at the election of the Company and a potential special dividend should the price of the Company's Common Stock fall below $9.5625 on each anniversary of the private placement. The special dividend may not exceed $1.9125 per share 34 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. STOCKHOLDERS' EQUITY, CONTINUED: each year. The Series A Preferred Stock is convertible at the option of the Holders, at any time, into Common Stock of the Company. The conversion price is $9.3125 and is subject to adjustment if the Company issues any stock or securities at less than the conversion price. Subsequent to September 19, 1998, the Company may redeem the Preferred Stock provided that the Company's Common Stock is trading at one hundred fifty percent (150%) of the conversion price (as adjusted) and the daily trading volume of the Company's stock is in excess of 125,000 shares, as defined. Subsequent to September 19, 2001, the Company may redeem the Preferred Stock at the conversion price (as adjusted). In connection with the transaction, the Company issued warrants for the purchase of 112,125 shares of Common Stock to placement agents. The warrants are exercisable at $9.6875 per share and expire in five years. Net proceeds totaled approximately $19,100,000. The Company used the proceeds to pay down its line of credit and for general working capital purposes. Warrants: At December 31, 1997, warrants were outstanding to purchase a total of 1,733,375 shares of Common Stock at exercise prices ranging from $7.50 to $9.6875 per share. The warrants, which were issued in connection with various debt and equity financings, expire between 2002 to 2004. At December 31, 1997, the Company had reserved 1,733,375 shares of Common Stock for issuance upon exercise of these warrants. During the years ended December 31, 1996 and 1997, no warrants were exercised. Stock Option Plan: Under the terms of the 1987 and 1994 Stock Option Plans, the Company may grant nonqualified or incentive stock options at prices not less than 85% and 100% of the market value at the grant date, respectively. To date, most options have been granted at 100% of the market value as of the date of grant. Generally, options vest and become exercisable in equal annual increments over four years beginning one year after the date of grant and expire five years after they become exercisable.
OPTIONS OUTSTANDING --------------------------------- SHARES NUMBER PRICE TOTAL AVAILABLE OF PER (IN FOR GRANT SHARES SHARE THOUSANDS) --------- --------- ------------ --------- Balances, January 1, 1995.......... 35,439 594,344 $2.00-$ 8.75 $ 3,238 Options granted................... (342,500) 342,500 $2.25-$ 5.63 1,151 Options exercised................. (7,981) $2.00-$ 2.50 (18) Options terminated................ 324,375 (324,375) $2.25-$ 8.25 (1,869) -------- --------- ------------ ------- Balances, December 31, 1995........ 17,314 604,488 $2.00-$ 8.75 2,502 Additional shares reserved........ 400,000 Options granted................... (441,000) 441,000 $5.00-$10.34 3,367 Options exercised................. (92,157) $2.00-$ 6.13 (331) Options terminated................ 23,750 (23,750) $3.38-$ 8.25 (108) -------- --------- ------------ ------- Balances, December 31, 1996........ 64 929,581 $2.00-$10.34 5,430 Additional shares reserved........ 700,000 Options granted................... (610,679) 610,679 $8.00-$12.75 6,506 Options exercised................. -- (24,375) $2.25-$ 7.00 (74) Options terminated................ 79,875 (79,875) $2.13-$12.25 (629) -------- --------- ------------ ------- Balances, December 31, 1997........ 169,260 1,436,010 $2.00-$12.75 $11,233 ======== ========= ============ =======
At December 31, 1997, there were 1,605,270 shares of common stock reserved for issuance under the Company's stock option plans and outstanding options for 360,581 shares of common stock were exercisable. 35 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. STOCKHOLDERS' EQUITY, CONTINUED: Employee Stock Purchase Plan: The Company implemented an Employee Stock Purchase Plan (the Plan) in November 1995, under which 175,000 shares of common stock have been reserved for issuance. The Plan is qualified under Section 423 of the Internal Revenue Code. The Plan allows for the purchase of stock at 85% of the lower of the closing stock price at the beginning or the end of each six-month purchase period. As of December 31, 1997, 50,241 shares have been issued under this Plan. The following information concerning the Company's stock option and employee stock purchase plans is provided in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." The Company accounts for such plans in accordance with APB No. 25 and related Interpretations. The following table summarizes information with respect to stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS OUTSTANDING -------------------------------- -------------------- WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING LIFE EXERCISE EXERCISABLE EXERCISE EXERCISE PRICES AT 12/31/97 (YEARS) PRICE AT 12/31/97 PRICE --------------- ----------- ----------- -------- ----------- -------- $2.00-$3.63............... 219,706 7.54 $ 2.74 122,206 $2.75 $5.00-$8.88............... 396,125 8.26 $ 6.08 179,750 $6.09 $9.00-$12.75.............. 820,179 9.71 $10.39 58,625 $9.13 --------- ------- $2.00-$12.75.............. 1,436,010 8.95 $ 7.93 360,581 $5.44 ========= =======
The fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1995, 1996 and 1997:
GROUP A GROUP B ------------------------- ------------------------- 1995 1996 1997 1995 1996 1997 ------- ------- ------- ------- ------- ------- Risk-free interest rates.................. 7.68 5.17 6.30 7.64 5.25 6.39 Expected life........... 5 years 5 years 5 years 4 years 4 years 4 years Volatility.............. 87.42% 87.42% 75.00% 87.42% 87.42% 75.00%
The weighted average expected life was calculated based on the exercise behavior of each group. Group A represents officers and directors who are a smaller group holding a greater average number of options than other option holders and who tend to exercise later in the vesting period. Group B are all other option holders, virtually all of whom are employees. This group tends to exercise earlier in the vesting period. The weighted average fair value of those options granted in 1995, 1996 and 1997 was $3.34, $7.64 and $6.90, respectively. The Company has also estimated the fair value for the purchase rights issued under the Company's Employee Stock Purchase Plan under the Black-Scholes valuation model using the following assumptions for 1997: Risk-free interest rate............................................ 5.46 Expected life...................................................... 0.5 years Volatility......................................................... 75.00%
36 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. STOCKHOLDERS' EQUITY, CONTINUED: The weighted average fair value of those purchase rights granted in 1996 was $5.10. The following pro forma income (loss) information has been prepared following the provisions of SFAS No. 123 (amounts in thousands except per share data):
YEAR ENDED DECEMBER 31, ---------------------- 1995 1996 1997 ------- ------ ------ Net income (loss)--pro forma......................... $(5,213) $1,750 $1,624 ======= ====== ====== Basic net income (loss) per share--pro forma......... $ (1.39) $ 0.41 $ 0.33 ======= ====== ====== Diluted net income (loss) per share--pro forma....... $ (1.39) $ 0.42 $ 0.35 ======= ====== ======
The above pro forma effects on income may not be representative of the effects on net income for future years as option grants typically vest over several years and additional options are generally granted each year. 7. EARNINGS PER SHARE: In accordance with the disclosure requirements of SFAS 128, a reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (In thousands, except per share amounts):
YEAR ENDED DECEMBER 31, ---------------------- 1995 1996 1997 ------- ------ ------ Numerator--basic and diluted EPS Net income (loss).................................. $(5,098) $2,338 $3,310 Less: preferred stock dividends.................... -- -- (484) ------- ------ ------ Income available to common stockholders--basic..... (5,098) 2,338 2,826 Plus: impact of assumed preferred stock conversion. -- -- 484 ------- ------ ------ Income available to common holders plus assumed conversions--diluted.............................. $(5,098) $2,338 $3,310 ======= ====== ====== Denominator--basic EPS Weighted average shares outstanding................ 3,756 4,255 4,902 ------- ------ ------ Basic earnings per share........................... $ (1.36) $ 0.55 $ 0.57 ======= ====== ====== Denominator--diluted EPS Denominator--basic EPS............................. 3,756 4,255 4,902 Effect of dilutive securities: Common stock options and warrants.................. -- 258 453 Convertible preferred stock........................ -- -- 621 ------- ------ ------ 3,756 4,513 5,976 ======= ====== ====== Diluted earnings per share......................... $ (1.36) $ 0.52 $ 0.55 ======= ====== ======
37 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. SUPPLEMENTAL CASH FLOW INFORMATION: Supplemental Disclosures of Cash Flow Information (In thousands): Cash paid for interest and income taxes was:
YEAR ENDED DECEMBER 31, ------------------ 1995 1996 1997 ---- ------ ------ Interest.................................................. $895 $1,021 $2,700 Income taxes.............................................. $ -- $ 66 $ 706
Supplemental Disclosures of Noncash Investing and Financing Activities (In thousands):
YEAR ENDED DECEMBER 31, -------------------- 1995 1996 1997 ------ ------ ------ Tax benefit from exercise of stock options............. $ -- $ -- $ 489 Capital lease obligations.............................. $ 79 $ -- $ -- Common stock issued in connection with acquisitions.... $1,660 $1,949 $6,825 Dividend on preferred stock............................ $ -- $ -- $ 50 Common stock warrants issued in connection with notes payable issuance...................................... $ -- $ -- $1,330 Common stock warrants issued in connection with pre- ferred stock.......................................... $ -- $ -- $1,000
9. CONTINGENCIES: The Company is engaged in certain legal and administrative proceedings incidental to its normal business activities. While it is not possible to determine the ultimate outcome of these actions at this time, management believes that any liabilities resulting from such proceedings, or claims which are pending or known to be threatened, will not have a material adverse effect on the Company's financial position or results of operations. 10. SAVINGS AND RETIREMENT PLAN: The Company maintains the "Western Micro Technology Savings and Retirement Plan," qualified under section 401(a) of the Internal Revenue Code. The Plan provides for tax deferred automatic salary deductions and alternative investment options. Employees are eligible to participate after completion of six months of employment. Participants may apply for loans from their accounts. The Plan permits Company contributions determined quarterly by the Board of Directors. No contributions were made in the years ended December 31, 1995, 1996 or 1997. 11. ACQUISITIONS AND INVESTMENTS: On September 30, 1997, the Company acquired all of the capital stock of SMS for an aggregate of $42,150,000 in cash at closing and 460,000 shares of the Company's common stock, valued at $3,887,000, and additional cash payments of $3,675,000 to be paid on each of the first and second anniversaries of the closing (see Note 3). In addition, the selling stockholders can earn up to an additional $5,000,000 in cash payments based upon attainment of certain performance goals. All the additional cash payments become immediately due upon a change in control of the Company, as defined. The acquisition has been accounted for as a purchase with the result that SMS operations are included in the Company's financial statements from the date of purchase. In connection with the acquisition, the Company recorded approximately $47,600,000 of goodwill and other 38 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. ACQUISITIONS AND INVESTMENTS, CONTINUED: intangible assets. The fair value of assets acquired from SMS was approximately $41,400,000 and liabilities assumed were approximately $36,100,000. SMS is a holding company for a family of companies including Star Data Systems, Inc., dba Sirius Computer Solutions ("Sirius"), a value-added distributor for high technology mid-range solutions in the IBM AS/400 and RS/6000 systems market. Sirius also sells systems directly to end-user customers as an industry remarketer. Prior to the closing of the SMS acquisition, SMS completed a spin-off of the Sirius end-user business as a separate unaffiliated company. Upon acquiring SMS, the distribution arm was renamed Business Partner Solutions, Inc. ("BPS"). Upon completion of the SMS acquisition, BPS became a wholly owned subsidiary of the Company. For the eleven months ended September 30, 1997, the distribution business of Sirius had revenues of approximately $86,500,000 and income from operations of approximately $1,100,000. The following presents unaudited pro forma combined net sales, net income and earnings per share of the Company and SMS (excluding the Sirius end-user business) for the fiscal years ended December 31, 1996 and 1997. The pro forma information is presented for informational purposes only, and is not necessarily indicative of the operating results that would have occurred if the SMS acquisition had been consummated at the beginning of the earliest period presented, nor is it indicative of future operating results.
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1997 ----------------- ----------------- Net sales................................ $208,000,000 $306,000,000 ============ ============ Net income............................... $ 631,000 $ 899,000 ============ ============ Net income per share--basic.............. $ 0.13 $ 0.17 ============ ============ Net income per share--diluted............ $ 0.13 $ 0.14 ============ ============
For purposes of the pro forma combined data, SMS's financial data for its fiscal year ended October 31, 1996 have been combined with the Company's financial data for the fiscal year ended December 31, 1996. The above amounts do not include pro forma adjustments for sales that would have occurred between the distribution business of SMS and the end-user business if the spinoff of the end-user business had occurred at the beginning of such period presented. Including these sales amounts, pro forma combined net sales would have been approximately $247,000,000 and $336,000,000 for the year ended December 31, 1996 and 1997, respectively. On March 17, 1997, the Company acquired all of the common stock of Target Solutions, Inc. ("TSI"), a privately held company, for approximately $2,200,000, paid in common stock (220,273 shares) of the Company. Additional consideration, up to $10,000,000 in cash and stock, can be earned by TSI by meeting certain defined gross profit targets through fiscal year 1998. An additional 62,578 shares were issued by the Company on March 17, 1997, and placed in escrow for the earn-out provision. No shares were earned in 1997. If TSI does not meet the earn-out provision targets in 1998, the appropriate amount of shares will be returned to the Company. The acquisition has been accounted for as a purchase with the result that TSI operations are included in the Company's financial statements from the date of purchase. In connection with the acquisition, the Company recorded approximately $2,600,000 of goodwill and other intangible assets. The fair value of assets acquired from TSI was approximately $1,141,000 and liabilities assumed were approximately $1,484,000. For the year ended December 31, 1996, TSI had unaudited revenues of approximately $15,000,000 with net income of approximately $200,000. On November 29, 1996, the Company acquired the net assets of International Data Products, LLC ("IDP"), a privately held company, for $265,000 in cash and assumed net liabilities of $424,000. The agreement between the Company and IDP (the "Agreement") contains an earn out provision which allows IDP to earn up to 140,000 shares of the Company's common stock based on the attainment of gross profit targets for certain fiscal year 39 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. ACQUISITIONS AND INVESTMENTS, CONTINUED: 1997 and 1998 sales (as defined in the Agreement). In connection with the acquisition, the Company recorded approximately $780,000 of goodwill and other intangible assets. For the year ended December 31, 1995, IDP had unaudited revenues of approximately $4,611,000 with net income of approximately $2,000. On November 7, 1996, the Company acquired the net assets of Star Technologies, Inc. ("Star"), a privately held company, for $950,000 paid in common stock (113,263 shares) of the Company. The agreement between the Company and Star (the "Agreement") contains an earnout provision which allows Star to earn up to an additional $1,500,000 of the Company's common stock based on the attainment of gross profit targets for certain fiscal year 1997 and 1998 sales (as defined in the Agreement). An additional 89,418 shares were issued by the Company on November 7, 1996 and placed in escrow for the earnout provision. As of December 31, 1997, 48,721 shares, at an average price of $10.26, have been earned under this provision. If Star does not meet the earnout provision targets, the appropriate amount of shares will be returned to the Company. In connection with the acquisition, the Company recorded approximately $400,000 of goodwill and other intangible assets. For the year ended June 30, 1996, Star had revenues of approximately $7,500,000 with net income of approximately $40,000. On January 2, 1996, the Company acquired the assets of R&D Hardware Systems Company of Colorado ("R&D"), a privately held company, for $1,000,000 and 125,000 shares of the Company's common stock. The agreement between the Company and R&D (the "Agreement") contains an earnout provision which allows R&D to earn up to an additional 125,000 shares of the Company's common stock based on attainment of gross profit targets for certain fiscal year 1996 and 1997 sales (as defined in the Agreement) up to a cumulative value not to exceed $855,000. As of December 31, 1997, the end of the earnout period, 78,587 shares, at an average price of $10.33, have been earned under this provision. In connection with the acquisition, the Company recorded approximately $1,400,000 of goodwill and other intangible assets. For the year ended December 31, 1995, R&D had revenues of approximately $9,557,000 with net income of approximately $446,000. On November 18, 1995, the Company acquired all of the common stock of International Parts, Inc. ("IPI"), a privately held company for 300,000 shares of the Company's common stock. The agreement between the Company and IPI (the "Agreement") contains an earnout provision which allows for IPI to earn up to an additional 300,000 shares of the Company's common stock based on 30% of gross profit dollars generated for certain fiscal year 1996 and 1997 sales (as defined in the Agreement) in excess of $418,550 per quarter. As of December 31, 1997, the end of the earnout period, 42,516 shares, at an average price of $9.76, have been earned under this provision. 12. SALE OF COMPONENTS BUSINESS AND RESTRUCTURING CHARGE: On July 26, 1995, the Company sold its electronics components distribution assets to Reptron Electronics Inc. ("Reptron"). The transaction, valued at approximately $12,500,000, consisted of a $9,200,000 payment in cash and the assumption of $3,300,000 in accounts payable. The sale, which was approved by the Company's stockholders, included the Company's semiconductor component inventory, certain receivables, furniture and equipment. In addition, Reptron assumed certain building and equipment lease obligations. As a result of this sale, the Company recorded a restructuring charge of $3,600,000. Of this amount, $2,376,000 was for non-cash write-offs comprised of $1,353,000 in goodwill and a $1,023,000 increase to long-term inventory related reserves. Severance and other exit related charges related to the sale comprised the remaining $1,224,000. In February 1996, approximately $211,000 was distributed from the escrow to the Company and the balance was paid to Reptron. Concurrent with the distribution of the escrow funds, Reptron returned approximately $789,000 of designated assets, valued at historical cost, to the Company. These designated assets were primarily comprised of semiconductor inventories. As of December 31, 1997 the Company did not have any inventory related to the Reptron transaction. 40 SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 13. PENDING ACQUISITION: On November 22, 1997, the Company signed a definitive agreement to acquire MCBA Systems, Inc. (MCBA), a privately held company, for approximately 900,000 shares of the Company's common stock. Additional consideration of 1,500,000 shares can be earned by MCBA stockholders by meeting certain future performance targets. The acquisition is subject to a number of conditions, including the approval by the stockholders of the Company. The acquisition is anticipated to close in March of 1998. MCBA distributes the same IBM mid-range servers as the Company plus the IBM S/390 system. For the year ended December 31, 1997, MCBA had unaudited revenues of $26,900,000 with unaudited net income of $26,000. 14. SUBSEQUENT EVENT: On February 17, 1998, the Company completed a Registration Statement on Form S-3 for the registration of 4,482,542 shares of common stock issuable in connection with the conversion of Series A Preferred Stock and the exercise of certain warrants and for restricted shares issued in the SMS transaction. 41 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding the executive officers and directors of the Company as of February 28, 1998.
NAME AGE POSITION - ---- --- -------- P. Scott Munro........... 41 Chairman of the Board, Chief Executive Officer, President, Secretary and Director James W. Dorst........... 43 Chief Financial Officer Robert O'Reilly.......... 45 Senior Vice President Carlton Joseph Mertens 32 Chief Executive Officer and President of the II...................... Company's subsidiary, Business Partner Solutions, Inc., and Director Angelo Guadagno(1)(2).... 55 Director James J. Heffernan(3).... 55 Director K. William Sickler(1)(2). 48 Director J. Larry Smart(1)(3)..... 49 Director
- -------- (1) Member of the Compensation Committee. (2) Member of the Stock Option Committee. (3) Member of the Audit Committee. P. SCOTT MUNRO has served as Chief Executive Officer, President and Secretary of the Company since July 1995. Mr. Munro has also served as Chairman of the Board since January 1998 and served as a Director of the Company from July 1995. From January 1993 to July 1995, Mr. Munro was President, Computer Systems Division of the Company, and from July 1990 to January 1993, he served as Senior Vice President, Computer Systems Division of the Company. Prior to 1990, Mr. Munro served as a General Manager for both Future Electronics, Inc., a distributor of electronic components, and Arrow Electronics, Inc., a distributor of computer products. JAMES W. DORST has served as Chief Financial Officer of the Company since May 1995. From May 1994 to February 1995, Mr. Dorst was Chief Financial Officer of Accolade, Inc., an entertainment software developer. From March 1986 to April 1993, he was Chief Financial Officer of Drypers Corporation, a manufacturer of consumer disposable products. Prior to 1986, he was employed by the public accounting firm of Coopers & Lybrand L.L.P. ROBERT O'REILLY has served as Senior Vice President of the Company since September 1997 and prior to that time served as Vice President of Human Resources from February 1996 and Director of Human Resources from September 1995. Prior to joining the Company, Mr. O'Reilly was a Director of Human Resources, with special emphasis on recruitment, training and development, during his 10-year career with Future Electronics, Inc., a distributor of electronic components. CARLTON JOSEPH MERTENS II has served as a Director of the Company and as Chief Executive Officer and President of the Company's subsidiary, Business Partners Solutions, Inc., since September 1997. From 1984 to September 1997, Mr. Mertens was an active member of SMS' management team, and served as Executive Vice President of SMS from 1991 to September 1997 prior to its acquisition by the Company. 42 ANGELO GUADAGNO has served as a Director of the Company since August 1997. From 1989 to 1997, he was the Vice President of Worldwide Channel Sales of Data General, a manufacturer of servers, storage systems and related software. During his tenure at Data General he also served as: Vice President of U.S. Sales from 1994 to 1996; Vice President, American Sales and Services from 1990 to 1994; and Vice President of North American Sales Division from 1989 to 1990. JAMES J. HEFFERNAN has served as a Director of the Company since October 1995. Since January 1996, he has been Chief Financial Officer and a director of USWeb Corporation, an Internet consulting firm. From March 1995 to January 1996, he was Chief Financial Officer of Interlink Computer Sciences, a software company. Prior to such time, Mr. Heffernan was Chairman of the Board and Chief Financial Officer of Panoramic, Inc., a software company. From June 1994 to June 1995, Mr. Heffernan was a director of International Microcomputer Software, Inc., a software company. K. WILLIAM SICKLER has served as a Director of the Company since July 1993. Mr. Sickler has served as Chief Executive Officer and President of Gadzoox Networks, Inc., a provider of gigabit fibre channel networking products since April 1996. From July 1995 to April 1996, he was Executive Director of Software Business Development for Seagate Technology, a software developer and manufacturer of disk drives, with responsibility for analysis of potential software company acquisitions. From December 1992 to July 1995, Mr. Sickler was President and Chief Executive Officer of Network Computing, Inc., a provider of network management software for local area networks. J. LARRY SMART has served as a Director of the Company since October 1995. From October 1995 to January 1998, he also served as Chairman of the Board of the Company. Since March 1997, Mr. Smart has served as President and Chief Executive Officer of Visioneer, Inc., a developer of personal desktop management hardware and software imaging products, and served as Chairman of the Board of Directors of that company from February 1997 until assuming the position of President and Chief Executive Officer. From July 1995 until March 1997, he was Chairman of the Board, President and Chief Executive Officer of StreamLogic Corporation, a data storage company. From March 1994 to February 1995, Mr. Smart was President and Chief Executive Officer of Maxtor Corporation, a data storage company. From July 1991 to February 1995, Mr. Smart was President and Chief Executive Officer of Southwall Technologies, Inc., a materials sciences company. The Company currently has authorized six (6) members of the Board of Directors. All directors are elected to hold office until the next annual meeting of stockholders of the Company and until their successors have been duly elected and qualified. Officers are elected at the first meeting of the Board of Directors following the stockholders' meeting at which the directors are elected and serve at the discretion of the Board of Directors. There are no family relationships among any of the directors or executive officers of the Company. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules of the Securities and Exchange Commission (the "Commission") thereunder require the Company's directors and executive officers to file reports of their ownership and change in ownership of the Company's common stock with the Commission. Based solely upon a review of such reports, the Company believes that all reports required by Section 16(a) of the Exchange Act to be filed by its directors and executive officers during the last fiscal year were filed on time, except that Messrs. Guadagno and O'Reilly filed their Forms 3 approximately 5 months late. 43 ITEM 11. EXECUTIVE COMPENSATION The following table provides certain summary information for the years ended December 31, 1995, 1996 and 1997 concerning compensation paid to the Company's Chief Executive Officer and to the Company's two other named executive officers whose compensation exceeded $100,000 in 1997 (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ---------------------------------- ------------ SECURITIES NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($) ------------------ ------ --------- -------- --------------- ------------ --------------- P. Scott Munro.......... 1997 302,485 119,398 -- 150,000 -- Chairman of the Board, 1996 221,286 122,564 -- 125,000 -- Chief Executive 1995 173,660 152,530 -- 60,000 -- Officer, President and Secretary James W. Dorst.......... 1997 192,333 51,872 -- 30,000 -- Chief Financial Officer 1996 150,000 47,867 -- 20,000 -- 1995 100,000 30,640 20,833(1) 50,000 -- Robert O'Reilly(2)...... 1997 142,517 36,578 -- 30,000 -- Senior Vice President
- -------- (1) Mr. Dorst served as a consultant to the Company from February 1995 until he was hired by the Company in May 1995. During his consultancy with the Company, he was paid $20,833. (2) Mr. O'Reilly became an executive officer of the Company during 1997. 44 RECENT OPTION GRANTS The following table sets forth certain information regarding options granted during the fiscal year ended December 31, 1997 to the Named Executive Officers. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER OF PERCENT OF ANNUAL RATES OF STOCK SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OR OPTION TERM($)(2) OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------- NAME GRANTED(#) FISCAL YEAR(1) ($/SHARE) DATE 5% 10% - ---- ---------- -------------- ----------- ---------- ---------- ------------ P. Scott Munro.......... 75,000(3) 13.2% 11.375 5/16/07 536,526 1,359,662 75,000(4) 13.2% 11.375 5/16/07 536,526 1,359,662 James W. Dorst.......... 15,000(3) 2.6% 11.375 5/16/07 107,305 271,932 15,000(4) 2.6% 11.375 5/16/07 107,305 271,932 Robert O'Reilly......... 15,000(3) 2.6% 11.375 5/16/07 107,305 271,932 15,000(4) 2.6% 11.375 5/16/07 107,305 271,932
- -------- (1) Based on options to purchase an aggregate of 567,000 shares of Common Stock granted during fiscal 1997. (2) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of five percent (5%) and ten percent (10%) compounded annually from the date the respective options were granted to their expiration date and are not presented to forecast possible future appreciation, if any, in the price of the Common Stock. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise of the options or the sale of the underlying shares of Common Stock. The actual gains, if any, on the stock option exercises will depend on the future performance of the Common Stock, the optionee's continued employment through applicable vesting periods and the date on which the options are exercised. (3) These options have a 10-year term and vest at the rate of twenty-five percent (25%) per year over a four-year period. These options have accelerated vesting upon a change of control of the Company. (4) These options have a 10-year term and vest based on the price of the Common Stock expressed as a 30-day consecutive average, with one hundred percent (100%) vesting after five years in any event. These options have accelerated vesting upon a change of control of the Company. The following table shows the number of shares of Common Stock represented by outstanding stock options held by each of the Named Executive Officers as of December 31, 1997. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ($) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- -------------------------- ------------------------- P. Scott Munro............. 134,218 / 302,500 718,549 / 828,438 James W. Dorst............. 30,000 / 70,000 210,000 / 233,750 Robert O'Reilly............ 11,250 / 63,750 32,344 / 97,031
- -------- (1) Based on a per share price of $10.375, the closing price of the Common Stock as reported by The Nasdaq National Market on December 31, 1997, the last trading day of the fiscal year. 45 COMPENSATION OF DIRECTORS The Company's outside directors (i.e., those who are not employees of the Company) receive an annual retainer of $20,000, plus $750 for each board meeting attended. The Company pays for directors' liability insurance and has entered into indemnification agreements with each of its directors. At the 1994 Annual Meeting of Stockholders, the stockholders approved the adoption of the 1994 Stock Option Plan, which has on several occasions thereafter been amended. The 1994 Stock Option Plan, as amended, provides for the grant of an option of 15,000 shares of the Common Stock to certain directors who are not employees following their initial election or appointment and an option for 4,000 shares of Common Stock at every regular annual meeting thereafter at which they are elected. The exercise price of the options is the fair market value of the Common Stock on the date of each respective grant and the options vest over a four-year period. In April 1997, the Board of Directors made discretionary grants of nonstatutory stock options to each of the outside directors to purchase 6,250 shares of Common Stock at an exercise price of $11.00 per share. CHANGE IN CONTROL Stock options held by the Company's directors and Named Executive Officers under the Company's Stock Option Plans will become fully vested and exercisable following a change in control of the Company. A "change in control" means the occurrence of any of the following events: (i) stockholder approval of a merger or consolidation of the Company with any other corporation resulting in a change in fifty percent (50%) or more of the total voting power of the Company; (ii) stockholder approval of a plan of complete liquidation of the Company or an agreement for the sale or disposition of all or substantially all of the Company's assets; or (iii) any person becomes the beneficial owner of more than fifty percent (50%) of the Company's total outstanding securities. EMPLOYMENT AGREEMENTS The Company has entered into an employment agreement with P. Scott Munro dated January 1, 1996. Pursuant to the terms of the agreement, as amended, Mr. Munro receives a base salary of $325,000 per year and is eligible to receive a bonus of up to $200,000 per year, subject to achievement of certain performance goals. If Mr. Munro is terminated without cause, he will be entitled to receive his base salary for twelve (12) months following his termination. If Mr. Munro's responsibilities are reduced within twelve (12) months following a change in control and such reduction in responsibilities is not for cause, any resignation of employment by Mr. Munro as a consequence of such reduction in responsibilities will be treated as a termination of employment without cause. The Company has also entered into employment agreements with other management personnel as follows: (i) an employment agreement with James W. Dorst dated June 12, 1995, pursuant to which Mr. Dorst receives a base salary of $200,000 per year and is eligible to receive a bonus of up to $60,000 per year, subject to achievement of certain performance goals; and (ii) an employment agreement with Robert O'Reilly dated January 22, 1998, pursuant to which Mr. O'Reilly receives a base salary of $150,000 per year and is eligible to receive a bonus of up to $50,000 per year and a one-time bonus of $12,500, subject to achievement of certain performance goals. In addition to the foregoing, pursuant to each of their agreements with the Company, if Mr. Dorst or Mr. O'Reilly is terminated for cause, such person will be entitled to receive his base salary and bonus through the date of his termination. If Mr. Dorst or Mr. O'Reilly is terminated without cause, such person will be entitled to receive his base salary for a period following his termination, twelve (12) months for Mr. Dorst and six (6) months for Mr. O'Reilly. If Mr. Dorst's or Mr. O'Reilly's responsibilities are reduced twelve (12) months following a change in control and such reduction in responsibilities is not for cause, any resignation of employment as a consequence of such reduction in responsibilities will be treated as a termination of employment without cause. The Company has entered into an employment agreement with Carlton Joseph Mertens II dated September 30, 1997, pursuant to which Mr. Mertens receives a base salary of $270,000 per year and is eligible 46 to receive a bonus of up to $130,000 per year, subject to achievement of certain performance goals. If Mr. Mertens is terminated for cause, he will be entitled to receive his base salary and bonus due through the date of his termination. If Mr. Mertens is terminated without cause or if Mr. Mertens terminates his employment with the Company for certain specified reasons, he will be entitled to receive his base salary for nine (9) months following his termination; such reasons include assignment or alteration by the Company of Mr. Mertens' duties, responsibilities or obligations materially inconsistent with his position with the Company after notice of Mr. Mertens' objections thereto, failure of the Company to provide to Mr. Mertens the salary or bonuses described above, relocation of the Company's Business Partner Solutions, Inc.'s principal offices outside of San Antonio, Texas, any requirement by the Company for Mr. Mertens to relocate anywhere other than San Antonio, Texas and instructions by the Company given to Mr. Mertens to violate any applicable law after notice of Mr. Mertens' objections. In addition, the Company has entered into a noncompetition agreement with Mr. Mertens dated September 30, 1997 (the "Mertens Non-Compete"). The Mertens Non-Compete was made in connection with the sale by Mr. Mertens of all of his shares of SMS to the Company. Under the Mertens Non-Compete, Mr. Mertens agreed that, with respect to certain geographic areas, including all of the states of the United States of America (but excluding certain California counties), Canada, Mexico and Puerto Rico, he would not sell computer hardware, software or services to value-added resellers, resellers or systems integrators or approach, contact or solicit any employee of the Company (or any affiliate of the Company) to leave the employ of the Company (or any of its affiliates) except through general employment advertising. The Mertens Non-Compete expires on the earlier of September 30, 1999 or the date on which final payment of any salary due to Mr. Mertens is made. The Mertens Non-Compete may terminate earlier upon the Company's failure to pay timely accrued interest on certain promissory notes held by Mr. Mertens. 47 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as to the beneficial ownership of the Common Stock as of March 11, 1998 by: (i) each person known to the Company to beneficially own more than five percent (5%) of the Common Stock; (ii) each of the Company's directors; (iii) each of the Named Executive Officers; and (iv) all executive officers and directors as a group.
NUMBER OF PERCENT OF SHARES SHARES BENEFICIALLY BENEFICIALLY DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS OWNED(1) OWNED (2) - ------------------------------------------------- ------------ ------------ ROI Capital Management, Inc. ("ROI") and affiliates(3) One Bush Street, Suite 1150 San Francisco, CA 94104........................... 590,825 10.3% Canpartners Investments IV, LLC ("CanIV") and affiliates(4) 9665 Wilshire Boulevard, Suite 200 Beverly Hills, CA 90212........................... 517,616 8.6 Strome Susskind Investment Management, L.P. ("SSIM") and affiliates(5) 100 Wilshire Avenue Santa Monica, CA 90491............................ 590,967 9.7 Carlton Joseph Mertens II(6)....................... 460,000 8.4 Hemisphere Trading Co.(7) 5796 Shelby Oaks Drive, Suite 12 Memphis, TN 38134................................. 414,000 7.5 Robert Fleming Inc.(8)............................. 436,685 7.4 P. Scott Munro(9).................................. 154,844 2.7 James W. Dorst(10)................................. 47,469 * Angelo Guadagno.................................... 0 * James J. Heffernan(11)............................. 7,188 * Robert O'Reilly(12)................................ 17,609 * K. William Sickler(13)............................. 22,688 * J. Larry Smart(14)................................. 21,188 * All executive officers and directors as a group (8 persons)(15)................................... 816,433 14.2
- -------- * Less than one percent (1%). (1) Unless otherwise indicated, the beneficial owner has sole voting and dispositive power over the shares reported in the table. Information with respect to beneficial ownership is based upon information obtained from the stockholders and from the Company's transfer agent. To the Company's knowledge, unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the "Commission") and includes voting and investment power with respect to securities. Shares of Common Stock issuable upon exercise of stock options exercisable within 60 days of February 28, 1998, upon conversion of Series A Preferred Stock or upon exercise of warrants that are currently exercisable or exercisable within 60 days of February 28, 1998 are deemed to be outstanding and to be beneficially owned by the person presently entitled to exercise the right of conversion or exercise for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Each share of Series A Preferred Stock is convertible at any time into shares of the Common Stock at a current ratio of 1.027 shares of Common Stock for each share of Series A Preferred Stock. 48 (2) Based on 5,489,258 shares of Common Stock outstanding as of March 11, 1998. (3) Includes 323,600 shares of Common Stock, 175,000 shares of Series A Preferred Stock and warrants to purchase 87,500 shares of Common Stock. Common Stock ownership information is based on Amendment Number 1 to Schedule 13D dated January 26, 1996 filed jointly by ROI, ROI Partners, L.P. ("PTRS"), ROI & Lane, L.P. ("R&L"), Mark T. Boyer and Mitchell J. Soboleski reporting beneficial ownership as follows:
SHARED SHARES VOTING AND BENEFICIALLY DISPOSITIVE OWNED POWER ------------ ----------- ROI............................................... 323,600 323,600 PTRS.............................................. 201,000 201,000 R&L............................................... 24,000 24,000 Mr. Boyer......................................... 201,000 201,000 Mr. Soboleski..................................... 201,000 201,000
Messrs. Boyer and Soboleski are the sole stockholders and President and Secretary, respectively, of ROI. Messrs. Boyer and Soboleski and ROI are the general partners of PTRS, which is an investment limited partnership. ROI is the managing general partner of R&L, which is an investment partnership. In addition, the shares of Series A Preferred Stock and warrants are held as follows: (i) 60,000 shares of Series A Preferred Stock and warrants to purchase 30,000 shares of Common Stock are held by ROI Offshore Fund Ltd; (ii) 100,000 shares of Series A Preferred Stock and warrants to purchase 50,000 shares of Common Stock are held by PTRS; and (iii) 15,000 shares of Series A Preferred Stock and warrants to purchase 7,500 shares of Common Stock are held by Microcap Partners, L.P. The Series A Preferred Stock and warrants are not registered pursuant to Section 12 of the Exchange Act; therefore, ownership of such securities does not require reporting pursuant to Regulation 13D of the Exchange Act. The Company has no information about the shared voting and dispositive power of such securities. (4) Includes 208,000 shares of Series A Preferred Stock and warrants to purchase 304,000 shares of Common Stock. Common Stock ownership information is based on a Schedule 13D dated September 30, 1997 filed jointly by CanIV, Canyon Capital Management, L.P. ("CCM"), Canpartners Incorporated ("Canpartners"), Mitchell R. Julis, Joshua S. Friedman and R. Christian B. Evensen, each of whom beneficially owns 512,000 shares and shares voting and dispositive power over all such shares. Messrs. Julis, Friedman and Evensen are the sole stockholders of Canpartners. Messrs. Julis, Friedman and Evensen and Canpartners are the members of CanIV, which is an investment limited partnership formed to hold securities through participation agreements for accounts managed by CCM. Canpartners is the managing general partner of CanIV. CCM is a registered investment advisor controlled by Canpartners. In addition, 208,000 shares of Series A Preferred Stock and warrants to purchase 304,000 shares of Common Stock are held by CanIV. The Series A Preferred Stock and warrants are not registered pursuant to Section 12 of the Exchange Act; therefore, ownership of such securities does not require reporting pursuant to Regulation 13D of the Exchange Act. The Company has no information about the shared voting and dispositive power of such securities. (5) Includes 387,012 shares of Series A Preferred Stock and warrants to purchase 193,506 shares of Common Stock. The shares of Series A Preferred Stock and warrants are held as follows: (i) 126,852 shares of Series A Preferred Stock and warrants to purchase 63,426 shares of Common Stock are held by Strome Offshore Limited; (ii) 125,098 shares of Series A Preferred Stock and warrants to purchase 62,549 of Common Stock are held by Strome Susskind Hedgecap Fund, LP; (iii) 103,788 shares of Series A Preferred Stock and warrants to purchase 51,894 shares of Common Stock are held by Strome Partners L.P.; and (iv) 31,274 shares of Series A Preferred Stock and warrants to purchase 15,637 shares of Common Stock are held by Strome Hedgecap Limited. The Series A Preferred Stock and warrants are not registered pursuant to Section 12 of the Exchange Act; therefore, ownership of such securities does not require reporting pursuant to Regulation 13D of the Exchange Act. The Company has no information about the shared voting and dispositive power of such securities. (6) Based on a Schedule 13D dated September 30, 1997 filed by Mr. Mertens. (7) Based on a Schedule 13G dated October 3, 1997 filed by Hemisphere Trading Co. (8) Includes 155,000 shares of Series A Preferred Stock and warrants to purchase 277,500 shares of Common Stock. The shares of Series A Preferred Stock and warrants are held as follows: (i) 155,000 shares of Series A Preferred Stock and warrants to purchase 277,500 shares of Common Stock are held by Robert Fleming Inc. (9) Includes 144,218 shares subject to stock options that are presently exercisable or will become exercisable within 60 days of March 11, 1998. (10) Includes 30,000 shares subject to stock options that are presently exercisable or will become exercisable within 60 days of March 11, 1998. (11) Includes 7,188 shares subject to stock options that are presently exercisable or will become exercisable within 60 days of March 11, 1998. (12) Includes 16,250 shares subject to stock options that are presently exercisable or will become exercisable within 60 days of March 11, 1998. (13) Includes 17,188 shares subject to stock options that are presently exercisable or will become exercisable within 60 days of March 11, 1998. (14) Includes 7,188 shares subject to stock options that are presently exercisable or will become exercisable within 60 days of March 11, 1998. (15) Includes 275,158 shares subject to stock options that are presently exercisable or will become exercisable within 60 days of March 11, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others None. (b) Certain Business Relationships None. (c) Indebtedness of Management None. 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed below appear on the pages indicated:
PAGE NUMBER ----------- Consolidated Balance Sheets, December 31, 1996 and 1997......... 24 Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997............................... 25 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1996 and 1997......................... 26 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997............................... 27 Notes to Consolidated Financial Statements...................... 28
2. Financial Statement Schedules The financial statement schedules listed below appear on the pages indicated:
PAGE NUMBER ----------- Schedule II--Valuation and Qualifying Accounts and Reserves..... 55 Report of Independent Accountants on Financial Statement Schedules...................................................... 56
3. Exhibits The exhibits listed under Item 14(c) are filed or incorporated by reference herein. (b) Reports on Form 8-K During the fourth quarter of 1997, the Registrant filed the following Current Reports on Form 8-K:
ITEM DATE NO. EVENT REPORTED ---- ---- ----------------------------------------------- (1) October 10, 1997 5 Execution of the third amendment to the stock purchase agreement pursuant to which the Regisrant acquired Star Management Services, Inc. ("SMS") and the issuance of a press release announcing the closing of the SMS acquisition. (2) November 19, 1997 5 Issuance of a press release announcing Registrant's intent to reincorporate in the State of Delaware (the "Reincorporation") and to effect a name change to Savoir Technology Group, Inc. (the "Name Change"). (3) November 21, 1997 5 Completion of Reincorporation and Name Change (4) November 22, 1997 5 Execution of agreement and plan of reorganization pursuant to which the Registrant would acquire all of the outstanding capital stock of MCBA Systems, Inc. and the issuance of a press release in connection therewith.
50 (c) Exhibits The Exhibits listed below are filed or incorporated by reference herein.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 2.1 Asset Purchase Agreement dated January 2, 1996 between the Company and R&D Hardware Systems Company of Colorado, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commis- sion on January 17, 1996, and incorporated herein by this reference. 2.2 Agreement and Plan of Reorganization dated March 17, 1997 by and among the Company, WMT Acquisition Corp., Target Solutions, Inc. and Lee Adams, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on March 28, 1997, and incorpo- rated herein by this reference. 2.3 Asset Purchase Agreement dated May 5, 1995 between the Company and Reptron Electronics, Inc., filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on August 9, 1995, and incorporated herein by this reference. 2.4 Agreement and Plan of Reorganization dated November 18, 1995 between the Company and International Parts, Inc., filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on December 4, 1995, and incorporated herein by this reference. 2.5+* Stock Purchase Agreement dated June 4, 1997 by and among the Compa- ny, Star Management Services, Inc., Harvey E. Najim and Carlton Jo- seph Mertens II, filed as Exhibit 2.1 to the Company's Current Re- port on Form 8-K filed with the Commission on July 16, 1997, and in- corporated herein by this reference. 2.6+* Third Amendment to Stock Purchase Agreement dated September 30, 1997 by and among the Company, Star Management Services, Inc., Harvey E. Najim and Carlton Joseph Mertens II, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the Commission on October 10, 1997, and incorporated herein by this reference. 2.7 Purchase Agreement Assignment between the Company and the Agent dated September 30, 1997, filed as Exhibit 10.5 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 2.8* Asset Purchase Agreement dated November 7, 1996 by and among the Company, Star Technologies, Inc. and the Stockholders of Star Tech- nologies, Inc., filed as Exhibit 10.24 to the Company's Annual; Re- port on Form 10-K for the year ended December 31, 1996. 2.9 Asset Purchase Agreement dated November 29, 1996 by and among the Company, International Data Products, LLC, Oliver-Allen Corporation, Inc., International Data Products and Financial, Ltd., Alan M. Bynder and Michael R. Duhaime, filed as Exhibit 10.25 to the Company's Amendment on Form 10-K/A to its Annual Report on Form 10-K for the year ended December 31, 1996 filed with the Commission on November 19, 1997 and incorporated herein by this reference. 2.10 Certificate of Ownership and Merger dated as of November 21, 1997, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated November 21, 1997, and incorporated herein by this reference. 2.11 Amendment and Plan of Reorganization dated November 22, 1997, by and among Savoir Technology Group, Inc., MCBA Systems, Inc., Michael N. Gunnells and John Harkins, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on December 22, 1997, and incorporated herein by this reference. 3.1 Restated Certificate of Incorporation of Savoir Technology Group, Inc., a Delaware corporation, filed as Exhibit 3(ii) to the Company's Current Report on Form 8-K dated July 23, 1997, filed on August 14, 1997, and incorporated herein by this reference. 3.2 Amended and Restated Bylaws of Savoir Technology Group, Inc., a Del- aware corporation filed herewith. 4.1 Certificate of Designation, Preferences and Rights of the Company's Series A Preferred Stock, filed as Exhibit 3.2 to the Company's Cur- rent Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference.
51
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 4.2 Certificate of Designation, Preferences and Rights of the Company's Series B Preferred Stock, filed as Exhibit 3.1 to the Company's Cur- rent Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 4.3 Registration and Put Rights Agreement among the Company and the Pur- chasers dated September 30, 1997, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated October 10, 1997, and in- corporated herein by this reference. 4.4 Warrant Agreement of Western Micro Technology, Inc. between the Com- pany and the Purchasers dated September 30, 1997 filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 4.5 Common Stock Purchase Warrant in favor of Robert Fleming Inc., filed as Exhibit 4.4 to the Company's Current Report on Form 8-K dated Oc- tober 10, 1997 and incorporated herein by this reference. 4.6 Common Stock Purchase Warrant in favor of CanPartners Investments IV, LLC filed as Exhibit 4.5 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this refer- ence. 4.7 13.5% Second Priority Senior Secured Notes Due September 30, 2000 in favor of Robert Fleming Inc., filed as Exhibit 4.6 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 4.8 13.5% Second Priority Senior Secured Notes Due September 30, 2000 in favor of CanPartners Investments IV, LLC, filed as Exhibit 4.7 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 4.9 Promissory Note of Registrant in the amount of Ten Million Dollars ($10,000,000) in favor of ICC dated September 30, 1997, filed as Ex- hibit 4.8 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 4.10 Warrant Agreement of Western Micro Technology, Inc. between the Com- pany and ICC dated September 30, 1997, filed as Exhibit 4.9 to the Company's Current Report on Form 8-K dated October 10, 1997 and in- corporated herein by this reference. 4.11 Registration and Put Rights Amendment between the Company and ICC, filed as Exhibit 4.10 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 4.12 Common Stock Purchase Warrant in favor of ICC, filed as Exhibit 4.11 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 10.1 Lease Agreement dated February 2, 1998, by and between Green Moun- tain Ventures I, Ltd., a Texas limited partnership and the Company's Business Partner Solutions, Inc., a Texas corporation, filed here- with. 10.2 Inventory and Working Capital Financing Agreement dated December 1, 1996 by and between IBM Credit Corporation and the Company, and Amendment #1 thereto, filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, filed with the Commission on March 31, 1997, and incorporated herein by this reference. 10.3+ Business Partner Agreement between the Company and International Business Machines Corporation dated September 29, 1997, filed here- with. 10.4 Amended and Restated 1994 Stock Option Plan of Western Micro Tech- nology, Inc. amended and restated as of May 18, 1997, filed as Ex- hibit A to the Company's Definitive Proxy Statement as filed with the Commission on June 27, 1997, and incorporated herein by this reference. 10.5 Lease Agreement between MP Hacienda, Inc. and the Company dated July 15, 1995, filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by this reference.
52
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.6 Master Lease Commitment dated September 25, 1989 and Supplements 8.01 and 8.02 thereto, filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1990, and incorporated herein by this reference. 10.7 Amendment #4 to the Inventory and Working Capital Financing Agree- ment dated September 30, 1997, filed as Exhibit 10.6 to the Company's Current Report on Form 8-K, filed with the Commission on October 10, 1997, and incorporated herein by this reference. 10.8 Note Purchase Agreement dated September 30, 1997 among the Company, the Guarantors and the Purchasers, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Commission on October 10, 1997, and incorporated herein by this reference. 10.9 Guarantor Security and Pledge Agreement among the Company, the Guar- antors and the Agent dated September 30, 1997, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.10 SMS Subordination and Intercreditor Agreement among the Company, the Selling Stockholders, the Guarantors and the Purchasers dated Sep- tember 30, 1997, filed as Exhibit 10.2 to the Company's Current Re- port on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.11 Issuer Security and Pledge Agreement between the Company and the Agent dated September 30, 1997, filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated October 10, 1997, and in- corporated herein by this reference. 10.12 Contribution Agreement Assignment between the Company and the Agent dated September 30, 1997, filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.13 Assumption Agreement among the Company, Star Data Systems, Inc. and ICC dated September 30, 1997, filed as Exhibit 10.7 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.14 Collateralized Guaranty of Payment between the Company and ICC dated September 30, 1997, filed as Exhibit 10.8 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.15 IBM Credit Corporation Subordination and Intercreditor Agreement among the Company, the Guarantors, the Purchasers and ICC dated Sep- tember 30, 1997, filed as Exhibit 10.9 to the Company's Current Re- port on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.16+ Employment Letter between the Company and Carlton Joseph Mertens II dated September 30, 1997 filed as part of Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on July 16, 1997, and incorporated herein by this reference. 10.17 Employment Letter between the Company and P. Scott Munro dated Janu- ary 22, 1998, filed herewith. 10.18 Employment Letter between the Company and James W. Dorst dated Janu- ary 22, 1998, filed herewith. 10.19 Employment Letter between the Company and Robert O'Reilly dated Jan- uary 22, 1998, filed herewith. 21.1 List of Subsidiaries. 23.1 Consent of Coopers & Lybrand L.L.P. 24.1 Power of Attorney (see Page 57). 27.1 Financial Data Schedule.
- -------- + Confidential Treatment was granted by the Commission with respect to certain portions of this exhibit. * Schedules omitted from this exhibit will be furnished to the Commission upon request. + Confidential Treatment requested with respect to certain portions of this exhibit pursuant to a request for confidential treatment filed with the Commission on March 13, 1998. The portions of the exhibit for which confidential treatment has been requested have been omitted from the exhibit. The omitted information has been filed separately with the Commission as part of the confidential treatment request. 53 (d) Financial Statement Schedules The financial statement schedules listed below appear on the pages indicated.
PAGE NUMBER ----------- Schedule II -- Valuation and Qualifying Accounts and Reserves 55 Report of Independent Accountants on Financial Statement Schedule 56
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the Consolidated Financial Statements or Notes thereto. 54 SCHEDULE II SAVOIR TECHNOLOGY GROUP, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS) ----------------
BALANCE AT BALANCE AT BEGINNING END OF OF PERIOD ADDITIONS(1) OTHER(2) DEDUCTIONS(3) PERIOD ---------- ------------ -------- ------------- ---------- Year ended December 31, 1995: Allowance for doubtful accounts............. $393 $291 $200 $504 $380 Year ended December 31, 1996: Allowance for doubtful accounts............. $380 $120 $250 $339 $411 Year ended December 31, 1997: Allowance for doubtful accounts............. $411 $472 $ 80 $644 $319
- -------- (1) Charged to costs and expenses. (2) Reserves related to acquisitions. (3) Accounts written off against the reserve. 55 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders Savoir Technology Group, Inc. Our report on the consolidated financial statements of Savoir Technology Group, Inc. and its subsidiaries is included on page 23 in this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 51 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included herein. COOPERS & LYBRAND L.L.P. San Jose, California January 30, 1998 56 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 13TH, 1998. REGISTRANT: Western Micro Technology, Inc. /s/ P. Scott Munro _____________________________________ P. SCOTT MUNRO CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF EXECUTIVE OFFICER AND SECRETARY /s/ James W. Dorst _____________________________________ JAMES W. DORST CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints P. Scott Munro and James W. Dorst and each of them, as his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ P. Scott Munro Chairman of the Board, March 13, 1998 ____________________________________ President, Chief Executive P. Scott Munro Officer and Secretary (Principal Executive Officer) /s/ James W. Dorst Chief Financial Officer March 13, 1998 ____________________________________ (Principal Financial James W. Dorst Officer) /s/ Angelo Guadagno Director March 13, 1998 ____________________________________ Angelo Guadagno /s/ James J. Heffernan Director March 13, 1998 ____________________________________ James J. Heffernan /s/ Carlton Joseph Mertens II Director March 13, 1998 ____________________________________ Carlton Joseph Mertens II
57
SIGNATURE TITLE DATE --------- ----- ---- /s/ K. William Sickler Director March 13, 1998 ____________________________________ K. William Sickler /s/ J. Larry Smart Director March 13, 1998 ____________________________________ J. Larry Smart
58 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 2.1 Asset Purchase Agreement dated January 2, 1996 between the Company and R&D Hardware Systems Company of Colorado, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commis- sion on January 17, 1996, and incorporated herein by this reference. 2.2 Agreement and Plan of Reorganization dated March 17, 1997 by and among the Company, WMT Acquisition Corp., Target Solutions, Inc. and Lee Adams, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on March 28, 1997, and incorpo- rated herein by this reference. 2.3 Asset Purchase Agreement dated May 5, 1995 between the Company and Reptron Electronics, Inc., filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on August 9, 1995, and incorporated herein by this reference. 2.4 Agreement and Plan of Reorganization dated November 18, 1995 between the Company and International Parts, Inc., filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on December 4, 1995, and incorporated herein by this reference. 2.5+* Stock Purchase Agreement dated June 4, 1997 by and among the Compa- ny, Star Management Services, Inc., Harvey E. Najim and Carlton Jo- seph Mertens II, filed as Exhibit 2.1 to the Company's Current Re- port on Form 8-K filed with the Commission on July 16, 1997, and in- corporated herein by this reference. 2.6+* Third Amendment to Stock Purchase Agreement dated September 30, 1997 by and among the Company, Star Management Services, Inc., Harvey E. Najim and Carlton Joseph Mertens II, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the Commission on October 10, 1997, and incorporated herein by this reference. 2.7 Purchase Agreement Assignment between the Company and the Agent dated September 30, 1997, filed as Exhibit 10.5 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 2.8* Asset Purchase Agreement dated November 7, 1996 by and among the Company, Star Technologies, Inc. and the Stockholders of Star Tech- nologies, Inc., filed as Exhibit 10.24 to the Company's Annual; Re- port on Form 10-K for the year ended December 31, 1996. 2.9 Asset Purchase Agreement dated November 29, 1996 by and among the Company, International Data Products, LLC, Oliver-Allen Corporation, Inc., International Data Products and Financial, Ltd., Alan M. Bynder and Michael R. Duhaime, filed as Exhibit 10.25 to the Company's Amendment on Form 10-K/A to its Annual Report on Form 10-K for the year ended December 31, 1996 filed with the Commission on November 19, 1997 and incorporated herein by this reference. 2.10 Certificate of Ownership and Merger dated as of November 21, 1997, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated November 21, 1997, and incorporated herein by this reference. 2.11 Amendment and Plan of Reorganization dated November 22, 1997, by and among Savoir Technology Group, Inc., MCBA Systems, Inc., Michael N. Gunnells and John Harkins, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on December 22, 1997, and incorporated herein by this reference. 3.1 Restated Certificate of Incorporation of Savoir Technology Group, Inc., a Delaware corporation, filed as Exhibit 3(ii) to the Company's Current Report on Form 8-K dated July 23, 1997, filed on August 14, 1997, and incorporated herein by this reference. 3.2 Amended and Restated Bylaws of Savoir Technology Group, Inc., a Del- aware corporation filed herewith. 4.1 Certificate of Designation, Preferences and Rights of the Company's Series A Preferred Stock, filed as Exhibit 3.2 to the Company's Cur- rent Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 4.2 Certificate of Designation, Preferences and Rights of the Company's Series B Preferred Stock, filed as Exhibit 3.1 to the Company's Cur- rent Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 4.3 Registration and Put Rights Agreement among the Company and the Pur- chasers dated September 30, 1997, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated October 10, 1997, and in- corporated herein by this reference. 4.4 Warrant Agreement of Western Micro Technology, Inc. between the Com- pany and the Purchasers dated September 30, 1997 filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 4.5 Common Stock Purchase Warrant in favor of Robert Fleming Inc., filed as Exhibit 4.4 to the Company's Current Report on Form 8-K dated Oc- tober 10, 1997 and incorporated herein by this reference. 4.6 Common Stock Purchase Warrant in favor of CanPartners Investments IV, LLC filed as Exhibit 4.5 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this refer- ence. 4.7 13.5% Second Priority Senior Secured Notes Due September 30, 2000 in favor of Robert Fleming Inc., filed as Exhibit 4.6 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 4.8 13.5% Second Priority Senior Secured Notes Due September 30, 2000 in favor of CanPartners Investments IV, LLC, filed as Exhibit 4.7 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 4.9 Promissory Note of Registrant in the amount of Ten Million Dollars ($10,000,000) in favor of ICC dated September 30, 1997, filed as Ex- hibit 4.8 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 4.10 Warrant Agreement of Western Micro Technology, Inc. between the Com- pany and ICC dated September 30, 1997, filed as Exhibit 4.9 to the Company's Current Report on Form 8-K dated October 10, 1997 and in- corporated herein by this reference. 4.11 Registration and Put Rights Amendment between the Company and ICC, filed as Exhibit 4.10 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 4.12 Common Stock Purchase Warrant in favor of ICC, filed as Exhibit 4.11 to the Company's Current Report on Form 8-K dated October 10, 1997 and incorporated herein by this reference. 10.1 Lease Agreement dated February 2, 1998, by and between Green Moun- tain Ventures I, Ltd., a Texas limited partnership and the Company's Business Partner Solutions, Inc., a Texas corporation, filed here- with. 10.2 Inventory and Working Capital Financing Agreement dated December 1, 1996 by and between IBM Credit Corporation and the Company, and Amendment #1 thereto, filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, filed with the Commission on March 31, 1997, and incorporated herein by this reference. 10.3+ Business Partner Agreement between the Company and International Business Machines Corporation dated September 29, 1997, filed here- with. 10.4 Amended and Restated 1994 Stock Option Plan of Western Micro Tech- nology, Inc. amended and restated as of May 18, 1997, filed as Ex- hibit A to the Company's Definitive Proxy Statement as filed with the Commission on June 27, 1997, and incorporated herein by this reference. 10.5 Lease Agreement between MP Hacienda, Inc. and the Company dated July 15, 1995, filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by this reference.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.6 Master Lease Commitment dated September 25, 1989 and Supplements 8.01 and 8.02 thereto, filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1990, and incorporated herein by this reference. 10.7 Amendment #4 to the Inventory and Working Capital Financing Agree- ment dated September 30, 1997, filed as Exhibit 10.6 to the Company's Current Report on Form 8-K, filed with the Commission on October 10, 1997, and incorporated herein by this reference. 10.8 Note Purchase Agreement dated September 30, 1997 among the Company, the Guarantors and the Purchasers, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Commission on October 10, 1997, and incorporated herein by this reference. 10.9 Guarantor Security and Pledge Agreement among the Company, the Guar- antors and the Agent dated September 30, 1997, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.10 SMS Subordination and Intercreditor Agreement among the Company, the Selling Stockholders, the Guarantors and the Purchasers dated Sep- tember 30, 1997, filed as Exhibit 10.2 to the Company's Current Re- port on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.11 Issuer Security and Pledge Agreement between the Company and the Agent dated September 30, 1997, filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated October 10, 1997, and in- corporated herein by this reference. 10.12 Contribution Agreement Assignment between the Company and the Agent dated September 30, 1997, filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.13 Assumption Agreement among the Company, Star Data Systems, Inc. and ICC dated September 30, 1997, filed as Exhibit 10.7 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.14 Collateralized Guaranty of Payment between the Company and ICC dated September 30, 1997, filed as Exhibit 10.8 to the Company's Current Report on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.15 IBM Credit Corporation Subordination and Intercreditor Agreement among the Company, the Guarantors, the Purchasers and ICC dated Sep- tember 30, 1997, filed as Exhibit 10.9 to the Company's Current Re- port on Form 8-K dated October 10, 1997, and incorporated herein by this reference. 10.16+ Employment Letter between the Company and Carlton Joseph Mertens II dated September 30, 1997 filed as part of Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on July 16, 1997, and incorporated herein by this reference. 10.17 Employment Letter between the Company and P. Scott Munro dated Janu- ary 22, 1998, filed herewith. 10.18 Employment Letter between the Company and James W. Dorst dated Janu- ary 22, 1998, filed herewith. 10.19 Employment Letter between the Company and Robert O'Reilly dated Jan- uary 22, 1998, filed herewith. 21.1 List of Subsidiaries. 23.1 Consent of Coopers & Lybrand L.L.P. 24.1 Power of Attorney (see Page 57). 27.1 Financial Data Schedule.
- -------- + Confidential Treatment was granted by the Commission with respect to certain portions of this exhibit. * Schedules omitted from this exhibit will be furnished to the Commission upon request. + Confidential Treatment requested with respect to certain portions of this exhibit pursuant to a request for confidential treatment filed with the Commission on March 13, 1998. The portions of the exhibit for which confidential treatment has been requested have been omitted from the exhibit. The omitted information has been filed separately with the Commission as part of the confidential treatment request. EX-3.2 2 AMENDED & RESTATED BYLAWS Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF SAVOIR TECHNOLOGY GROUP, INC. (A Delaware Corporation) ARTICLE I OFFICES ------- 1.1 Registered Office. The registered office of the Corporation shall be ----------------- in the City of Wilmington, County of New Castle, State of Delaware. 1.2 Other Offices. The Corporation may additionally have offices at such ------------- other places, both within and without the State of Delaware, as the Board of Directors from time to time may determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ 2.1 Annual Meeting. An annual meeting of the stockholders shall be held -------------- for the purpose of electing directors and conducting such other business as may come before the meeting. The date, time and place, within or without the State of Delaware, of the annual meeting shall be determined by resolution of the Board of Directors. 2.2 Procedure of Annual Meeting; Notice of Annual Meeting. To be ----------------------------------------------------- properly brought before the annual meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder of record. In addition to any other applicable requirements, for business to be properly brought before the annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, addressed to the attention of the Secretary of the corporation, within the time specified in the federal proxy rules for timely submission of a stockholder proposal for inclusion of such proposal in the proxy statement of the corporation or, if not within such time, then not less than 35 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 50 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received by the earlier of (a) the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs, and (b) two days prior to the date of the meeting. A stockholder's -1- notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.2; provided, however, that nothing in this Section 2.2 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. All such notices of an annual meeting shall be delivered, either personally or by mail, by or at the direction of the Board of Directors, the President or the Secretary, not less than ten (10), nor more than sixty (60) days before the date of the meeting and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage prepaid. The Chairman of the Board of Directors shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.2, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 2.3 Nomination of Directors. Only persons who are nominated in ----------------------- accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors at the annual meeting, by or at the direction of the Board of Directors, may be made by the nominating committee of the Board of Directors or person appointed by the Board of Directors; nominations may also be made by any stockholder of record of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.3. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation addressed to the attention of the Secretary of the corporation not less than 35 days prior to the meeting; provided, however, that, in the case of an annual meeting and in the event that less than 50 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the earlier of (a) the close of business on the 15th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs, or (b) two days prior to the date of the meeting. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, (iv) a statement as to the person's citizenship, and (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of -2- the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder and (ii) the class, series and number of shares of capital stock of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. In connection with any annual meeting, the Chairman of the Board of Directors shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 2.4 Special Meetings. Special meetings of the stockholders for any other ---------------- purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Special meetings may be called by the Board of Directors, or by the President, and shall be called by the President at the request of the holders of a majority of the outstanding shares of capital stock entitled to vote. Such request shall state the purpose or purposes of the proposed special meeting. Business transacted at any special meeting of stockholders shall be limited to the purpose or purposes stated in the notice. 2.5 Notice of Special Meeting. Upon request in writing delivered either ------------------------- in person or by registered or certified mail, return receipt requested, to the Chairman, Chief Executive Officer, President or Secretary by any person entitled to call a special meeting of stockholders, it shall be the duty of such Chairman, Chief Executive Officer, President or Secretary forthwith to cause to be given to the stockholders entitled thereto notice of such meeting to be held on a date not less than 20 nor more than 90 days after the receipt of such request, as such officer may fix. If such notice is not given within 40 days after the delivery of or mailing of such request, the persons calling the meeting may fix the time of meeting and give notice thereof as in the manner hereinafter provided, or cause such notice to be given by any designated representative. All such notices of a special meeting shall be delivered, either personally or by mail, by or at the direction of the Board of Directors, the President or the Secretary, not less than ten (10), nor more than sixty (60) days before the date of the meeting and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage prepaid. Except where express provision is made by statute, notice of such special meetings shall be given in the same manner and contain the same statements as required for annual meetings of stockholders. Notice of any special meeting shall also specify the purpose or purposes of such meeting and no other business may be transacted at such meeting. Except where express provision is made by statute, the procedures for bringing business before a -3- special meeting of the stockholders shall be the same as those required for bringing business before an annual meeting. 2.6 Stockholder Lists. The officer having charge of the stock ledger of ----------------- the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetic order, specifying the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list also shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.7 Quorum and Adjournments. The holders of a majority of the stock ----------------------- issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders except as otherwise provided by statute or by the certificate of incorporation. If a quorum is not present, the holders of the shares present in person or represented by proxy at the meeting, and entitled to vote thereat, shall have the power, by affirmative vote of the holders of a majority of such shares, to adjourn the meeting to another time and/or place. Unless the adjournment is for more than thirty (30) days or unless a new record date is set for the reconvened meeting, no notice of the reconvened meeting need be given to any stockholder, provided that the time and place of the reconvened meeting are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the reconvened meeting, a notice of the reconvened meeting shall be given to each stockholder of record entitled to vote at the meeting. At the reconvened meeting, the Corporation may transact any business which might have been transacted at the original meeting. 2.8 Majority. When a quorum is present at any meeting, the vote of the -------- holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of an applicable statute or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. 2.9 Voting. Every stockholder shall, at every meeting of the ------ stockholders, be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, except that no proxy shall be voted on after three years from its date, unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the -4- stock itself or an interest in the Corporation generally. Voting at meetings of stockholders need not be by written ballot. 2.10 Consent of Absentees. The transactions of any meeting of -------------------- stockholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum was present either in person or by proxy, and if, either before or after the meeting, each of the stockholders entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of such meeting, or an approval of minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 2.11 Action Taken Without a Meeting. Unless otherwise restricted by the ------------------------------ Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Every written consent shall bear the date of signature of each stockholder or member who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner required by the General Corporation Law of Delaware, written consents signed by sufficient number of holders or members to take this action are delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or an agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. 2.12 Record Date of Stockholders. The Board of Directors is authorized to --------------------------- fix in advance the date not exceeding sixty (60) nor less than ten (10) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as the record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and, in such case, such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation, after such record date fixed as described above. -5- 2.13 Conduct of Meeting. The Chairman of the Board of, in his or her ------------------ absence the President or any Vice President designated by the Chairman of the Board, shall preside at all regular or special meetings of stockholders. To the maximum extent permitted by law, such presiding person shall have the power to set procedural rules, including but not limited to, rules respecting the time allotted to stockholders to speak, governing all aspects of the conduct of such meetings. 2.14 Notice of Business Proposed at Meetings. To be properly brought --------------------------------------- before any meeting of the stockholders, business must either be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting except in accordance with the procedures set forth in this Section 2.14, provided, however, that nothing in this Section 2.14 shall -------- ------- be deemed to preclude discussion by any stockholder of any business properly brought before a meeting. The Chairman of the Board shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.14, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 2.15 Inspectors of Election. In advance of any meeting of stockholders, ---------------------- the Board of Directors may appoint any person(s), other than nominees for office, inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the President may, and on the request of any stockholder or his proxy, shall, make such appointment at the meeting. The number of inspectors shall be either one (1) or three (3). If appointed at a meeting on the request of one or more stockholders or proxies, the majority of shares present shall determine whether one (1) or three (3) inspectors shall be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board of Directors in advance of the meeting, or at the meeting by the President. The duty of such inspector shall include the following: determining the number of shares outstanding and the voting power of each; the shares represented at the meeting, the existence of a quorum and the authenticity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the results; and such other acts as may be proper to conduct the election or vote with fairness to all stockholders. -6- ARTICLE III DIRECTORS --------- 3.1 Powers. The business and affairs of the Corporation shall be managed ------ by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or to be done by the stockholders. 3.2 Number, Election and Term of Office. The number of the directors of ----------------------------------- the Corporation shall be determined from time to time by resolution of the Board of Directors. The initial number of authorized members of the Board of Directors shall consist of six (6) directors, until such time as the Board of Directors modifies such number by amendment to this Paragraph 3.2. All directors shall be elected at the annual meeting or any special meeting of the stockholders, except as provided in Section 3.3, and each director so elected shall hold office until the next annual meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Directors need not be stockholders. In connection with any annual meeting, the Chairman of the board of directors shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 3.3 Vacancies. A vacancy or vacancies in the Board of Directors shall be --------- deemed to exist in the case of death, resignation or removal of any director for cause, or if the authorized number of directors be increased. Vacancies may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, unless otherwise provided in the Certificate of Incorporation. The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. If the Board accepts the resignation of a director tendered to take effect at a future time, the Board shall have power to elect a successor to take office when the resignation is to become effective. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling a vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. 3.4 Annual Meetings. The annual meeting of each newly elected Board of --------------- Directors shall be held at such time and place as is specified by the stockholders at the meeting at which the directors were elected. If no such time and place is specified by the stockholders, the President shall specify such time and place and give at least twenty-four -7- (24) hours' notice thereof to each newly elected director, either personally, by telephone, by mail or by telegraph. 3.5 Regular Meetings. Regular meetings, other than the annual meeting, ---------------- of the Board of Directors shall be held at such times and places within or without the State of Delaware as shall be determined, from time to time, by resolution of the Board of Directors. 3.6 Special Meetings. Special meetings of the Board of Directors may be ---------------- called by the President, any Vice President or the Secretary, and shall be called by the President upon the express written request of any two directors, on twenty-four (24) hours' prior notice to each director, either personally, by telephone, by mail or by telegraph, at such time and such place within or without the State of Delaware as shall be specified in such notice. 3.7 Quorum and Majority. At all meetings of the Board of Directors, a ------------------- majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 3.8 Telephonic Meeting. Members of the Board of Directors, or any ------------------ committee designated by such Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Paragraph 3.8 shall constitute presence in person at such meeting. 3.9 Committees. The Board of Directors may, by resolution passed by a ---------- majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation, which to the extent provided in the resolution of the Board of Directors, or in these bylaws, shall have and may exercise all the powers and authority 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 the same, except as limited by Delaware General Corporation Law. Each committee of the Board of Directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by the resolution of the Board of Directors designating such committee, but in all cases, the presence of at least a majority of the members of such committee shall be necessary to constitute a quorum. In the event that a member of such committee is absent or disqualified, 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 place of any such absent or disqualified member. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. -8- 3.10 Action Taken Without a Meeting. Any action required or permitted to ------------------------------ be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. 3.11 Compensation of Directors. The Board of Directors, by resolution ------------------------- adopted by a majority of the whole Board, may establish reasonable compensation of all directors for services to the Corporation as directors, officers or otherwise. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of committees designated by the Board of Directors may be allowed like compensation for their services to the Corporation. 3.12 Interested Directors. No contract or transaction between the -------------------- Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS -------- 4.1 Officers and Elections. The officers of the Corporation shall be ---------------------- chosen by the Board of Directors and shall consist of a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers and assistant officers as may be deemed necessary or desirable by the Board of Directors. Any number of offices may be held by the same person. In its discretion, the Board of Directors may leave unfilled for any period as it may deem necessary or advisable any office except the offices of President, Secretary and Treasurer. -9- 4.2 Removal. Subject to the rights, if any, of an officer under any ------- contract of employment, any officer elected or appointed by the Board of Directors may be removed by the Board of Directors at any time, with or without cause. 4.3 Resignation. Any officer may resign at any time by giving written ----------- notice to the Corporation. Any resignation shall take effect on the date of the receipt of that notice or at any later time specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the Corporation under any contracts to which the officer is a party. 4.4 Terms of Office and Vacancies. The officers of the Corporation shall ----------------------------- hold office until their successors are duly elected and qualified, or until their earlier resignation or removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation, by death, resignation or otherwise, shall be filled by the Board of Directors. 4.5 Salaries. Salaries of all officers shall be fixed by the Board of -------- Directors. 4.6 Chairman of the Board. The Chairman of the Board shall, when --------------------- present, preside at all meetings of the stockholders and of the Board of Directors and, subject to these bylaws, shall exercise such other powers and shall perform such other duties as may from time to time be prescribed by the Board of Directors. 4.7 President. The president shall be the chief executive officer of the --------- Corporation, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation, and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 4.8 Vice President. In the absence of the President or in the event of -------------- his inability or refusal to act, the Vice President, or if there be more than one, the Vice Presidents in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all powers of and be subject to all the restrictions upon the President. The Vice President shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 4.9 Secretary. The Secretary shall attend all meetings of the Board of --------- Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to -10- be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. 4.10 Assistant Secretary. The Assistant Secretary, or if there be more ------------------- than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 4.11 Treasurer. The Treasurer shall have the custody of the Corporation's --------- funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer may disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of transactions and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give to the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. 4.12 Assistant Treasurer. The Assistant Treasurer, or if there shall be ------------------- more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. -11- ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, RATIFICATION ------------------------------------------------ OF CONTRACTS, AND VOTING OF SHARES OWNED BY THE CORPORATION ----------------------------------------------------------- 5.1 Execution of Corporate Instruments. The Board may, in its ---------------------------------- discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or documents, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the Corporation. Unless otherwise specifically determine by the Board: (a) formal contracts of the Corporation, promissory notes, deeds of trust, mortgages, and other evidences of indebtedness of the Corporation, and other corporate instruments or documents requiring the corporate seal (except for share certificates issued by the Corporation), and share certificates owned by the Corporation, shall be executed, signed, or endorsed by the President, or jointly endorsed by any Vice President and the Secretary, Assistant Secretary, Treasurer or Assistant Treasurer. (b) checks drawn on banks or other depositories on funds to the credit of the Corporation, or in special accounts of the Corporation, shall be signed in such manner (which may be a facsimile signature) and by such person or persons as shall be authorized by the Board; and (c) dividend warrants, drafts, insurance policies, and all other instruments and documents requiring the corporate signature, but not requiring the corporate seal, shall be executed or signed in the manner directed by the Board. 5.2 Ratification by Stockholders. The Board may, in its discretion, ---------------------------- submit any contract or act for approval or ratification by the stockholders at any special meeting of stockholders called for that purpose. Any contract or act which shall be approved or ratified by the holders of a majority of the voting power of the Corporation represented at such meeting shall be as valid and binding upon the Corporation as though approved or ratified by each and every shareholder of the Corporation, unless a greater vote is required by law for such purpose. -12- 5.3 Voting of Shares Owned by the Corporation. All shares of other ----------------------------------------- corporations owned or held by the Corporation for itself or for other parties in any capacity shall be voted, and all proxies with respect thereto shall be executed, by the person authorized to do so by resolution of the Board or, in the absence of such authorization, by the President, any of the Vice Presidents, the Secretary or an Assistant Secretary. ARTICLE VI CERTIFICATES OF STOCK --------------------- 6.1 Entitlement. Every holder of stock in the Corporation shall be ----------- entitled to have a certificate, signed by, or in the name of the Corporation, by the Chairman or Vice Chairman of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares owned by him in the Corporation. 6.2 Facsimile Signatures. Any signature on the certificate may be -------------------- facsimile, other than the counter-signature (a) of a transfer agent other than the Corporation or its employee, or (b) of a registrar other than the Corporation or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 6.3 Lost Certificates. The Board of Directors may direct a new ----------------- certificate of stock or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give to the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 6.4 Transfer of Stock. Upon surrender to the Corporation or the transfer ----------------- agent of the Corporation of a certificate for shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. 6.5 Fixing a Record Date. The Board of Directors may fix in advance a -------------------- date, not more than sixty (60) nor fewer than ten (10) days, preceding the date of any meeting of the stockholders, or the date for the payment of any dividend or the date of the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into -13- effect, or a date in connection with obtaining such consent, as a record date for the de termination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitlement to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, as in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consents, as the case may be notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the next day preceding the day on which notice is given, or, if notice is waived, at the close of business on the next day preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the Corporation as provided in Article 2.9 of these Bylaws; the record date for determining stockholders for any other purpose shall be at the close of business on the day which the Board of Directors adopts the resolution relating thereof; and a determination of stock holders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 6.6 Registered Stockholders. The Corporation shall be entitled to ----------------------- recognize the exclusive right of a person registered on its books as the owner of the shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. ARTICLE VII GENERAL PROVISIONS ------------------ 7.1 Dividends. Dividends upon the capital stock of the Corporation, --------- subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation, subject to the provisions of the certificate of incorporation. 7.2 Reserves. Before payment of any dividend, there may be set aside out -------- of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of -14- the Corporation, or for such other purposes as the directors shall think conducive to the interests of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 7.3 Checks, Notes, Instruments, Etc. All checks or demands for money, ------------------------------- notes, instruments or other documents of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Unless so designated by the Board, no such officer or officers or such other person or persons shall have any power or authority to render the Corporation liable for any purpose or to any amount. 7.4 Seal. The corporate seal shall be prescribed by the Board of ---- Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 7.5 Fiscal Year. The fiscal year of the Corporation shall be determined ----------- from time to time by resolution of the Board of Directors. 7.6 Waiver of Notice. Whenever any notice is required to be given under ---------------- the provisions of the laws of the State of Delaware or under the provisions of the certificate of incorporation or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Except as may otherwise be specifically provided by law, any waiver by mail, telegraph, cable or wireless bearing the name of the person entitled to notice shall be deemed a waiver in writing duly signed. The presence of any person at any meeting, either in person or by proxy, shall be deemed the equivalent of a waiver in writing duly signed, except where the person attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. 7.7 Registrars and Transfer Agents. The Board of Directors may appoint ------------------------------ one or more registrars of transfer, which shall be incorporated banks or trust companies, either domestic or foreign, and one or more transfer agents or transfer clerks, who shall be appointed at such times and places as the Board of Directors shall determine. 7.8 Indemnification of Officers and Directors. The Corporation shall ----------------------------------------- indemnify any and all of its Directors or officers, including former Directors or officers, and any employee, who shall serve as an officer or director of any corporation at the request of the Corporation, to the fullest extent permitted under and in accordance with the laws of the State of Delaware. 7.9 Amendments. These bylaws may be altered, amended or repealed, or new ---------- bylaws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation, at any regular meeting of the stockholders or of the Board of Directors, or at any special meeting of the stockholders or of the Board of Directors, if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. -15- CERTIFICATE OF SECRETARY I, P. Scott Munro, do hereby certify: 1. That I am the duly elected and acting Secretary of Savoir Technology Group, Inc., a Delaware corporation (the "Corporation"), and; 2. That the foregoing bylaws constitute the Bylaws of the Corporation duly adopted by the Board of Directors thereof effective as of November 21, 1997. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of the Corporation. ____________________________ P. Scott Munro Secretary -16- AMENDED AND RESTATED BYLAWS OF SAVOIR TECHNOLOGY GROUP, INC. (A DELAWARE CORPORATION) ADOPTED AS OF MARCH 1, 1998 TABLE OF CONTENTS -----------------
Page ---- ARTICLE I OFFICES................................ 1 ------- 1.1 Registered Office.............................................. 1 ----------------- 1.2 Other Offices.................................................. 1 ------------- ARTICLE II MEETINGS OF STOCKHOLDERS........................ 1 ------------------------ 2.1 Annual Meeting................................................ 1 -------------- 2.2 Procedure of Annual Meeting; Notice of Annual Meeting......... 1 ----------------------------------------------------- 2.3 Nomination of Directors....................................... 2 ----------------------- 2.4 Special Meetings.............................................. 3 ---------------- 2.5 Notice of Special Meeting..................................... 3 ------------------------- 2.6 Stockholder Lists............................................. 3 ----------------- 2.7 Quorum and Adjournments....................................... 4 ----------------------- 2.8 Majority...................................................... 4 -------- 2.9 Voting........................................................ 4 ------ 2.10 Consent of Absentees.......................................... 4 -------------------- 2.11 Action Taken Without a Meeting................................ 5 ------------------------------ 2.12 Record Date of Stockholders................................... 5 --------------------------- 2.13 Conduct of Meeting............................................ 5 ------------------ 2.14 Notice of Business Proposed at Meetings....................... 6 --------------------------------------- 2.15 Inspectors of Election........................................ 6 ---------------------- ARTICLE III DIRECTORS................................ 6 --------- 3.1 Powers........................................................ 6 ------ 3.2 Number, Election and Term of Office........................... 7 ----------------------------------- 3.3 Vacancies..................................................... 7 --------- 3.4 Annual Meetings............................................... 7 --------------- 3.5 Regular Meetings.............................................. 7 ---------------- 3.6 Special Meetings.............................................. 8 ---------------- 3.7 Quorum and Majority........................................... 8 ------------------- 3.8 Telephonic Meeting............................................ 8 ------------------ 3.9 Committees.................................................... 8 ---------- 3.10 Action Taken Without a Meeting................................ 8 ------------------------------ 3.11 Compensation of Directors..................................... 8 ------------------------- 3.12 Interested Directors.......................................... 9 -------------------- ARTICLE IV
-i-
Page ---- OFFICERS............................... 9 -------- 4.1 Officers and Elections...................................... 9 ---------------------- 4.2 Removal..................................................... 9 ------- 4.3 Resignation................................................. 9 ----------- 4.4 Terms of Office and Vacancies............................... 10 ----------------------------- 4.5 Salaries.................................................... 10 -------- 4.6 Chairman of the Board....................................... 10 --------------------- 4.7 President................................................... 10 --------- 4.8 Vice President.............................................. 10 -------------- 4.9 Secretary................................................... 10 --------- 4.10 Assistant Secretary......................................... 11 ------------------- 4.11 Treasurer................................................... 11 --------- 4.12 Assistant Treasurer......................................... 11 ------------------- ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, RATIFICATION ------------------------------------------------ OF CONTRACTS, AND VOTING OF SHARES OWNED BY THE CORPORATION...... 12 ----------------------------------------------------------- 5.1 Execution of Corporate Instruments.......................... 12 ---------------------------------- 5.2 Ratification by Stockholders................................ 12 ---------------------------- 5.3 Voting of Shares Owned by the Corporation................... 13 ----------------------------------------- ARTICLE VI CERTIFICATES OF STOCK......................... 13 --------------------- 6.1 Entitlement................................................. 13 ----------- 6.2 Facsimile Signatures........................................ 13 -------------------- 6.3 Lost Certificates........................................... 13 ----------------- 6.4 Transfer of Stock........................................... 13 ----------------- 6.5 Fixing a Record Date........................................ 13 -------------------- 6.6 Registered Stockholders..................................... 14 ----------------------- GENERAL PROVISIONS........................... 14 ------------------ 7.1 Dividends................................................... 14 --------- 7.2 Reserves.................................................... 14 -------- 7.3 Checks, Notes, Instruments, Etc............................. 15 -------------------------------- 7.4 Seal........................................................ 15 ---- 7.5 Fiscal Year................................................. 15 ----------- 7.6 Waiver of Notice............................................ 15 ---------------- 7.7 Registrars and Transfer Agents.............................. 15 ------------------------------ 7.8 Indemnification of Officers and Directors................... 15 ----------------------------------------- 7.9 Amendments.................................................. 15 ---------- CERTIFICATE OF SECRETARY.................................................. 16
-ii- EX-10.1 3 LEASE AGREEMENT Exhibit 10.1 LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") is made as of this 27th day of February, 1998 ("Effective Date") by and between Green Mountain Ventures I, Ltd., a Texas limited partnership, having a principal place of business at 1000 Central Parkway North, Suite 150, San Antonio, Texas 78232 (hereinafter called "Lessor"), and Business Partner Solutions, Inc., a Texas corporation, having a place of business at 888 Isom Road, San Antonio, Texas 78216-4033 (hereinafter called "Lessee"). WITNESSETH, that in consideration of the rent and covenants herein reserved and contained on the part of Lessee to be paid, performed and observed, Lessor agrees to demise and lease unto Lessee the Leased Premises (defined below) located in the Green Mountain Business Park ("Business Park") being developed by Lessor. NOW THEREFORE, in consideration of the foregoing and the mutual covenants set forth herein, the parties agree as follows: 1. DEFINITIONS AND BASIC TERMS. For the purpose of this Lease, the --------------------------- following terms shall have the meanings hereinafter specified: (1) Property: The tract described in Exhibit "A" hereto and depicted -------- on the preliminary site plan attached hereto as Exhibit "B" ("Preliminary Site Plan"). Material changes to the Preliminary Site Plan are subject to Lessee's review and reasonable approval, and the modified Preliminary Site Plan will be attached to this Lease as Exhibit "B-1" ("Site Plan"). Lessee shall not have the right to disapprove the changes to the Preliminary Site Plan unless the changes to the Preliminary Site Plan materially alters the Preliminary Site Plan. (2) Building: The 116,102 square foot building located (or to be -------- built by Lessor) on the Property, as generally shown on the Site Plan. (3) Leased Premises: Approximately 87,001 square feet of floor space --------------- of the Building (56,463 square feet of office space and 30,538 square feet of warehouse space), said premises being identified on the Site Plan, and to be more particularly identified by the final floor plan to be hereinafter approved by Lessor and Lessee. The Leased Premises shall include the area bounded by the outside surface of any exterior walls of the Building and the centerline of all walls separating such Leased Premises from other areas leased or to be leased to other tenants plus any areas adjacent to the front entrance of the Building which are covered by a roof or awning. The Leased Premises, as shown on the Site Plan, is a material consideration for Lessee entering into this Lease, and, except when required by governmental ordinance or law, no material change, alteration or addition shall be made to the Site Plan, including but not limited to the parking area, methods of ingress and egress, direction of traffic, lighting, curbing, building heights and stories, the landscaping or any change which would affect visibility to the Building. Should any such material change, alteration or addition to the Site Plan or the Leased Premises made by or on behalf of Lessor without Lessee's prior written consent (except when such change, alteration or addition is required by governmental law or ordinance), Lessee may seek any remedy it may have in law or equity after sending notice to Lessor of such default and such default shall continue for a period of thirty (30) days after written notice thereof shall be given to Lessor by Lessee. (4) Common Area: Such parking areas, driveways, isles, sidewalks, ----------- curbs, delivery passages, loading areas, lighting facilities, greenbelts, and other common and service areas situated on the Property and shown on the approved Site Plan, for use by all tenants of the Building in common. (5) Quasi Common Area: Such portions of the Common Area such as ----------------- parking areas, entry doors, driveways, delivery passages and loading areas that are designated for the exclusive use of tenants at the Property. (6) Approved Plans: All the construction drawings, plans and -------------- specifications, including HVAC, plumbing and electrical plans and specifications, as described on the attached Exhibit "G", as updated and approved in accordance with the approval procedures set forth below. (7) Additional Rent: All of the additional payments (in addition to --------------- Base Rent) payable by Lessee to Lessor in accordance with the provisions of Paragraphs 3(c), 8(E), 9(A), 10(A) and 20 below. (8) Lessor's Improvements: All of the Building improvements to be --------------------- constructed on the Property, as described in the final Approved Plans. (9) Declaration: The Declaration of Easements, Restrictions, ----------- Covenants, and Conditions for the Green Mountain Business Park ("Declaration") which is attached as Exhibit "D" hereto. 2. LEASE TERM AND LEASEHOLD IMPROVEMENTS. ------------------------------------- (1) In consideration of the agreements, terms, provisions and covenants of this Lease, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Leased Premises for an initial term of ten (10) years ("Initial Term"), commencing on the date (the "Commencement Date"), which is the later of (i) the Date of Substantial Completion (as defined in paragraph 2.(D) below) or (ii) June 1, 1998, and which shall expire on the last day of the one hundred and twentieth (120th) full calendar month thereafter (subject to the renewal options set forth below). In addition, Lessor hereby grants to Lessee, its customers, guests, invitees, employees, agents and licensees all easements, rights and privileges appurtenant to the Leased Premises and the Property, including the right to use the parking areas, driveways, roads, alleys and means of ingress and egress as reflected on the Site Plan. Notwithstanding the above, Lessee may terminate this Lease at the end of the first five (5) years of the Initial Term by giving Lessor three hundred and sixty (360) days prior written notice of termination, and by paying Lessor, on the date which is one hundred and eighty (180) days prior to the date of termination, the sum of $200,000.00. In addition, Lessee may terminate this Lease at the end of the first seven (7) years of the Initial Term by giving Lessor three hundred and sixty (360) days prior written notice of termination and by paying Lessor, on the date which is one hundred and eighty (180) days prior to the date of termination, the sum of $200,000.00. If Lessee sends notice of termination but fails to deliver the $200,000.00 termination fee then Lessor may, in addition to the remedies set forth herein, reinstate this Lease and Lessee shall be responsible for complying with all the terms of this Lease through the Initial Term and Lessor shall not have the right to sue to collect the $200,000.00 termination fee. (2) Within five (5) days after the Effective Date hereof, Lessor hereby agrees to engage the services of a qualified contractor to construct, with diligence and in a good and workmanlike manner, Lessor's Improvements. Lessor has presented to Lessee, and Lessee has heretofore approved, the preliminary Approved Plans. Lessor shall submit all final construction drawings and specifications, including HVAC, plumbing and electrical plans and specifications for Lessee's approval prior to the initiation of construction. Lessee shall review the documentation so submitted for consistency with the preliminary Approved Plans referenced in Exhibit "G". Lessee shall, within five (5) business days after its receipt of such documentation either approve the same, or indicate in writing the specific reasons for Lessee's failure to approve. Lessee shall be required to approve the documentation unless it is inconsistent with the preliminary Approved Plans referenced on Exhibit "G". Lessee's failure to respond within the required time frame shall be deemed to be an approval of the documentation as submitted. At the completion of this approval process Exhibit "G" will be revised and updated to reflect the final Approved Plans agreed to by Lessor and Lessee. (3) Lessor shall begin construction of Lessor's Improvements, based on the Approved Plans, within two (2) days after Lessee has approved the final Approved Plans and Lessor's receipt of such municipal permits as are required for the construction of the foundation of the Building ("Foundation Permit"). Lessor shall use its best efforts to obtain, on or before February 2, 1998, the Foundation Permit required for the construction of Lessor's Improvements. If the Foundation Permit is not issued by February 2, 1998, Lessor shall notify Lessee in writing, such notice to be delivered to Lessee on or before February 4, 1998. Lessee may then, at its option, terminate this Lease, whereupon neither Lessee nor Lessor shall have any further rights or obligations hereunder. Lessee's election to terminate may be exercised only by delivering written notice to Lessor within three (3) business days of Lessee's receipt of notification that the required Foundation Permit were not issued by February 2, 1998. If such notice of election to terminate is not so received by Lessor within such three (3) day period, Lessee's option to terminate shall expire, and this Lease shall continue in full force and effect, except that all dates for performance shall be extended by such additional period of time as is required to obtain the Permits, but not to exceed fifteen (15) days in any event. If all of the permits required for the construction of Lessor's Improvements are not procured by March 2, 1998 Lessor shall notify Lessee in writing, such notice to be delivered to Lessee on or before March 5, 1998. Lessee may then, at its option, terminate this Lease, whereupon neither Lessee nor Lessor shall have any further rights or obligations hereunder. Lessee's election to terminate may be exercised only by delivering written notice to Lessor within three (3) business days of Lessee's receipt of notification that the required Foundation Permit were not issued by March 2, 1998. If such notice of election to terminate is not so received by Lessor within such three (3) day period, Lessee's option to terminate shall expire, and this Lease shall continue in full force and effect. (4) Lessor shall use its best efforts to cause Lessor's Improvements to be substantially complete on the date (the "Anticipated Date of Substantial Completion") which is the later of (i) June 1, 1998 or (ii) within twenty weeks of receiving the Foundation Permit (which in no event will be later than July 10, 1998). For purposes of this Lease, Lessor's Improvements shall be deemed to be substantially complete on that date (the "Date of Substantial Completion") when (i) they are sufficiently complete so that Lessee can occupy or utilize the Leased Premises for their intended use and (ii) Lessor has obtained a Certificate of Occupancy with respect to the Leased Premises, issued by the appropriate governmental authority having jurisdiction thereof, authorizing Lessee to occupy the Leased Premises for the purposes permitted hereunder. (5) In determining the date by which Lessor is obligated to achieve the Anticipated Date of Substantial Completion, allowance has been made in the construction schedule for up to five (5) days of delay for all reasons beyond Lessor's reasonable control ("Excusable Delays"), including, but not limited to, (i) weather-related delays for frost, rain, sleet, excessive winds, or snow which substantially impair Lessor's ability to proceed with any aspect of construction as scheduled or which substantially impair Lessor's ability to enter, maneuver, or work on the site due to wet, frozen, icy or snow-covered ground, and (ii) unusual market conditions affecting the supply of materials or labor, including, but not limited to, manufacturer's or supplier's delays in the delivery of the materials or the unavailability of skilled laborers or tradesmen. In addition, the Anticipated Date of Substantial Completion shall be extended with respect to each change order requested by Lessee, or recommended by Lessor and approved by Lessee, by the time period agreed to by Lessor and Lessee for such period of time as is set forth in such approved change order. If the aforementioned five (5) days of Excusable Delay are encountered, (i) Lessor shall provide to Lessee an accounting of the days Lessor encounters all Excusable Delays during the construction process, (ii) the Anticipated Date of Substantial Completion shall be extended by one (1) day for each additional day of Excusable Delay reported by Lessor. Upon written request by Lessee, Lessor shall provide periodic updates of the construction delivery schedule not more often than monthly. (6) If the Date of Substantial Completion (excluding minor punchlist items and minor improvements) has not occurred by July 10, 1998, then Lessor agrees to pay to Lessee, on the Date of Substantial Completion, a delay penalty in an amount equal to $1,000.00 per day for each day after July 10, 1998 until the Date of Substantial Completion or the Outside Date if Lessee terminates this Lease as provided in the following sentence. In the event the Date of Substantial Completion has not occurred for any reason on or before August 20, 1998 ("Outside Date"), Lessee may, at its option, terminate this Lease on or before August 25, 1998, whereupon neither Lessee nor Lessor shall have any further rights or obligations hereunder. (7) If the Approved Plans are modified by a change order requested by Lessee, or recommended by Lessor and approved by Lessee, Lessee may order changes to the Approved Plans consisting of additions, deletions or modifications of the Approved Plans providing the following conditions are fulfilled: 1. All change orders must be in writing and executed by Lessor and Lessee. 2. Lessor shall charge a fee of ten percent (10%) of the cost to complete the extra work done or extra material furnished pursuant to the change order. Lessor shall be responsible for paying the contractors performing the extra work done or extra material furnished. 3. All extra work done and extra material furnished pursuant to the change order shall be paid for in advance. 4. If a change order results in a decrease of the costs of Lessor's Improvements then the money saved due to the decrease of the costs of Lessor's Improvements shall result in a reduction in the Base Rent over the Initial Term or be offset against the cost of extra work done or extra material furnished as provided in paragraph 2(G)(iv) (8) Lessee may at its option, terminate this Lease on or before March 15, 1998, in the event Lessee does not receive ad valorem tax abatements from the City of San Antonio or other taxing authorities. If Lessee exercises it option to terminate this Lease then Lessee shall send written notice to Lessor of its intention to terminate the Lease on or before March 15, 1998 and pay Lessor the sum of $500,000.00 in cash on or before March 15, 1998 whereupon neither Lessee nor Lessor shall have any further rights or obligations hereunder. If Lessor does not receive the written notice of termination from Lessee and the $500,000.00 in cash from Lessee on or before March 15,1998 then Lessee's option to terminate this Lease shall automatically terminate without notice to Lessee. 3. BASE RENT. --------- (1) During the first five (5) years of the Initial Term (and, in addition, any partial month during after the Commencement Date), Lessee covenants with Lessor to pay for the Leased Premises at the rate of Six Hundred Fifteen Thousand Fifty Dollars and No/100 ($615,050.00) per year, payable in equal monthly installments of Fifty-One Thousand Two Hundred Fifty-Four Dollars and 17/100 ($51,254.17) per month ("Base Rent"). (2) During the second five (5) years of the Initial Term, Lessee covenants with Lessor to pay for the Leased Premises at the rate of Six Hundred Seventy-Six Five Hundred Fifty-Five Dollars and No/100 ($676,555.00) per year, payable in equal monthly installments of Fifty-Six Thousand Three Hundred Seventy-Nine Dollars and 58/100 ($56,379.58) ("Base Rent"). (3) The monthly rental payment for the first month of this Lease shall be pro rated and payable on the Commencement Date of this Lease, and thereafter each installment of Base Rent and each monthly payment of Additional Rent shall be paid in advance on or before the first day of each and every calendar month during the Initial Term of this Lease (or any extended term). If Base Rent and Additional Rent are not received by Lessor within ten (10) business days after the due date, Lessee shall pay a late charge equal to five percent (5%) of the late payment. If Lessee fails to perform any of its obligations under this Lease, Lessor may, but shall not be required to, discharge such obligations and the cost thereof shall be paid by Lessee to Lessor as Additional Rent on the due date of the next monthly rental payment. (4) Lessee may, at its option, reduce the Base Rent payable hereunder by paying Lessor prepaid Base Rent. For each $100,000.00 of Base Rent prepaid by Lessee to Lessor, the Base Rent for the first five (5) years of the Initial Term will be recalculated and reduced by thirty and one-half cents ($.305) per square foot, and for the second five (5) years of the Initial Term the Base Rent will be recalculated and reduced by thirty-three and one-half cents ($.335) per square foot. Lessee may not pay more than $1,800,000.00 to Lessor to reduce the Base Rent. Lessee shall notify Lessor in writing of its intention to prepay a portion of the Base Rent within ninety (90) days after the Effective Date of this Lease, and shall pay Lessor such amount of prepaid Base Rent, as selected by Lessee, on the Commencement Date. Remaining Base Rent due shall then be recalculated in accordance with this paragraph, and shall be documented in an amendment to this Lease which shall be executed by Lessor and Lessee. 4. OPTION TO RENEW. Lessee shall have the right and option to extend the --------------- term of this Lease for two (2) renewal terms of five (5) years each upon the same terms and conditions as herein set forth, except for an adjustment in the Base Rent as set forth below. To exercise such renewal options, Lessee must give Lessor written notice of its intention to renew at least one hundred and eighty (180) days before the scheduled expiration of the Initial Term of this Lease, or at least one hundred and eighty (180) days before the expiration of first renewal term, whichever is applicable. The annual Base Rent, payable in equal monthly installments during each renewal, term shall be one hundred fifteen percent (115%) of the Base Rent being paid in the year before the renewal. 5. SECURITY DEPOSIT. If Lessee shall default hereunder with respect to ---------------- the payment of Base Rent, or with respect to any other payment of money due by Lessee hereunder, and if such default is not cured within any applicable grace period, Lessee shall, within ten (10) days of written demand from Lessor, deposit with Lessor the sum of the Base Rent for the month in which the alleged default occurred ("Security Deposit") as security for the full and faithful performance of every provision of this Lease to be performed by Lessee. If Lessee thereafter defaults with respect to any provision of this Lease, including but not limited to the provisions relating to the payment of Base Rent, and if such default is not cured within any applicable grace period, Lessor may, within ten (10) days after notice to Lessee use, apply or retain all or any part of this Security Deposit for the payment of any Base Rent and any other sum in default, or for the payment of any other amount which Lessor may spend or become obligated to spend by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer by reason of Lessee's default. If any portion of said Security Deposit is so used or applied, Lessee shall within five (5) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore the Security Deposit to its original amount, and Lessee's failure to do so shall be a material breach of this Lease. Lessor shall not be required to keep this Security Deposit separate from its general funds, and Lessee shall not be entitled to interest on the Security Deposit. Any security deposit held by Lessor shall be returned to Lessee within two (2) weeks of the expiration or termination of this Lease and the performance by Lessee of its obligations hereunder. 6. HOLDOVER TENANCY. If Lessee retains possession of the Leased Premises ---------------- or any part thereof after the expiration of the term or the earlier termination of this Lease, without Lessor's prior written consent, Lessee (without prejudice to any of Lessor's other rights and remedies) shall pay to Lessor (i) an amount per month equal to one hundred twenty-five percent (125%) of the Base Rent payable with respect to the Leased Premises during the last month of the term and (ii) all Additional Rent for such period. 7. UTILITIES. --------- During the term of this Lease, Lessee shall pay, directly to the applicable utility provider, all separately metered utility charges incurred by Lessee in connection with the Leased Premises. The parking lot lights on the Common Area will be connected to the Lessee's electric meter and Lessee will be responsible for paying the electric charges for the parking lot lights. No interference, interruption, or curtailment of any utilities at the Leased Premises shall constitute a basis for constructive eviction or rental abatement, unless the same are due to the willful misconduct or negligence of Lessor, its agents or employees, and unless, after receipt of written notice thereof, Lessor fails to make reasonable and timely efforts to remedy same, nor shall Lessor be liable for damages in connection with such interference, interruption or curtailment unless same are the result of negligence on the part of Lessor, its agents or employees. Lessor, as part of Lessor's Improvements, agrees to provide separate meters for all utilities provided to the Leased Premises. 8. COMMON AREA. ----------- (1) Lessor shall substantially complete the Common Area prior to the Commencement Date. Lessor shall not materially change or alter the dimensions and location of the Common Area without the prior written consent of Lessee. No public telephones, newspaper machines, vending machines, signage, kiosks, outdoor selling areas (whether seasonal or permanent) or other obstruction shall be permitted on the Common Area, except as may be otherwise expressly set forth in this Lease. Lessor reserves the right to designate certain parts of the Common Area as Quasi Common Area for the use of specific tenants such as designated parking areas. (2) Lessee, and its employees, customers, subtenants, licensees and concessionaires shall have the nonexclusive right to use the Common Area, such use to be in common with Lessor, other tenants of the Building, and other persons entitled to use the same by virtue of Lessor's express permission, and subject to such reasonable rules and regulations governing use as Lessor may, from time to time, prescribe. Lessee shall not solicit business or display merchandise within the Common Area, or distribute handbills therein, or take any action which would interfere with the rights of other persons to use the Common Area. Lessor shall require similar agreements and standards from any other tenant in the Building. Lessor may temporarily close any part of the Common Area for such periods of time as may be reasonably necessary to make repairs or alterations to the Common Area or the Building; provided that such closure shall not adversely affect, reduce or restrict Lessee's parking or access to the Building. (3) As part of the Site Plan approval process, Lessor and Lessee shall agree to specific exclusive designated areas in which automobiles owned by Lessee, its employees, subtenants, licensees and concessionaires shall be parked, and Lessee shall use reasonable efforts to see that such automobiles are parked in such areas. Upon request, Lessee shall furnish to Lessor a complete list of the license numbers of all automobiles operated by Lessee, its employees, and subtenants. Lessor hereby designates the parking spaces marked on the Site Plan as "Lessee Exclusive Parking Area" as Quasi Common Area in favor of Lessee, and Lessee, its employees, subtenants, licensees and concessionaires shall have the exclusive right to use such designated parking spaces. All remaining parking area in the Common Area other than Lessee's exclusive parking area shall be Quasi Common Area for the remaining tenants of the Building to be used as an exclusive parking area. (4) The Common Area shall be and remain under Lessor's sole operation and control, and Lessor shall adequately maintain and repair the same utilizing the funds described hereafter. As used in this Lease, the term "common area costs" shall mean the total of all items of expense relating to operating, managing, equipping, policing and protecting (if Lessor so elects), repainting, repairing, replacing, and maintaining the Common Area in the same condition as when originally installed (normal wear and tear excepted, and excluding items of a capital nature such as the replacement or repair of utility lines, or the replacement of the parking lot), and the cost of painting the readily visible portions of the exterior walls of the Building (exclusive of structural repairs and/or refurbishments). Such common area costs shall also include, removal of rubbish, dirt, and debris not generated by a tenant pursuant to the use of its lease space (Lessor will not place trash receptacles on the Property for the use of the tenants and each tenant, including, Lessee, will be responsible for engaging the services of a waste disposal company to provide a trash receptacle and to remove the contents of the trash receptacle on a regular schedule); costs of planting, replanting, and replacing flowers and landscaping, and supplies required therefor; costs of painting any of the foregoing items and striping the parking lot; all costs of utilities used in connection the maintenance of the Common Area; all costs of maintaining speed ramps (if any), lighting facilities which are not separately metered to Tenant, and storm drainage systems; all premiums for liability and property damage insurance as provided herein; ad valorem taxes on the Property and Building as provided herein; and management fees not to exceed two percent (2%) of the Base Rent. (5) Effective on the Commencement Date, and as Additional Rent hereunder (payable at the same time or times as Base Rent), Lessee shall pay to Lessor its proportionate share of the common area costs (based upon Lessor's good faith estimates made prior to or at the Commencement Date, and from time to time thereafter, subject to adjustment as hereinafter provided in the next paragraph). Lessee's proportionate share shall be equal to the product obtained by multiplying such common area costs by a fraction, the numerator of which shall be the total number of square feet of floor area in the Leased Premises, and the denominator of which shall be the total number of square feet of the gross leasable floor area in the Building. Notwithstanding the above, prior to December 31, 1999, common area costs shall not exceed $0.588 per square foot of the Leased Premises, and thereafter, annual increases in Lessee's share of such common area costs shall not exceed an amount equal to 5% of the common area costs attributable to Lessee for the previous year. For partial calendar years occurring during the first and last years of the primary term or any extension periods, if applicable, the expense stop for the common area costs payable for such partial years shall be appropriately prorated for the purposes of calculating common area costs owed by Lessee due for such partial calendar year. (6) Within sixty (60) days following the end of each calendar year, Lessor shall furnish to Lessee a statement showing the total common area costs for the calendar year just expired, the amount of Lessee's share of such common area costs, and payments made by Lessee during such calendar year under the preceding paragraph. If Lessee's share of such common area costs for such calendar year shall exceed Lessee's payment so made, Lessee shall pay to Lessor the deficiency within fifteen (15) days after receipt of said statement. If Lessee's payments shall exceed Lessee's share of such common area costs as shown on such statement, Lessee shall be entitled to offset the excess against payments next thereafter becoming due if this Lease is in effect, or such excess shall be refunded by Lessor if this Lease has been terminated or if the term of this Lease has expired. The common area costs shall be subject to reasonable audit by Lessee, at Lessee's expense, as set forth in Paragraph 11 below. Lessor shall use diligent efforts to minimize such costs of operation and maintenance in a manner consistent with good commercial building practices in the community where the Building is located. (7) At the option of Lessor, Lessor may grant an easement to the owners' association that will be established in connection with the Declaration over and across the part of the common area adjacent to Loop 1604 and East Campus Drive for the purpose of an entryway. If an easement is granted to the owners' association then the property subject to the easement shall be maintained by the owners' association and if the owners' association intends to construct a wall or monument on the property subject to the easement then Lessee shall have the right to approve the height of the wall or monument. 9. TAXES TO BE REIMBURSED OR PAID BY LESSEE. ---------------------------------------- (1) In addition to the Base Rent provided for in paragraph 3 hereof, Lessee agrees to pay to Lessor the following as Additional Rent: 1. Lessee shall pay its proportionate share of all real property taxes and assessments which may be levied or assessed by any lawful authority against the Property and Building for each calendar year or tax year during the term hereof ("Tax Cost"), together with reasonable attorney's fees and other expenses incurred by Lessor in contesting any such taxes and assessments, provided such contest does not result in an increase of Tax Cost to Lessee. Lessee's proportionate share shall be equal to the product obtained by multiplying such ad valorem taxes and assessment (and reasonable pro-rata expenses incurred by Lessor to contest same, and provided that such reasonable expenses are only reimbursable by Lessee if a tax savings was achieved as a result of such contest) by a fraction, the numerator of which shall be the total number of square feet of floor area in the Leased Premises, and the denominator of which shall be the total number of square feet of the gross leasable floor area in the Building. Should the State of Texas or any political subdivision thereof, or any other governmental authority having jurisdiction thereover, impose a tax and/or assessment (other than an income or franchise tax) upon or against the rentals payable by tenants in the Building to Lessor, in substitution for the taxes and assessments levied or assessed against the Property and the Building, such new tax and/or assessment shall be covered by this paragraph. 2. Lessee's proportionate share of all real property taxes and assessments (and expenses incurred by Lessor to contest same as described above) during the term hereof, shall be paid in monthly installments at the same time the Base Rent is paid, in an amount estimated by Lessor based on previous year tax assessments. Said funds may be commingled with the funds of Lessor and/or deposited with Lessor's mortgagee as an escrow deposit, and Lessee shall be entitled to no interest thereon. Upon receipt of all tax bills, assessment bills and other expenses attributed to such taxes during any calendar year or tax year during the term hereof, Lessor shall furnish Lessee with a written statement of the actual amount of Lessee's proportionate share of the taxes, assessments and expenses for such year. If the total amount paid by Lessee under this paragraph for any calendar year or tax year during the term of this Lease shall be less than the actual amount due from Lessee for such year as shown on such statement, Lessee shall pay to Lessor the deficiency within thirty (30) days after demand therefor by Lessor; and if the total amount paid by Lessee hereunder for any such calendar year or tax year, is in excess of the actual amount due, such excess shall be credited by Lessor to the monthly installment(s) next thereafter becoming due from Lessee under this paragraph if this Lease is in effect, or such excess shall be refunded by Lessor if this Lease has been terminated or if the term of this Lease has expired. For the calendar years and tax years in which this Lease commences and terminates, the provisions of this paragraph shall apply, and Lessee's liability for its proportionate share of any tax assessments for such year shall be subject to a prorata adjustment based on the number of days of said calendar or tax year during which the term of this Lease is in effect. A copy of a tax bill or assessment bill submitted by Lessor to Lessee shall at all times be sufficient evidence of the amount of taxes and/or assessments levied or assessed against the property to which such bill relates. Prior to or at the commencement of the term of this Lease and from time to time thereafter throughout the term hereof, Lessor shall notify Lessee in writing of Lessor's estimate of Lessee's monthly installments due hereunder. Lessor's and Lessee's obligations under this paragraph shall survive the expiration of the term of this Lease. 3. Notwithstanding the foregoing, Lessee shall not be responsible for the payment of its proportionate share of the ad valorem taxes associated with the Property and Building which exceeds $86,500.00 for the tax year 1999. If Lessee's proportionate share of the ad valorem taxes associated with the Property and Building exceeds $86,500.00 for the tax year 1999, then Lessee shall pay such excess amount, but the Base Rent thereafter due by Lessee for each month remaining in the Initial Term shall be decreased by an amount equal to the amount of Lessee's proportionate share of the ad valorem taxes that exceeds $86,500.00 spread over the number of months remaining in the Initial Term. (2) Lessee shall be liable for all taxes levied against personal property and trade fixtures placed by Lessee in the Leased Premises, such taxes to be paid directly by Lessee and not as part of the Additional Rent. If any such taxes for which Lessee is liable are levied against Lessor or Lessor's property, and if Lessor is required to pay the same or if the assessed value of Lessor's property is increased by inclusion of personal property and trade fixtures placed by Lessee in the Leased Premises and Lessor elects to pay the taxes based on such increase, Lessee shall pay to Lessor, upon demand, that part of such taxes for which Lessee is primarily liable hereunder. (3) Lessee may, at its sole cost and expense, and upon the receipt of prior written approval of Lessor, such approval not to be unreasonably withheld, contest any real estate taxes against the Property and/or the Building, and attempt to obtain a reduction in the assessed valuation of the Property and/or the Building for the purpose of reducing any such tax assessment. In the event Lessor approves such contest, and upon the request of Lessee, but without expense or liability to Lessor, Lessor shall cooperate with Lessee and execute any document which may be reasonably necessary and proper for any proceeding. If a tax reduction is obtained, there shall be a subsequent reduction in Lessee's proportionate taxes and assessments for such year, and any excess payments made by Lessee shall be refunded by Lessor, without interest, when all refunds to which Lessor is entitled from the taxing authority with respect to such year have been received by Lessor. 10. INSURANCE PREMIUMS TO BE REIMBURSED BY LESSEE. --------------------------------------------- (1) In addition to the Base Rent provided for in paragraph 3 hereof, Lessee agrees to pay to Lessor the following as Additional Rent: 1. Lessee shall pay its proportionate share of all premiums paid by Lessor for fire and extended coverage insurance for the Building and Property during the term hereof in such reasonable amounts as determined by Lessor's mortgagee. Lessee's proportionate share shall be equal to the product obtained by multiplying such insurance costs by a fraction, the numerator of which shall be the total number of square feet of floor area in the Leased Premises, as determined by paragraph 1(c) and the denominator of which shall be the total number of square feet of the gross leasable floor area in the Building. Notwithstanding the foregoing allocation formula, Lessee shall pay as Additional Rent one hundred percent (100%) in any increase of insurance costs directly attributable to the manner of Lessee's use of the Leased Premises, other than its mere occupancy thereof for general office/warehouse purposes. Lessor shall provide Lessee with all available documentation (including insurance service organization rate schedules and/or inspection reports) in connection with any such surcharge prior to the Commencement Date of this Lease, and the same shall be subject to the reasonable approval of Lessee in all respects. 2. Lessee's proportionate share of all such premiums during the term hereof shall be paid in monthly installments at the same time the Base Rent is paid. Said funds may be commingled with the funds of Lessor and/or deposited with said mortgagee as an escrow deposit, and Lessee shall be entitled to no interest thereon. Upon receipt of statements for such premiums attributed to any calendar year during the term hereof, Lessor shall furnish Lessee with a written statement of the actual amount of Lessee's proportionate share of such insurance premiums for such year. If the total amount paid by Lessee shall be less than the actual amount due from Lessee for such year, Lessee shall pay to Lessor the deficiency within thirty (30) days after demand therefor by Lessor; and if the total amount paid by Lessee hereunder for any such calendar year is in excess of the actual amount due, such excess shall be credited by Lessor to the monthly installment(s) next thereafter becoming due from Lessee under this paragraph if this Lease is in effect or such excess shall be refunded by Lessor if this Lease has been terminated or if the term of this Lease has expired. For the calendar years in which this Lease commences and terminates, the provision of this paragraph shall apply, and Lessee's liability for its proportionate share of any such insurance premiums for such year shall be subject to a prorata adjustment based on the number of days of said calendar year during which the term of this Lease is in effect. A copy of the insurance company billing statement or premium notice submitted by Lessor to Lessee shall at all times be sufficient evidence of the amount of insurance premiums to be reimbursed to Lessor hereunder. Prior to or at the commencement of the term of this Lease, and from time to time thereafter throughout the term hereof, Lessor shall notify Lessee in writing of Lessor's estimate of Lessee's monthly installments due hereunder. Lessor's and Lessee's obligations under this paragraph shall survive the expiration of the term of this Lease. 11. AUDIT. Lessee shall have the right not more than one (1) time per ----- year, at Lessee's sole cost and expense (except as set forth herein), at Lessor's office or at the office of Lessor's agent, to audit, inspect and copy the books and records of Lessor with respect to any cost or item which is passed through to Lessee under this Lease, upon thirty (30) days advance written notice by Lessee to Lessor. Lessor shall cooperate with Lessee in providing Lessee reasonable access to its books and records during normal business hours for this purpose. If the results of the audit show an overcharge to Lessee of more than five percent (5%) of the actual amount owed by Lessee, then Lessor shall pay the reasonable costs of such audit, and Lessor shall credit or refund to Lessee any overcharge of such items as discovered by the audit within thirty (30) days of completion of such audit. In the event such audit discloses an undercharge of such items as billed to Lessee, Lessee shall pay Lessor the amount of such undercharge within thirty (30) days of completion of such audit. 12. MAINTENANCE. Lessor covenants and agrees, at its expense and without ----------- reimbursement or contribution by Lessee, to keep and maintain in good condition and repair, and replace if necessary, (i) the structural systems of the Building including, without limitation, the roof, roof membrane, roof covering (including interior ceiling if damaged by leakage), load-bearing walls and floor slabs, and masonry walls and foundations, (ii) the exterior and below floor slab portions of the plumbing system, (iii) the below floor slab portions of the electrical system servicing the Building, and all conduits from the public utility transformer poles to the Building and (iv) the underground sprinkler mains. Notwithstanding the foregoing, Lessee shall be responsible to perform repairs to any of the foregoing items which are necessitated solely as a result of the acts, omissions, or sole or negligence of Lessee, its agents, contractors, employees, licensees, concessionaires, subtenants, or customers, it being agreed that in the instance of concurrent negligence, Lessor and Lessee shall each bear their proportionate share of the costs of such repairs. In the event the described portions of the Leased Premises become out of repair, and not in good working condition, due to either the failure of Lessor to comply with the terms of this paragraph, or a latent defect, then Lessor shall perform or cause to be performed any and all repairs necessary to restore the Leased Premises to a state of good condition and repair. If, following Lessee's delivery to Lessor of written notice of such condition, Lessor fails to prosecute the repairs required hereunder diligently and continuously until completion within thirty (30) days of such notice (provided, in the event such repairs are not susceptible to cure within such thirty (30) day period, then Lessor shall be permitted such time as is reasonably necessary to repair such items so long as Lessor commences such cure within such thirty (30) day period, diligently pursues such cure and, in fact, cures such condition within a reasonable period of time), Lessee may prosecute such repairs itself and, after submitting a final bill to the Lessor for such work, Lessor shall pay the bill for such repair work within thirty (30) days after the Lessor receives the same. Notwithstanding the foregoing, in the case of a casualty event which creates imminent danger to persons or property, as applicable to a portion of the Leased Premises for which Lessor is obligated to repair, Lessee shall provide Lessor with twenty-four (24) hours prior notice (which notice may be oral, but which must be immediately followed by written notice) of such event and the need for immediate repairs, and if Lessor fails to respond to Lessee's notice by initiating repair work as may be necessary within twenty-four (24) hours after Lessor receives such notice, Lessee shall have the right to prosecute any and all necessary repairs relating to such event, and, Lessor shall pay the bill for such repair work within thirty (30) days after the Lessor receives the same. Lessee agrees at its own expense to keep the interior of the Leased Premises and Common Area immediately adjacent to the front entrance to the Building in a clean and healthy condition. 13. ACCEPTANCE OF PREMISES. Lessee agrees to accept the Leased Premises ---------------------- in its "as is" condition with all faults and no warranties either express or implied, except as may be otherwise expressly set forth in this Lease, and except for (a) the presence of any Hazardous Materials (as hereinafter defined), and (b) latent defects provided, however, that Lessor will warrant that, to the best of Lessor's knowledge, the structural and exterior portions of the Leased Premises, including without limitation the roof (hereinafter, the "Structural Portions of the Leased Premises") are in reasonably good working condition and order as of the Commencement Date, and Lessor has received no notice that the Property is not in compliance with all existing laws, codes, regulations and ordinances of any governmental authorities. In the event Lessee discovers any Hazardous Materials on the Property, and the removal of same would delay the Commencement Date beyond the Outside Date, or otherwise adversely affect Lessee, then Lessee shall have the right to terminate this Lease by delivering written notice to Lessor at least ten (10) days prior to the date of termination if Lessor does not provide reasonable assurances that the Commencement Date will occur prior to the Outside Date. At the end of the term or other expiration of this Lease, Lessee will surrender and deliver up the Leased Premises to Lessor in the same condition and repair, reasonable and ordinary wear and tear, and damage by fire or casualty, excepted. 14. INDEMNITY/LIABILITY INSURANCE. LESSEE HEREBY INDEMNIFIES AND HOLDS ----------------------------- LESSOR, ITS SUCCESSORS AND ASSIGNS AND OFFICERS, PARTNERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, AND EXPENSES, INCLUDING ATTORNEY'S FEES, LIABILITIES, LOSSES, DAMAGES, SUITS, ACTIONS, FINES, PENALTIES, CLAIMS OR DEMANDS OF ANY KIND AND ASSERTED BY OR ON BEHALF OF ANY PERSON, INDEPENDENT CONTRACTOR OR GOVERNMENTAL AUTHORITY, ARISING FROM ANY BREACH OR DEFAULT BY LESSEE OF THIS LEASE OR THE OPERATION OR MAINTENANCE OF THE LEASED PREMISES, OR THE NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSEE OR ITS AGENTS, EMPLOYEES OR CONTRACTORS IN OR ABOUT THE LEASED PREMISES. IN THE EVENT ANY ACTION OR PROCEEDING SHALL BE BROUGHT AGAINST LESSOR, ITS SUCCESSORS AND ASSIGNS AND OFFICERS, PARTNERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, BY REASON OF ANY SUCH CLAIM, LESSEE SHALL DEFEND THE SAME AT LESSEE'S EXPENSE BY COUNSEL REASONABLY SATISFACTORY TO LESSOR. LESSOR HEREBY INDEMNIFIES AND HOLDS LESSEE, ITS AGENTS AND EMPLOYEES, HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, AND EXPENSES, INCLUDING ATTORNEY'S FEES, LIABILITIES, LOSSES, DAMAGES, SUITS, ACTIONS, FINES, PENALTIES, CLAIMS OR DEMANDS OF ANY KIND AND ASSERTED BY OR ON BEHALF OF ANY PERSON, INDEPENDENT CONTRACTOR OR GOVERNMENTAL AUTHORITY, ARISING FROM ANY BREACH OR DEFAULT BY LESSOR OF THIS LEASE OR THE MAINTENANCE OF THE LEASED PREMISES. IN THE EVENT ANY ACTION OR PROCEEDING SHALL BE BROUGHT AGAINST LESSEE BY REASON OF ANY SUCH CLAIM, LESSOR SHALL DEFEND THE SAME AT LESSOR'S EXPENSE BY COUNSEL REASONABLY SATISFACTORY TO LESSEE. In addition, Lessee at its expense, shall maintain liability insurance for injuries to any person or persons and property with combined single limits of not less than One Million and 00/100 ($1,000,000.00) Dollars, and furnish a certificate of insurance evidencing such coverage to Lessor, and naming Lessor as an additional insured (provided that such insurance may be maintained under blanket policies, and Lessor's right of recovery thereunder is limited to the amounts required to be maintained under this Lease as set forth above). The certificate shall specify thirty (30) days written notice to Lessor of cancellation or material changes in the policy. Lessor agrees that it will promptly advise Lessee of any claims against Lessor in connection with the Leased Premises, for which Lessee is responsible for hereunder so that Lessee may assume the defense of the same in a timely manner. LESSOR HEREBY INDEMNIFIES AND HOLDS LESSEE, ITS SUCCESSORS AND ASSIGNS AND OFFICERS, PARTNERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, AND EXPENSES, INCLUDING ATTORNEY'S FEES, LIABILITIES, LOSSES, DAMAGES, SUITS, ACTIONS, FINES, PENALTIES, CLAIMS OR DEMANDS OF ANY KIND AND ASSERTED BY OR ON BEHALF OF ANY PERSON, INDEPENDENT CONTRACTOR OR GOVERNMENTAL AUTHORITY, ARISING FROM ANY BREACH OR DEFAULT BY LESSOR OF THIS LEASE, OR THE OPERATION OR MAINTENANCE OF THE LEASED PREMISES, OR THE NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR OR ITS AGENTS, EMPLOYEES OR CONTRACTORS IN OR ABOUT THE LEASED PREMISES. IN THE EVENT ANY ACTION OR PROCEEDING SHALL BE BROUGHT AGAINST LESSEE, ITS SUCCESSORS AND ASSIGNS AND OFFICERS, PARTNERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, BY REASON OF ANY SUCH CLAIM, LESSOR SHALL DEFEND THE SAME AT LESSOR'S EXPENSE BY COUNSEL REASONABLY SATISFACTORY TO LESSEE. IN THE EVENT ANY ACTION OR PROCEEDING SHALL BE BROUGHT AGAINST LESSEE BY REASON OF ANY SUCH CLAIM, LESSOR SHALL DEFEND THE SAME AT LESSOR'S EXPENSE BY COUNSEL REASONABLY SATISFACTORY TO LESSEE. 15. DESTRUCTION OF PREMISES. Risk of loss shall remain with Lessor until ----------------------- the Commencement Date. After the Commencement Date, if the Leased Premises are damaged, destroyed or rendered wholly or partially untenantable for Lessee's intended use, by fire or other casualty, insured or which should have been insured under the coverage Lessor is obligated to carry pursuant to Paragraph 10 of this Lease, then after written notice of the casualty events from Lessee to Lessor, Lessor shall commence repair of the Leased Premises within a reasonable period of time following Lessor's receipt of the permits necessary to perform such restoration, and its receipt of insurance proceeds (or the availability of such proceeds in the event the insurer or Lessor's lender requires such proceeds to be escrowed), and restore the Leased Premises to substantially the same condition in which the Leased Premises were in immediately prior to the occurrence of the casualty, except as otherwise provided in this paragraph, within a reasonable period of time following the commencement of such restoration. Lessor's obligation to rebuild is limited to the extent that insurance proceeds are available and sufficient to restore the Leased Premises. In the event Lessor fails to commence such restoration within one hundred twenty (120) days following the casualty (or such longer period of time as reasonably necessary in the event Lessor is delayed solely due to the failure of the applicable municipal authorities to issue permits for Lessor to commence such restoration, such longer period not to exceed thirty (30) days) and/or Lessor fails to complete such restoration and tender possession of the Leased Premises to Lessee within one (1) year following such casualty event, then in either of such events, Lessee shall be entitled to terminate this Lease upon written notice to Lessor. From the date of such casualty, until the Leased Premises are so repaired and restored, rent and all other charges and items payable hereunder shall abate in such proportion as the part of the Leased Premises thus destroyed or rendered untenantable bears to the total Leased Premises. However, if fifty percent (50%) or more of the Leased Premises (based upon the cost to replace the Leased Premises damaged or destroyed, as compared with the market value of the improvements on the Leased Premises immediately prior to such fire or other casualty, as shown by certificate of Lessor's architect), is destroyed or rendered untenantable by fire or other casualty during the last year of the term, or during the last year of any extension term of this Lease, then Lessor or Lessee shall have the right to terminate this Lease effective as of the date of the casualty, by giving written notice of termination to the other within thirty (30) days of such casualty; provided, however, Lessee shall have the right to nullify any Lessor termination by exercising an option to extend this Lease (if available). If the notice of termination is given within this thirty (30) day period, this Lease shall terminate, and rent and all other charges shall abate as aforesaid from the date of such casualty, and Lessor shall promptly repay to Lessee any Base Rent paid in advance which has not been earned as of the date of such casualty. If the notice is not given, and Lessor is required or elects to repair or rebuild the Leased Premises as herein provided, then Lessee shall, promptly after Lessor's completion of its restoration obligations and delivery of the Leased Premises to Lessee, repair and replace Lessee's property at the Leased Premises to at least their condition prior to the damage or destruction. Notwithstanding the foregoing, in the event the holder of any mortgage lien on the Leased Premises requires that the insurance proceeds be applied to such indebtedness, and Lessor does not desire to use other funds to reconstruct, then Lessor shall have the right to terminate this Lease by delivering written notice of termination to Lessee within thirty (30) days following the determination of same by the holder of such mortgage lien, whereupon all rights and obligations of either party hereunder shall cease. 16. EMINENT DOMAIN. In the event the Leased Premises or a substantial -------------- portion thereof, which renders the balance economically unusable by Lessee for the conduct of its business, are taken under the power of eminent domain for any public or quasi-public use, then Lessee may, at its option, terminate and cancel this Lease by giving Lessor notice in writing, by registered or certified mail, within thirty (30) days of Lessee's receipt of notice of the condemnation from Lessor. If Lessee so elects to terminate this Lease, said termination shall be effective upon the date that the condemning authority takes possession of the condemned property and thereupon both parties shall be relieved of any further obligation under this Lease, except that the parties shall fulfill all of their obligations hereunder to be performed to the date of such termination. In the event this Lease is not terminated and canceled after a condemnation of a portion of the Leased Premises, the Base Rent due hereunder shall be reduced in proportion to the area of the Leased Premises taken, effective on the date physical possession is taken by the condemning authority. Lessee may file a separate claim for any of its leasehold interest hereunder, leasehold improvements constructed by Lessee or constructed at Lessee's expense, its trade equipment, machinery and fixtures and relocation expenses. If this Lease is not terminated as provided hereinabove, Lessor shall use its best efforts to promptly and diligently restore the Leased Premises, or the building in which they are located, to a condition as similar as possible to that existing prior to the taking and suitable for the use intended hereunder. 17. ALTERATIONS. Lessor agrees that Lessee may at its own expense, from ----------- time to time during the term hereof, make such interior alterations and changes in and to the Leased Premises, as it finds necessary or convenient for its purposes, provided that such interior alterations, additions or changes shall not lessen the value of the building in which the Leased Premises is located; provided, however, that Lessee shall not make structural changes or alterations or non-structural changes or alterations costing in excess of $7,500.00 without the prior written consent of Lessor, which shall not be unreasonably withheld or delayed. Any structural alterations, additions and changes shall remain on the Leased Premises at the end of the term of this Lease, or any renewal term hereof, and shall be considered as improvements to and become a part of the real estate of Lessor. Lessee agrees that any interior alterations, additions and changes aforesaid made by it will be erected or made in a first-class, workmanlike manner and all shall be subject to the terms and conditions of this Lease. Lessee may not expand the Leased Premises without the prior written consent of Lessor. It is understood and agreed, however, that all trade equipment, machinery and fixtures of every kind and description placed in and upon the Leased Premises by Lessee during the term of this Lease, shall be and remain personal property belonging to Lessee, and, at the expiration or termination of the term of this Lease, or any renewal hereof, Lessee shall have the right to remove such personal property from the Leased Premises, and shall restore and repair, at its expense, any damage to the Leased Premises directly caused by the removal of such items of personal property. 18. LESSOR'S ACCESS TO PROPERTY. Lessor or its agent may, so often as is --------------------------- reasonable, and only with prior written notice to Lessee and with a Lessee representative present at all times, enter upon the Leased Premises during the Initial Term, or any renewal term of this Lease, for the purpose of maintaining and inspecting the same, to show the Property for purposes of financing or refinancing same, for purposes of placing signs thereon or offering the same for lease after Lessee's term or for purposes of showing the Property to prospective purchasers; provided, however, that Lessor shall only show the Leased Premises to prospective tenants during the last twelve (12) months of the term of this Lease, as such term may be extended. Other than in the case of an emergency, Lessor shall use its best efforts to provide Lessee with advance notice of its desire to enter upon the Leased Premises. Emergency for purposes of this paragraph shall be defined as an event which eminently threatens loss of life or destruction of property. 19. QUIET ENJOYMENT AND PERMITTED USE. Lessor represents and warrants --------------------------------- that (i) Lessor is the fee simple owner and record title holder of the Leased Premises, (ii) Lessor has not received any notice, and does not have any knowledge, of any eminent domain or similar proceeding which would affect the Leased Premises, (iii) Lessor has the full right, power and authority to make this Lease, (iv) to the best of Lessor's knowledge, other than the Declaration and the rules promulgated by the architectural control committee created thereunder, no unrecorded restrictive covenant, easement, lease or other written agreement restricts, prohibits or otherwise affects Lessee's rights set forth in this Lease, including without limitation Lessee's parking rights, rights to signage, construction, permitted use or ingress and egress to and from the Leased Premises, and (v) that Lessee, or any permitted assignee or sublessee of Lessee, upon the payment of the rent and performance of the covenants hereunder, shall and may peaceably and quietly have, hold and enjoy the Leased Premises and improvements thereon during the term of this Lease, and any extension thereof, provided, however, that Lessee shall not, without the prior written consent of Lessor, permit the Leased Premises to be used for the storage, treatment or holding for any length of time of any amount of hazardous waste or environmental contaminants. 20. ASSIGNMENT AND SUBLETTING. Lessee agrees that it will not assign this ------------------------- Lease or sublet more than fifty percent (50%) of the Leased Premises without the express written consent of Lessor, which consent shall not be unreasonably withheld or delayed; except, Lessee shall have the absolute right to sublet, assign or otherwise transfer its interest in this Lease to any parent or operating subsidiary of Lessee, or subsidiary of the parent of Lessee, affiliate, or to a corporation/company with which Lessee may merge or consolidate, or be acquired by, without Lessor's approval, written or otherwise; provided, in no event shall such subletting, assignment or transfer release Lessee from its obligations under this Lease. As used herein the term "affiliate" means a corporation controlling, controlled by or under common control with Lessee. Lessee is not restricted in any manner from a change in control or change in shareholders, directors, management or organization of Lessee, or any subsidiary, affiliate or associate of Lessee, or to the issuance, sale, purchase or disposition of the shares of Lessee, or any subsidiary, affiliate or associate of Lessee. However, that the parties acknowledge that Lessor may withhold such consent if the proposed assignee or subtenant is involved in any way with hazardous waste or environmental contaminants and will store, treat or hold same on the Leased Premises for any length of time. In the event of a permitted subletting or assignment, Lessee shall remain liable to Lessor for all the rentals called for under the terms of this Lease, and for the performance of all covenants herein to be performed by Lessee. Lessee shall fully disclose to Lessor the sublease terms and conditions and, as may be requested by Lessor or its Mortgagee from time to time, Lessee shall provide information of the status and terms of the sublease within seven (7) days from receipt from Lessor of such request. Furthermore, for the Initial Term of this Lease, in the event of a permitted subletting or assignment of the Leased Premises for an amount in excess of the total amount to be paid by Lessee hereunder, Lessee agrees to pay to Lessor as Additional Rent an amount equal to fifty (50%) percent of the excess rent received by Lessee from its assignee or subtenant after deduction of expenses directly related to the assignment or subletting and the payment of utilities, taxes and the like by Lessee with respect to the portions of the Leased Premises that are sublet or assigned. 21. DEFAULT BY LESSEE. If Lessee shall fail to pay to Lessor the rent ----------------- and/or other sums of money payable to Lessor as and when due and payable hereunder, and such default shall continue for a period of ten (10) days after written notice thereof shall be given to Lessee by Lessor, or in the event Lessee shall fail to comply with any other provisions or conditions of this Lease, upon its part to be kept and performed, and such default shall continue for a period of thirty (30) days after written notice thereof shall be given to Lessee by Lessor (or for such longer period as is reasonably necessary if the alleged default is not reasonably capable of cure within thirty (30) days and Lessee diligently proceeds to cure such default), or if Lessee shall be adjudged bankrupt, or shall make an assignment for the benefit of creditors, or if a receiver of any property of Lessee in or upon said Leased Premises, or for all or part of Lessees' interest hereunder, be appointed in any action, suit or proceeding by or against Lessee, and such adjudication, assignment or appointment shall not be vacated or annulled within sixty (60) days, or if the interest of Lessee in the Leased Premises shall be sold under execution, or other legal process then in the event of the occurrence of any one or more of the following events then Lessee shall have committed an "Event of Default". 22. LESSOR'S REMEDIES. Upon the occurrence of any Event of Default ----------------- enumerated above, Lessor may, at its option, in addition to any and all other rights or remedies available to it hereunder or at law or in equity, do any one or more of the following: (1) Terminate this Lease, in which event Lessee shall immediately surrender possession of the Leased Premises to Lessor. (2) Enter upon and take possession of the Leased Premises and expel or remove Lessee and any other occupant therefrom, with or without terminating this Lease. (3) Alter locks and other security devices at the Leased Premises, after repossessing the Leased Premises. (4) Remove and store any or all of the office equipment and furniture situated in the Leased Premises, after repossessing the Leased Premises. (5) Enter upon the Leased Premises and do whatever Lessee is obligated to do under the terms of this Lease; and Lessee agrees to reimburse Lessor on demand for any expenses which Lessor may incur in effecting compliance with Lessee's obligations under this Lease, and Lessee further agrees that Lessor shall not be liable for any damages resulting to Lessee from such action. (6) Exercise all other remedies available to Lessor at law or in equity, including injunctive relief. Exercise by Lessor of any one or more remedies herein granted or otherwise available shall not be deemed to be an acceptance or surrender of the Leased Premises, whether by agreement or by operation of law, it being understood that such surrender can be effected only by the written agreement of Lessor and Lessee. In the event Lessor elects to re-enter or take possession of the Leased Premises after Lessee's default, Lessee hereby waives notice of such re-entry or repossession. In the event Lessor elects to terminate this Lease by reason of the occurrence of an Event of Default, then notwithstanding any such termination, Lessee shall be liable for and shall pay to Lessor the Base Rent and other indebtedness accrued to the date of such termination, plus, as damages, an amount of money equal to the excess (if any) of the total Base Rent and all other payments due for the balance of the term of this Lease over the fair market value of the Leased Premises for the balance of the term of this Lease (subject to Lessor's duty to mitigate its damages). Upon the occurrence of an Event of Default, Lessee shall also be liable for and shall pay to Lessor upon demand, in addition to any other sums to be paid hereunder: all reasonable broker's fees incurred by Lessor in connection with the reletting of all or any portion of the Leased Premises; the costs of removing and storing Lessee's or other occupant's property found in the Leased Premises; the Lessor's reasonable costs of repairing, altering, remodeling or otherwise putting the Leased Premises into a condition acceptable to a new lessee; and all reasonable expenses incurred by Lessor in enforcing Lessor's remedies, including reasonable attorney's fees. In the event of termination or repossession of the Leased Premises upon the occurrence of an Event of Default, Lessor shall use reasonable efforts to relet the Leased Premises, or any portion thereof, on such terms as Landlord in its discretion may require. In the event of any such reletting, Lessor may relet the whole or any portion of the Leased Premises for any period, to any lessee, for any rental and for any use and purpose. 23. DEFAULT BY LESSOR. In the event of any default by Lessor hereunder, ----------------- Lessee may seek any remedy at law or in equity except the right to terminate this Agreement, however, Lessee hereby waives the benefit of any laws granting it a lien upon the property of Lessor and/or upon the Base Rent due to Lessor; but prior to any such action, Lessee shall give Lessor written notice specifying such default with reasonable detail, and Lessor shall thereupon have thirty (30) days in which to cure any such default. If such default cannot reasonably be cured within such thirty (30) day period, the length of such period shall be extended for the period reasonably required therefor if Lessor commences curing such default within such thirty (30) day period and continues the curing thereof with reasonable diligence. Unless Lessor fails to cure any default after such notice, Lessee shall not have any remedy or cause of action. All obligations of Lessor hereunder shall be construed as covenants, not conditions. In addition, Lessee specifically agrees to look solely to Lessor's interest in the Property for the recovery of any judgment against Lessor pursuant to this Lease, it being agreed that neither Lessor, nor any successors or assigns of Lessor, nor any future owner of the Building shall ever be personally liable for any such judgment. 24. STATUTORY AND ENVIRONMENTAL COMPLIANCE. To the best of Lessor's -------------------------------------- knowledge, the Leased Premises have never and do not currently contain, nor are they contaminated by, any hazardous or toxic waste materials in violation of any applicable environmental law or regulation, including, but not limited to Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et seq, or applicable Texas environmental laws -- --- and regulations. In addition, no "clean-up" (as such term is used in applicable environmental laws) of the Leased Premises has occurred pursuant to any applicable federal or state environmental laws or regulations, nor have same been ordered with respect to the Property. Lessor warrants and represents that, to the best of its knowledge, the Leased Premises are currently, and as of the Commencement Date of this Lease will be, in compliance with (i) all applicable local, State and Federal laws, statutes, rules, orders, ordinances, requirements and regulations (including laws, statutes, rules, orders, ordinances, requirements and regulations relating to environmental matters), and (ii) the rules, orders and regulations of the Board of Fire Underwriters. If the Leased Premises are not in compliance with (i) or (ii) above, Lessor shall cause the Leased Premises to be brought into compliance with same prior to the Commencement Date. Except as to matters which are Lessor's responsibility under the preceding sections of this paragraph, Lessee shall promptly comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Municipal Government and of any and all their Departments and Bureaus applicable to said Leased Premises for the correction, prevention and abatement of nuisances, violations or other grievances, in, upon or connected with the Leased Premises during the term of this Lease; and shall also promptly comply with and execute all rules, orders and regulations of the Board of Fire Underwriters for the prevention of fires, at Lessee's own cost and expense; provided specifically that it shall be Lessee's responsibility to comply with any and all present and future environmental statutes and any regulations promulgated thereunder (hereinafter collectively referred to as "Environmental Provisions"), which apply to the Property as a result of the existence of this Lease, its termination or expiration and which are triggered as a consequence of Lessee's use thereof or any environmental condition developing or coming into existence during the term of this Lease on the Property where the Leased Premises are located, which are attributable to acts or omissions of Lessee, its employees, agents or representatives; provided, however, that the foregoing shall not apply with respect to matters arising as a result of acts or omissions of Lessor, its agents, employees, invitees or representatives or Lessor's predecessors or successors or other tenants of the Building in which the Leased Premises are located. This responsibility shall include, but not be limited to, the submission of all information required thereunder by any governmental authority and the development and implementation of any cleanup plan required because of any spill or discharge of a hazardous substance or waste on the Property which occurs during the term of this Lease arising from acts or omissions of Lessee, it employees, agents or representative. In the event that Lessee's obligations with respect to its duty to comply with the requirements of any Environmental Provision as it applies to the Property on which the Leased Premises are located are not fully and completely discharged as of the expiration or effective date of termination of this Lease, this Lease shall terminate and Lessee shall remain financially responsible for the cost of discharging Lessee's obligations hereunder. LESSEE AGREES TO INDEMNIFY AND HOLD LESSOR, ITS SUCCESSORS AND ASSIGNS AND OFFICERS, PARTNERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS COMPLETELY HARMLESS WITH RESPECT TO ALL DIRECT DAMAGES, INDIRECT DAMAGES, COSTS, LIABILITY, CLAIMS, JUDGMENTS, FINES, PENALTIES OR POTENTIAL LIABILITY, WHETHER STATUTORY OR OTHERWISE, IN CONNECTION WITH ANY ENVIRONMENTAL CONDITION OCCURRING DURING THE TERM OF THIS LEASE (I) ON THE LEASED PREMISES OR (II) ON THE PROPERTY, WHICH AS TO (I) OR (II) ARE ATTRIBUTABLE TO ACTS OR OMISSIONS OF LESSEE, ITS EMPLOYEES, AGENTS, OR REPRESENTATIVES. THE INDEMNIFICATION PROVISIONS CONTAINED IN THIS PARAGRAPH SHALL INCLUDE ALL COSTS, FINES, PENALTIES, CLEANUP COSTS, REASONABLE CONSULTANTS', EXPERTS' AND ATTORNEYS' FEES AND ANY OTHER REASONABLE EXPENSES INCURRED BY THE PARTY ENTITLED TO INDEMNIFICATION HEREUNDER. THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE TERMINATION OR EXPIRATION OF THIS LEASE AND SHALL REMAIN ENFORCEABLE IN ACCORDANCE WITH THE TERMS HEREOF. LESSOR AGREES TO INDEMNIFY AND HOLD LESSEE, ITS SUCCESSORS AND ASSIGNS AND OFFICERS, PARTNERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS COMPLETELY HARMLESS WITH RESPECT TO ALL DIRECT DAMAGES, INDIRECT DAMAGES, COSTS, LIABILITY, CLAIMS, JUDGMENTS, FINES, PENALTIES OR POTENTIAL LIABILITY, WHETHER STATUTORY OR OTHERWISE, IN CONNECTION WITH ANY ENVIRONMENTAL CONDITION ON THE PROPERTY WHICH IS NOT OTHERWISE THE SUBJECT OF LESSEE'S INDEMNITY SET FORTH ABOVE, INCLUDING, WITHOUT LIMITATION, ANY UNDERGROUND TANKS, OR DUE TO LESSOR'S FAILURE TO PROVIDE INFORMATION, MAKE ALL SUBMISSIONS AND TAKE ACTION AS REQUIRED BY FEDERAL, STATE AND LOCAL ENVIRONMENTAL PROTECTION AGENCIES DURING THE TERM OF THIS LEASE WHICH ARE ATTRIBUTABLE TO ACTS OR OMISSIONS OF LESSOR, ITS EMPLOYEES, AGENTS OR REPRESENTATIVES OR OTHER TENANTS. THE INDEMNIFICATION PROVISIONS CONTAINED IN THIS PARAGRAPH SHALL INCLUDE ALL COSTS, FINES, PENALTIES, CLEANUP COSTS, REASONABLE CONSULTANTS', EXPERTS' AND ATTORNEYS' FEES AND ANY OTHER REASONABLE EXPENSES INCURRED BY THE PARTY ENTITLED TO INDEMNIFICATION HEREUNDER. THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE TERMINATION OR EXPIRATION OF THIS LEASE AND SHALL REMAIN ENFORCEABLE IN ACCORDANCE WITH THE TERMS HEREOF. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSOR'S INDEMNIFICATION SHALL ALSO SPECIFICALLY COVER COSTS IN CONNECTION WITH: (I) HAZARDOUS MATERIALS PRESENT OR SUSPECTED TO BE PRESENT IN THE SOIL, GROUND WATER OR SOIL VAPOR ON OR UNDER THE LEASED PREMISES BEFORE THE DATE HEREOF; OR (II) HAZARDOUS MATERIALS PRESENT ON OR UNDER THE LEASED PREMISES AS A RESULT OF ANY DISCHARGE, DUMPING, SPILLING (ACCIDENTAL OR OTHERWISE) ONTO THE LEASED PREMISES DURING OR AFTER THE TERM OR ANY EXTENSION TERM BY LESSOR. Lessee may, at its sole cost and expense, obtain a report (the "Phase I Environmental Survey") on the environmental condition of the Property (or, at its option, obtain a copy of Lessor's Phase I Environmental Study)(or, in the alternative, Lessee may review a copy of any environmental study that Seller has in its possession and relating to the Property). If Lessee shall discover in its review of any such Phase I Environmental Survey, or in any other environmental study reviewed by Lessee, that any Hazardous Materials may be present in the soil, ground water or soil vapor on or under the Leased Premises, Lessee may terminate this Lease upon written notice to Lessor within ten (10) days after the date Lessee receives such Phase I Environmental Survey, but for such termination to be effective, notice thereof shall be delivered to Lessor on or before February 2, 1998. After such termination, neither party shall have any obligation hereunder. If, during the term of this Lease (or any extension hereof), any governmental authority requires the investigation, remediation and/or monitoring of Hazardous Materials at the Leased Premises or the Building and such investigation, remediation and/or monitoring poses a safety threat to Lessee's employees or customers (as determined by a qualified environmental expert), then so long as the presence of such Hazardous Materials is not as a result of the acts of Lessee or its agents, contractors or employees, Lessee shall be entitled to receive an equitable abatement of rent from the date Lessee is not able to occupy the Leased Premises until the date Lessee is able to safely re-occupy the Leased Premises, and further provided that, so long as the presence of such Hazardous Materials is not as a result of the acts of Lessee's or its agents, contractors or employees, if such condition exists for one hundred twenty (120) days or more, Lessee shall be entitled to terminate this Lease. No alleged violation of any governmental law, ordinance, rule or regulation by Lessee shall constitute a breach of any covenant under the provisions of this Lease so long as Lessee is contesting in good faith the validity of such law, ordinance, rule or regulation or the existence of its alleged violation thereof, provided Lessee shall hold Lessor harmless from any liability or expense by reason of any such contest or litigation concerning any such governmental law, ordinance, rule or regulation, or any alleged violation thereof by Lessee. 25. NON WAIVER. No failure to insist on performance in any instance of ---------- any obligation hereunder shall be deemed a waiver of such performance, or any subsequent performance of such obligation or of the performance of any other obligation hereunder, and no waiver in any instance of the performance of any obligation hereunder shall be deemed a waiver of any subsequent performance of such obligation or of the performance of any other obligation hereunder. 26. NOTICES. All notices required or permitted under this Lease shall be ------- in writing and shall be given by Certified Mail, Return Receipt Requested or by Federal Express or other overnight courier. For all purposes hereunder, including notices and the payment of rentals, the addressee of the parties hereto are as follows: Lessor: Green Mountain Ventures I, Ltd. 1000 Central Parkway North, Suite 150 San Antonio TX 78232 Tel. 210-495-1090 Fax 210-495-1091 With copy to: Mr. Ronald W. Hagauer Attorney at Law 745 E. Mulberry, Suite 850 San Antonio TX 78212 Tel. 210-736-2222 Fax 210-735-2921 Lessee: Business Partner Solutions, Inc. 888 Isom Road San Antonio TX 78216-4033 Tel. 210-822-8582 Fax 210-377-3796 With copy to: Mr. Kerry T. Benedict Cox & Smith Incorporated 112 East Pecan Street, Suite 1800 San Antonio TX 78205-1521 Tel. 210-554-5500 Fax 210-226-8395 Either party may change the foregoing address by notice given pursuant to this paragraph. 27. SUBORDINATION. This Lease and all of the rights of Lessee hereunder ------------- are and shall be subject and subordinate to the lien of any mortgage or mortgages hereinafter placed on the Leased Premises or any part thereof, except Lessee's property or trade fixtures, and to any and all renewals, modifications, consolidations, replacements, extensions or substitutions of any such mortgage or mortgages (all of which are hereinafter termed the mortgage or mortgages), provided, nevertheless, each or all of such mortgages, except any mortgage outstanding as of the date of this Lease, shall contain a provision to the effect that so long as Lessee is not in default under this Lease, or any renewal hereof, no foreclosure of the lien of said mortgage or any other proceeding in respect thereof shall divest, impair, modify, abrogate or otherwise adversely affect any interests or rights whatsoever of Lessee under the said Lease. Such subordination shall be automatic, without the execution of any further subordination agreement by Lessee, provided, however, Lessee shall execute a written subordination/non-disturbance agreement, in form similar to the subordination/non-disturbance agreement attached hereto as Exhibit "E", if Lessor's Mortgagee (or any future Mortgagee) requests such written document and agrees to execute such document confirming the non- disturbance provision of the subordination/non-disturbance agreement. 28. LIENS. If, because of any act or omission of Lessee or anyone ----- claiming through or under Lessee, any mechanic's or other lien or order for the payment of money shall be filed against the Leased Premises or the Property, or against Lessor (whether or not such lien or order is valid or enforceable), Lessee shall, at its expense, cause the same to be canceled, discharged or bonded of record within thirty (30) days after the date of filing thereof, AND SHALL ALSO INDEMNIFY AND HOLD HARMLESS LESSOR FROM AND AGAINST ANY AND ALL COSTS, EXPENSES, CLAIMS, LOSSES AND DAMAGES (INCLUDING REASONABLE ATTORNEYS' FEES) IN CONNECTION THEREWITH. 29. INTEGRATION. It is expressly understood and agreed by and between the ----------- parties hereto that this Lease sets forth all the promises, agreements, conditions and understandings between Lessor and/or its agents and Lessee relative to the Leased Premises and there are no oral promises, agreements, conditions, or understandings between the parties with respect thereto. 30. SHORT FORM LEASE AND ESTOPPEL CERTIFICATE. The parties will, at any ----------------------------------------- time upon the request of Lessor or Lessor's Mortgagee, promptly execute duplicate originals of an instrument, in recordable form, which will constitute a short form of this Lease setting forth a description of the Property, the term of this Lease and any portion hereof, excluding the rental provisions. In the event that either party or Lessor's Mortgagee requires an Estoppel Certificate confirming the terms of this Lease, the other party shall provide same, in the form attached hereto as Exhibit "C", or in such other similar form reasonably requested by Lessor's Mortgagee, within ten (10) business days of such request. 31. SUCCESSORS AND ASSIGNS. This Lease, and all the covenants, provisions ---------------------- and conditions herein contained shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, devisees, legal representatives, successors and permitted assigns. 32. BROKERS. Lessee and Lessor covenant and represent to each other that ------- Trinity Asset Management--Mr. David Adelman is entitled to be paid a fee or commission by Lessor in connection with the transaction contemplated by this Lease, and neither Lessee nor Lessor has had any dealings or agreements with any other individual or entity requiring the payment of such a fee or commission. In the event either party has incurred any such other fee or commission not disclosed in this Paragraph, or other similar fee on account of an alleged employment, arrangement or contract with a broker or a finder, THEN THE PARTY WHO IS ALLEGED TO HAVE RETAINED SUCH INDIVIDUAL OR ENTITY SHALL AND DOES HEREBY AGREE TO INDEMNIFY AND HOLD HARMLESS THE OTHER PARTY FROM AND AGAINST ANY SUCH CLAIM AND ALL COSTS, EXPENSES, LIABILITIES AND DAMAGES INCURRED IN CONNECTION WITH SUCH CLAIM OR ANY ACTION OR PROCEEDING BROUGHT THEREON. NOTWITHSTANDING ANY OTHER PROVISION OF THIS LEASE TO THE CONTRARY, THE INDEMNITY AND HOLD HARMLESS PROVISIONS CONTAINED IN THIS PARAGRAPH SHALL SURVIVE THE EXECUTION OF THIS LEASE AND IF THIS LEASE IS TERMINATED, THE TERMINATION OF THIS LEASE. 33. GOVERNING LAW. This Lease shall be governed, interpreted and ------------- construed in accordance with the laws of the State of Texas. 34. FORCE MAJEURE. In the event Lessor or Lessee shall be delayed or ------------- hindered or prevented from the performance of any obligation required under this Lease by reason of strikes, lockouts, inability to procure labor or materials, failure to power, fire or other casualty, acts of God, restrictive governmental laws or regulations, riots, insurrection, war or any other reason not within the reasonable control of Lessor or Lessee, as the case may be, then the performance of such obligation shall be excused for a period of such delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. 35. SIGNS. Lessee shall obtain Lessor's prior consent, which shall not be ----- unreasonably withheld or delayed, prior to placing any sign on or about the Leased Premises. Any such sign must conform with the Declaration and all applicable municipal ordinances, regulations and rules of Lessor. Notwithstanding the above, Lessor has approved the signage of Lessee as preliminarily described on the attached Exhibit "G". 36. LIMITATION ON LESSOR'S LIABILITY AND EXCEPTIONS TO DEMISE. As used in --------------------------------------------------------- this Lease, the term "Lessor" is limited to and includes only the fee simple owner of the Property on the date this Lease is executed. In the event that the owner of the Property transfers title thereto and the transferee assumes all of Lessor's obligations hereunder, then upon such transfer the owner conveying title shall be automatically relieved as of the date of such transfer of any and all liabilities or obligations with respect to this Lease other than obligations arising prior to the date of such transfer. 37. DECLARATION. The leasehold interest created by this Lease is subject ----------- to all easements, covenants and obligations set forth in the Declaration. Lessee acknowledges that an owners' association will be established in connection with the Declaration and annual assessments will be established to pay for the maintenance of the common area of the Business Park. Lessee agrees to pay Lessor its pro rata share of such costs attributable to the Property during the term hereof (excluding any interest or penalties owed by Lessor under the Declaration). Lessee's proportionate share shall be equal to the product obtained by multiplying such assessment by a fraction, the numerator of which shall be the total number of square feet of floor area in the Leased Premises and the denominator of which shall be the total number of square feet of the gross leasable floor area in the Building. Lessor agrees to pay any amounts in excess of $2,305.00 per year, plus an increase of five percent (5%) per year after the first year of the Initial Term, associated with Lessee's pro rata share of the assessment. For partial calendar years occurring during the first and last years of the primary term or any extension periods, if applicable, the expense stop for the common area costs of the Business Park payable for such partial years shall be appropriately prorated for the purposes of calculating common area costs of the Business Park owed by Lessee due for such partial calendar year. 38. SUBROGATION. Lessor and Lessee each hereby waive any and all rights of ----------- subrogation which it may have in connection with the policies of insurance required by this Lease, and claims submitted thereunder. 39. ATTORNEYS FEES. If at any time during the term of this Lease (or any -------------- extension hereof) either Lessor or Lessee shall institute any action or proceeding against the other relating to the provisions of this Lease, or any default hereunder, then the unsuccessful party in such action or proceeding agrees to reimburse the successful party for the reasonable expenses for attorney's fees, paralegal fees and disbursements incurred therein by the successful party. Such reimbursement shall include all legal expenses incurred prior to trial, at trial and at all levels of appeal and post judgment proceedings. 40. RECORDING. The parties shall join in the execution of a memorandum or --------- so-called "short-form" of this Lease for the purpose of recordation in accordance with the form attached hereto as Exhibit "F" and made a part hereof. Any recording costs associated with the memorandum or short form of this Lease shall be borne by the party requesting recordation. 41. WAIVER OF LANDLORD'S LIENS. Lessor hereby waives and releases any -------------------------- contractual, statutory, constitutional, or other Landlord's lien on Lessee's furniture, fixtures, supplies, equipment and inventory. 42. LESSEE FINANCING. Lessee shall have the absolute right from time to ---------------- time during the term hereof (or any extension hereof) and without Lessor's further approval, written or otherwise, to grant and assign a mortgage or other security interest in Lessee's property to Lessee's lenders in connection with any Lessee financing arrangements. Lessor agrees to execute such confirmation, certificates and other documents (except amendments to this Lease unless Lessor hereafter consents) as Lessee's lenders may reasonably request in connection with any such financing. 43. LESSEE'S CONDUCT OF BUSINESS. Notwithstanding anything herein to the ---------------------------- contrary, nothing herein shall be construed as an obligation for Lessee to operate its business in the Leased Premises. Lessee shall have the right to remove Lessee's property and cease operations in the Leased Premises at any time and at Lessee's sole discretion. However, the right to cease to operate its business shall not affect Lessee's obligation to pay all amounts due hereunder and to perform all covenants and obligations hereunder. In the event Lessee ceases to operate its business in the Leased Premises for a period in excess of sixty (60) days for any reason other than Lessee's alterations, or casualty, condemnation or any other reason beyond Lessee's control, then Lessor shall be entitled to terminate this Lease upon written notice to Lessee. 44. SATELLITE DISH. Subject to approval by applicable governmental -------------- authorities, Lessor hereby grants to Lessee and its agents and contractors, at Lessee's sole cost and expense, the right to install, maintain and operate a mast mounted satellite dish antenna (the "Dish") and related equipment, including cables from the exterior of the Leased Premises to equipment inside the Leased Premises, necessary for the operation of the Dish. Lessee may locate the Dish at or relocate the Dish to some other location on or about the Leased Premises or the Building roof for purposes of adequate reception subject to applicable law, codes and regulations. Lessee will ensure that the Dish, and each part of it, will be installed in accordance with local and building rules of construction and occupancy codes and shall repair all damage to the Leased Premises (including but not limited to the roof of the Leased Premises) caused as a result of Lessee's installation of the Dish. The Dish is and shall remain the property of Lessee or Lessee's assignee, transferee or sublessee, and Lessor and Lessee agree that the Dish is not, and installation of the Dish at the Leased Premises shall not cause the Dish to become, a fixture pursuant to this Lease or by operation of law. Lessee shall be responsible for the repair and maintenance of the Dish during the term of this Lease (or any extended term), at its sole cost and expense, and upon the termination of this Lease shall remove said Dish and repair damage to the roof of the Leased Premises caused solely as a result of such removal. Any roof penetrations caused by Lessee shall not invalidate roof warranties; and roof penetrations shall be performed by Lessor's contractor at Lessee's expense if required in order to preserve roof warranties. The location and screening of the Dish shall be subject to the rights of the architectural control committee established in the Declaration. 45. OPTION AND RIGHT OF FIRST REFUSAL TO LEASE ADJACENT SPACE. Lessee --------------------------------------------------------- shall have the option to lease all or part of the "Adjacent Space" (as hereinafter defined), in addition to the Leased Premises, provided that Lessee is in possession and occupancy of the Leased Premises, is not in default under the terms of this Lease and exercises the option in the following manner and subject to the following conditions: (1) If at any time during the Initial Term Lessee shall desire to lease the Adjacent Space then Lessee shall send written notice to Lessor of such election. This option shall be irrevocable from the Effective Date to the last day of the Initial Term (either by termination or expiration), at which time said option shall terminate without notice to Lessee. The terms and conditions for the Adjacent Space shall be the same as set forth in this Lease except the base rent for the Adjacent Space shall be $3.50 per square foot per year for years one through five of the Initial Term and $3.85 per square foot per year for years six through ten of the Initial Term. The monetary cap put on ad valorem taxes, common area expenses for the Property and common area expenses for the business park shall be increased proportionately to reflect the added square footage and the use associated with such Adjacent Space. Upon Lessee's election to lease the Adjacent Space, Lessee thereby agrees to accept the Adjacent space "as-is" "where-is" and "with all faults" and in the condition then existing, and no warranties, either expressed or implied, shall be given by Lessor to Lessee except Lessor agrees to install overhead lighting, a sprinkler system and two 10x10 dock doors ("Lessor's Adjacent Space Improvements"), at Lessor's expense, Lessor's Adjacent Space Improvements will be of similar quality as was installed in the Leased Premises. Lessor's Adjacent Space Improvements shall be substantially completed within ninety (90) days of the execution of an addendum to this Lease reflecting the lease of the Adjacent Space. The rent for the Adjacent Space shall commence on the date the Lessor's Adjacent Space Improvements are substantially completed and Lessor has obtained the requisite City of San Antonio permit to allow occupancy of the Adjacent Space. The sections in this Lease setting forth Lessor's obligation regarding Lessor's Improvements shall be inapplicable to the lease of the Adjacent Space. The term for the lease of the Adjacent Space shall correspond to the Initial Term of this Lease including the termination rights set forth in Section 2(A) of this Lease. If Lessee exercises the option set forth in this paragraph and subsequently subleases the Adjacent Space then the obligation set forth in paragraph 20 to pay as Additional Rent an amount equal to fifty percent (50%) of the excess rent received by Lessee from its subtenant shall be waived for the Adjacent Space. (2) If at any time during the Initial Term Lessor shall desire to offer to lease all or any portion of the Adjacent Space or receives a bona fide offer from any person or entity to lease the Adjacent Space, Lessor, before making or accepting the offer, as the case may be, shall send Lessee a copy of the proposed Lease or lease proposal, except for the name of the prospective tenant (herein referred to as the "Lease Proposal"), and notify Lessee of the intention of Lessor to accept same. Lessor shall not send Lessee a copy of any Lease Proposal until sixty (60) days after the Commencement Date. (3) Lessee shall have the right within fifteen (15) days to either (i) accept the terms of the Lease Proposal in its own name for the rental and on the other terms specified in the Lease Proposal, provided, however, that in order for the Lessee to accept the terms of the Lease Proposal the term of this Lease must be extended to a term equal to the term of the Lease Proposal or (ii) exercise its option to lease the Adjacent Space as provided in paragraph (A) above. (4) If Lessee shall not so elect within the said fifteen (15) day period, Lessor may then lease the Adjacent Space to the prospective tenant provided the Lease is on the same material business terms and conditions set forth in the Lease Proposal. In the event the Adjacent Space or such part thereof is not leased to the same third party making the Lease Proposal, then any further offer that Lessor receives to lease the Adjacent Space or any part thereof, must first be submitted to Lessee in accordance herewith. (5) "Adjacent Space" as used herein, shall be the proximately 29,101 square foot space contiguous to the Leased Premises which is outlined on the Site Plan. 46. OPTION FOR ADDITIONAL PARKING AREA: Lessee shall have the option to ---------------------------------- exclusively use all or part of the "Adjacent Parking Area" (as hereinafter defined), in addition to the Lessee Exclusive Parking Area, marked on the Site Plan provided that Lessee is in possession and occupancy of the Leased Premises, is not in default under the terms of this Lease and exercises the option in the following manner and subject to the following conditions: (1) If at any time during the first seven (7) years of the Initial Term, Lessee shall desire to use the Adjacent Parking Area then Lessee shall send written notice to Lessor of such election on or before seven (7) years after the Commencement Date. This option shall be irrevocable from the Effective Date to the last day of the seventh (7th) year of the Initial Term(either by termination or expiration),at which time said option shall terminate without notice to Lessee. (2) "Adjacent Parking Area" as used herein, shall be the area of land outside of the Property which is marked on the Site Plan and consists of two (2) tracts, one tract being adjacent to the north boundary of the Property consisting of eighty (80) parking spaces ("80 space Adjacent Parking Area") and the other tract being adjacent to the west boundary of the Property consisting of forty (40) parking spaces plus a thirty foot (30') cross-access easement roadway from the 80 space Adjacent Parking Area to the public road tentatively known as East Campus Drive ("40 space Adjacent Parking Area"). (3) Lessee shall pay Lessor the sum of $2.20 per square foot of paved area in the Adjacent Parking Area. If the thirty foot (30') cross-access easement roadway which is part of the 40 space Adjacent Parking Area has been constructed prior to Lessee's election then Lessee shall not be required to pay for the paved area within the thirty foot (30') cross- access easement roadway. If construction begins in the second year of the Initial Term, the $2.20 per square foot of paved area shall be increased to $2.31. If construction begins in the third year of the Initial Term, the $2.31 per square foot of paved area shall be increased to $2.43. If construction begins in the fourth year of the Initial Term, the $2.43 per square foot of paved area shall be increased to $2.55. If construction begins in the fifth year of the Initial Term, the $2.55 per square foot of paved area shall be increased to $2.68. The improvements to the Adjacent Parking Area shall be of similar quality to the parking area on the Property. (4) Lessee may engage the services of a contractor instead of paying Lessor to construct the improvements on the Adjacent Parking Area, Lessee may pay a qualified third party to design and construct the improvements to the Adjacent Parking Area. Prior to commencing the improvements on the Adjacent Parking Area, Lessee shall submit to Lessor the plans and specifications of the improvements to the Adjacent Parking Area for Lessor's approval, which approval shall not be unreasonably withheld or delayed. Further, the improvements on the Adjacent Parking Area shall be constructed in accordance with the approved plans and specifications. (5) Lessee may elect to exercise its option for both the 80 space Adjacent Parking Area and the 40 space Adjacent EXHIBIT "A" TO LEASE AGREEMENT Property -------- as attached Parking Area or either the 80 space Adjacent Parking Area but not the 40 space Adjacent Parking Area or either the 40 space Adjacent Parking Area but not the 80 space Adjacent Parking Area. Lessee may elect to construct only part of the 80 space Adjacent Parking Area and complete, at its option, the remainder of the 80 space Adjacent Parking Area at a later date. The 40 space Adjacent Parking Area may not be constructed in phases. Lessee shall be responsible for the construction of the improvements on the thirty foot (30') cross-access easement roadway from the 80 space Adjacent Parking Area to the public road tentatively known as East Campus Drive if such improvements are not in existence at the time Lessee exercises its option for the 40 space Adjacent Parking Area. (6) Lessee shall pay Lessor twenty percent (20%) of the cost to construct the Adjacent Parking Area within ten (10) days after Lessor sends Lessee the cost to construct the Adjacent Parking Area. The remaining eighty percent (80%) of the cost to construct the Adjacent Parking Area shall be paid to Lessor by Lessee within thirty (30) days after Lessor sends Lessee the percentage of work completed during the prior period. Lessor agrees not to invoice Lessee more than once every thirty (30) days. If Lessee fails to pay for the cost to construct the Adjacent Parking Area as provided above, then Lessor may stop construction of the Adjacent Parking Area and/or exercise its rights under paragraph 21 of this Lease. (7) Lessor shall use its best faith efforts to complete the improvements to the Adjacent Parking Area within six (6) months after Lessee pays Lessor the twenty percent (20%) of the cost to construct the Adjacent Parking Area, subject to delays caused by the non-payment of the cost to construct the Adjacent Parking Area as provided in paragraph F above and excused delays provided in paragraph 34. (8) The Adjacent Parking Area which becomes improved as provided above, shall be annexed into the Common Area and designated as Quasi Common Area for the benefit of Lessee. Lessee shall have exclusive control of the Adjacent Parking Area for parking purposes on the date the improvements to the Adjacent Parking Area are substantially completed. 47. NO JOINT VENTURE. Any intention to create a joint venture or ---------------- partnership relationship between the parties hereto is hereby expressly disclaimed. 48. CORPORATE LESSEE. If Lessee is a corporation, the persons executing ---------------- this Lease on behalf of Lessee hereby covenants and warrants that: Lessee is a duly constituted corporation qualified to do business in Texas, all Lessee's franchise and corporate taxes have been paid to date, and such persons are duly authorized by the board of directors of such corporation to execute and deliver this Lease on behalf of the corporation. 49. NO MODIFICATIONS. This writing is intended by the parties as a final ---------------- expression of their agreement and a complete and exclusive statement of the terms thereof, all regulations, considerations and representations between the parties having been incorporated herein. This Lease may be modified only by a writing signed by the party against whom the modification is enforceable. 50. CAPTIONS. The captions and headings used in this Lease are for the -------- purpose of convenience only and shall not be construed to limit the meaning of any part of this Lease. IN WITNESS WHEREOF, the parties have hereunto set their hands the day and year first above written. LESSOR: GREEN MOUNTAIN VENTURES I, LTD., a Texas limited partnership BY: M. DOLAN CORPORATION, a Texas corporation, its general partner /s/ Michael J. Dolan ----------------------------- By: Michael J. Dolan Its: President LESSEE: BUSINESS PARTNER SOLUTIONS, INC., a Texas corporation /s/ Carlton J. Mertens, II ----------------------------------- By: Carlton J. Mertens, II Its: President LIST OF EXHIBITS: - ----------------- Exhibit "A" - Property Description Exhibit "B" - Preliminary Site Plan Exhibit "B-1" - Site Plan (to be attached) Exhibit "C" - Estoppel Certificate Exhibit "D" - Declaration of Covenants Exhibit "E" - Subordination/Non-Disturbance Agreement Exhibit "F" - Short Form Memorandum Exhibit "G" - Plans and Specifications EXHIBIT A --------- The proposed Building site is identified as Block 15 NCB 17790 Lot 2 on the preliminary plat of Green Mountain Business Park Unit 2 and as further described on the metes and bounds description attached hereto. EXHIBIT A BROWN ENGINEERING CO. ================================================================================ ENGINEERING CONSULTANTS 1000 CENTRAL PARKWAY N., 8-100 SAN ANTONIO, TEXAS 78232 PHONE 12101 494 - 5511 METES AND BOUNDS DESCRIPTION OF 7.589 ACRES OF LAND A Metes and Bounds description of a 7.589 acre (330,589 square feet) tract of land situated in the Pedro Sanchez Survey No. 411, Abstract No. 677, Bexar County, Texas: being a portion of New City Block No. 11790, City of San Antonio; being a portion of that certain 54.07 acre tract described in instrument to Green Mountain Associates recorded in Volume 6398, Page 95 of the Bexar County Real Property Records; being all of proposed Lot 2, Block 15, Green Mountain Business Park Unit 2 (Plat No. 980073); and being more particularly described as follows: COMMENCING at an aluminum disk monument found marking the eastern-most corner of said 54.07 acre tract, situated in the southwesterly right-of-way line of F.M. Loop 1604 (width varies) and in the northwesterly line of a 100 foot wide Missouri Pacific Railroad right-of-way. THENCE, along said southwesterly right-of-way line of F.M. Loop 1604 the following two (2) courses and distances: 1. North 34 degrees 42'13" West, 590.58 feet to a 1/2-inch iron rod found at an angle point; 2. North 42 degrees 08'40" West, 176.43 feet to the POINT OF BEGINNING of the herein described tract of land; THENCE, along the northwesterly right-of-way line of proposed East Campus (width varies) the following four (4) courses and distances: 1. South 02 degrees 51'20" West, 70.71 feet to an angle point; 2. South 47 degrees 51'20" West, 84.22 feet to a point of curvature; 3. along the arc of a tangent curve to the right having a radius of 540.00 feet, a central angle of 25 degrees 12'37", a long chord bearing South 60 degrees 27'38" West, 235.69 feet, a total arc length of 237.60 feet to the point of tangency; 4. South 73 degrees 03'57" West, 444.28 feet to a point for corner, THENCE, North 16 degrees 56'03" West, 486.25 feet to a point for corner. Dolan Contractors, Inc. Green Mountain Business Park, Unit 2, Lot 2 7.589 Acres - Job #245-020-00 Page 1 of 2 THENCE, North 73 degrees 03'57" East, 432.70 feet to a point for corner. THENCE, North 26 degrees 53'33" East, 75.00 feet to a point for corner situated in the aforesaid southwesterly right-of-way line of F.M. Loop 1604; THENCE, along said southwesterly right-of-way line the following three(3) courses and distances: 1. South 63 degrees 06'27" East, 111.64 feet to an aluminum disk monument found at an angle point; 2. South 51 degrees 33'39" East, 352.17 feet to a 1/2-inch iron rod set at an angle point; 3. South 42 degrees 08'40" East, 21.47 feet to the POINT OF BEGINNING, containing 7.589 acres of land in Bexar County, Texas. Dolan Contractors, Inc. Green Mountain Business Park, Unit 2, Lot 2 7.589 Acres - Job #245-020-00 Page 2 of 2 EXHIBIT B --------- The metes and bounds description for the 0.092 acre parcel attached hereto further describes the area referred to in Note 1 of Preliminary Site Plan, also included as part of Exhibit B. EXHIBIT B BROWN ENGINEERING CO. ================================================================================ ENGINEERING CONSULTANTS 1000 CENTRAL PARKWAY N. 8-100 SAN ANTONIO. TEXAS 78232 PHONE [210] 494 - 5011 METES AND BOUNDS DESCRIPTION OF 0.092 ACRES OF LAND A Metes and Bounds description of a 0.092 acre (4,017 square feet) tract of land situated in the Pedro Sanchez Survey No. 411, Abstract No. 677, Bexar County, Texas: being a portion of New City Block No. 11790, City of San Antonio; being a portion of that certain 54.07 acre tact described in instrument to Green Mountain Associates recorded in Volume 6398, Page 95 of the Bexar County Real Property Records; being all of proposed Lot 2, Block 15, Green Mountain Business Park Unit 2 (Plat No. 980073); and being more particularly described as follows: COMMENCING at an aluminum disk monument found marking the eastern-most corner of said 54.07 acre tract, situated in the southwesterly right-of-way line of F.M. Loop 1604 (width varies) and in the northwesterly line of a 100 foot wide Missouri Pacific Railroad right-of-way. THENCE, along said southwesterly right-of-way line of F.M. Loop 1604 the following two(2) courses and distances: 1. North 34 degrees 42'13" West, 590.58 feet to a 1/2-inch iron rod found at an angle point; 2. North 42 degrees 08'40" West, 176.43 feet to the POINT OF BEGINNING of the herein described tract of land; THENCE, along the northwesterly right-of-way line of proposed East Campus (width varies) the following two(2) courses and distances: 1. South 02 degrees 51'20" West, 70.71 feet to an angle point; 2. South 47 degrees 51'20" West, 42.04 feet to a point for corner; THENCE, North 42 degrees 08'40" West, 12.85 feet to a point for corner. THENCE, North 36 degrees 39'35" East, 26.74 feet to a point for corner. THENCE, North 16 degrees 56'03" West, 84.88 feet to a point for corner. Dolan Contractors, Inc. Green Mountain Business Park, Unit 2, Lot 2 - Landscaping & Sign Easement 0.092 Acre - Job #245-020-00 Page 1 of 2 THENCE, North 38 degrees 26'21" East, 25.43 feet to a point for corner situated in the aforementioned southwesterly right-of-way line of F.M. Loop 1604; THENCE, along said southwesterly right-of-way line the following two(2) courses and distances: 1. South 51 degrees 33'39" East, 27.91 feet to a 1/2-inch iron rod set at an angle point; 2. South 42 degrees 08'40" East, 21.47 feet to the POINT OF BEGINNING, containing 0.092 acre of land in Bexar County, Texas. Dolan Contractors, Inc. Green Mountain Business Park, Unit 2, Lot 2 - Landscaping & Sign Easement 0.092 Acre - Job #245-020-00 Page 2 of 2 EXHIBIT "C" TO LEASE AGREEMENT Estoppel Certificate -------------------- as attached TENANT ESTOPPEL LETTER ---------------------- [Tenant's Letterhead] [Addressed to Purchaser or Lender at Purchaser's or Lender's Address] Re: Leased Premises located at ________________________ Gentlemen: The undersigned has been advised that you are contemplating the [purchase of the property] [refinancing of the loan secured by the property] situated in ________________________(City), ____________________ (State), of which the above-referenced leased premises are a part. The undersigned further acknowledges and agrees that you will rely upon the information set forth in this letter in connection with your decision whether to purchase said property. The undersigned hereby certifies the following: 1. The undersigned occupies the above-referenced leased premises pursuant to a lease dated ________________, 19__, between _______________________, as landlord, and __________________________, as tenant. The undersigned ___ is ___ not (check the appropriate space) an assignee or sublessee of the original tenant. 2. To the best knowledge of the undersigned, said lease is in full force ---- and effect, and there is no outstanding and uncured event of default thereunder, except as follows: 3. No modifications have been made to said lease since the original execution of same, except as follows: ________________________________________. 4. The expiration date of said lease is as follows: _________________________________. 5. Rentals under said lease have been paid by the undersigned through the following date: ___________, 19__. 6. The undersigned currently has no claims, defenses or offsets to any action for collection of rentals accruing under said lease, except as follows: _______________. 7. There are no renewal options under said lease, except as follows: ___________________________________________________. 8. The copy of said lease (and any amendments) that is attached hereto is a true and correct copy thereof. 9. The undersigned does not claim any right, title, or interest in the subject property other than as a tenant under the said lease. 10. The fixed monthly rent under the said lease is $______. 11. No monies have been paid to landlord in advance of the due date set forth in the said lease except for $__________. 12. No monies have been paid to landlord as a Security Deposit except for $______________________. Yours very truly, TENANT: ___________________________________ a__________________________________ ___________________________________ By:________________________________ Title:_____________________________ Date: _____________________________ EXHIBIT "D" TO LEASE AGREEMENT Declaration ----------- as attached DECLARATION OF EASEMENTS, RESTRICTIONS, COVENANTS, AND CONDITIONS FOR GREEN MOUNTAIN BUSINESS PARK THE STATE OF TEXAS ) ) KNOW ALL MEN BY THESE PRESENTS COUNTY OF BEXAR ) THIS DECLARATION, made on the date hereinafter set forth by GREEN MOUNTAIN VENTURES I, LTD., a Texas limited partnership and GREEN MOUNTAIN ASSOCIATES, LTD., a Texas general partnership. W I T N E S S E T H: WHEREAS, GREEN MOUNTAIN VENTURES I, LTD., a Texas limited partnership and GREEN MOUNTAIN ASSOCIATES, LTD., a Texas general partnership are the owner of certain property in Bexar County, Texas, more particularly described on Exhibit A, attached hereto and incorporated herein for all purposes. NOW, THEREFORE, GREEN MOUNTAIN VENTURES I, LTD., a Texas limited partnership and GREEN MOUNTAIN ASSOCIATES, LTD., a Texas general partnership hereby declare that all of the properties described in Exhibit A shall be held, sold and conveyed to others subject to the following easements, restrictions and covenants, which are for the purposes of protecting the value and desirability of, and which shall run with, the real property and be binding on all parties having any right, title or interest in the described properties or any part thereof, their heirs, successors and assigns, and shall inure to the benefit of each owner thereof. ARTICLE I DEFINITIONS Section 1.1 "Architectural Control Committee," or "ACC", shall mean and refer to the committee created hereinafter, subject to the provisions of Sections 5.23 and 5.24 hereof, by the Declarant. Section 1.2 "Articles" shall mean and refer to the Articles of Incorporation of the Association. Section 1.3 "Association" shall mean and refer to the Green Mountain Business Park, Inc., a Texas Nonprofit Corporation, and its successors and assigns. Section 1.4 "Board of Directors" shall mean and refer to the governing body of the Association, the election and procedures of which shall be as set forth in the Articles and Bylaws of the Association. Section 1.5 "Bylaws" shall mean and refer to the Bylaws of the Association as they may, from time to time, be amended. Section 1.6 "Common Area" or "Common Areas" shall mean all real property owned by the Association for the common use and enjoyment of the Owners. The common area may include entrance ways, streets, directional signs, and permanent signage advertising the Property as a whole, although such Common Area may consist only of the signs if the entranceway and streets are dedicated to the City of San Antonio or other governmental entity. The term "Common Area" shall also be deemed to refer to any areas or easements within property dedicated to the City of San Antonio or other governmental entity for Street or easement purposes, (including the planted areas within medians and land in its natural state within parks or drainage easements) if and only if the Declarant should determine that such area or areas should be maintained, repaired or improved by the Association for the benefit of the Development. Section 1.7 "Declarant" shall mean and refer to Green Mountain Associates, Ltd., a Texas limited partnership, and its successors and assigns. Declarant shall also have the right and authority at any time to assign to any third party or the Board the obligations, authority and position of Declarant. Any such assignment shall be effective upon the recordation and instrument setting forth the assignment as to a third party or in the case of the Board, expiration of ninety (90) days after receipt by any member of the Board of written notice of such assignment. Section 1.8 "Declaration" shall mean this instrument and include the same as it may, from time to time, be amended, supplemented and additional properties added, subject to and in accordance with the terms hereof. Section 1.9 "Development" shall mean and refer to the Green Mountain Business Park to be situated on the Property. Section 1.10 "Lot" shall mean and refer to any plot of land on the Property subject to a recorded subdivision map or plat with the exception of the Common Area. Section 1.11 "Notice" shall mean and refer to delivery of any document by regular mail, with postage prepaid, to the last known address (according to the records of the Association) of the person or entity to whom such Notice is to be given. Notice to one (1) of two (2) or more co-Owners shall constitute Notice to all Owners. Notice shall be effective upon depositing such document in a depository maintained by the United States Postal Service for such purposes. Section 1.12 "Owner" or "Owners" shall mean and refer to the record owner, whether one or more persons or entitles, of a fee simple title to any part of the Property (as hereinafter defined), including contract sellers, but excluding those having such interest merely as security for the performance of an obligation. Section 1.13 "Property" shall mean and refer to that certain real property or part thereof described in Exhibit A, being a 54.07 acre tract, bound by Green Mountain Road to the west, Loop 1604 to the North and east, and the Union Pacific Railroad to the South. The Property may also include additional acreage which may be incorporated into the Development. Section 1.14 "Rules and Regulations" shall mean and refer to the rules and regulations of the Association as set forth in Section 3.4 and as may, from time to time, be amended, modified, supplemented and revoked pursuant to the Bylaws. Section 1.15 "Street" shall mean any publicly maintained roadway or highway or highway right of way, and any private roadway maintained for service to two or more Lots. Lands lying on opposite sides of the Street shall be regarded as adjoining. ARTICLE II PROPERTY RIGHTS Section 2.1 Owner's Easements of Enjoyment. Every Owner and such ------------------------------ Owners', tenants, subtenants, concessionaires, assignees and their invitees shall have a right and easement of enjoyment in and to the Common Area which shall be appurtenant to and shall pass with the title to every part of the Property, subject to the following provisions: (a) the right of the Association to suspend the voting rights of an Owner for: (1) any period during which any assessment against the part of the Property of an Owner remains unpaid, provided the Owner has not paid the assessment within thirty (30) days after receiving written Notice that such assessment is due; (2) any period during which the Owner is in violation of the Declaration provided the Owner has received written Notice from the Association of such violation, and does not correct such violation with thirty (30) days after and receiving such Notice; and (3) any period during which the Owner is in violation of the Rules and Regulations provided the Owner has received written Notice from the Association of such violation, and does not correct such violation with thirty (30) days after and receiving such Notice. (b) the right of the Declarant to dedicate or transfer all or any part of the Common Area to any public agency, authority or utility for such purposes. (c) the right of the Declarant to transfer or assign all of its rights and privileges provided in the Declaration to the Association or another person or entity. (d) the right of the Association, in accordance with its Articles or Bylaws, to borrow money for the purpose of improving the Common Area and appurtenant facilities and in aid thereof to mortgage said Common Areas, provided the Association is the fee title holder to the mortgaged Common Area. The rights of any such mortgagee in said Common Areas shall be subordinate to the rights of the Owners hereunder. Section 2.2 Additions To Existing Property. Additional real property ------------------------------ may become subject to this Declaration in the following manner: (a) Authority. If Declarant is the owner of any real property which --------- it desires to add to the scheme of this Declaration or Declarant consents to the addition of real property by any other person, firm or corporation, it may do so by filing of record a Notice of Annexation, which shall extend the scheme of the covenants, conditions and restrictions of this Declaration to such real property. The Notice of annexation shall include a metes and bounds description of the real property or any other legally sufficient description of the real property. (b) Amendments. The Notice of Annexation may contain additions, ---------- deletions and modifications of the covenants and restrictions contained in this Declaration as may be necessary to reflect the different character, if any, of the added real property. (c) Mergers. Upon a merger or consolidation of the Association with ------- another association, the Association's property, rights and obligations may be transferred to another surviving or consolidated association or, alternatively, the properties, rights and obligations of another association may be added to the properties, rights and obligations of the Association as a surviving corporation pursuant to a merger. The surviving or consolidated association shall administer the covenants and restrictions applicable to the properties of the association as one scheme. No such merger or consolidation, however, shall effect any revocation, change or addition to the covenants established by this Declaration. ARTICLE III MEMBERSHIP AND VOTING RIGHTS Section 3.1 Incorporation. Declarant shall charter a corporation under ------------- the Texas Non-Profit Corporation Act to be known as Green Mountain Business Park, Inc., or by such other name as may be designated at the time of its incorporation, which incorporation may be subsequent to the conveyance of any part of the Property, for the purposes of assuring compliance with the terms of this Declaration. The Association, acting through its Board, shall have the power to enforce the covenants, conditions, restrictions, and all other terms contained in this Declaration, and subject to the provisions set forth herein, shall have the membership characteristics, powers, duties, and functions as set forth herein. Section 3.2 Every Owner shall be a member of the Association. Membership shall be appurtenant to and may not be separated from ownership of any part of the Property which is subject to assessment. Section 3.3 The Association shall have two (2) class of voting membership. Class A: The Class A member(s) shall be all Owners with the exception of the Declarant, and are entitled to one (1) vote for each full acre comprising the part of the Property owned or one vote if the part of the Property comprises less than one acre. When more than one entity holds an interest in any acre, votes for such part of the Property shall be exercised as they among themselves determine, but in no event shall there be more than one (1) vote per acre, except in respect to part of the Property comprising less than one acre. Class B: The Class B member(s) shall be the Declarant or entity controlled by Declarant, and shall be entitled to three (3) votes for each full acre comprising the part of the Property owned or one vote if the part of the Property comprises less than one acre. When more than one entity holds an interest in any acre, votes for such part of the Property shall be exercised as they among themselves determine, but in no event shall there be more than three (3) votes per acre, except in respect to part of the Property comprising less than one acre, provided that the Class B membership shall cease and become converted to Class A membership on the happening of the following events, whichever occurs earlier: (1) when the total votes outstanding in the Class A membership equal the total votes outstanding in the Class B membership; or (2) on January 1, 2015. From and after the happening of these events, whichever occurs earlier, the Class B Member shall be deemed to be a Class A Member entitled to one (1) vote for each full acre comprising the part of the Property owned or one vote if the part of the Property comprises less than one acre. in which it holds an interest, subject to the following rights of the Declarant. Pursuant to Section 2.2 additional land may be annexed into the Property and upon every annexation of such additional land, the Association shall, (even if Class B membership has theretofore ceased pursuant to this Section), automatically have two classes of voting membership: A. Class A Members shall be all Owners as defined in Section 3.2, ------- with the exception of Declarant. Class A Members shall be entitled to one (1) vote for each full acre comprising the part of the Property owned or one vote if the part of the Property comprises less than one acre. When more than one entity holds an interest in any acre, votes for such part of the Property shall be exercised as they among themselves determine, but in no event shall there be more than one (1) vote per acre, except in respect to part of the Property comprising less than one acre. B. Class B Members shall be the Declarant. The Class B Member shall ------- be entitled to five (5) votes for each full acre comprising the part of the Property owned or one vote if the part of the Property comprises less than one acre. When more than one entity holds an interest in any acre, votes for such part of the Property shall be exercised as they among themselves determine, but in no event shall there be more than five (5) votes per acre, except in respect to part of the Property comprising less than one acre, provided that the Class B membership shall cease and become converted to Class A membership on the happening of the following events, whichever occurs earlier: (1) when the total votes outstanding in the Class A membership equal the total votes outstanding in the Class B membership; or (2) on January 1, 2025. From and after the happening of these events, whichever occurs earlier, the Class B Member shall be deemed to be a Class A Member entitled to one (1) vote for each full acre comprising the part of the Property owned or one vote if the part of the Property comprises less than one acre in which it holds an interest, subject to the following rights of the Declarant. Section 3.4 Functions of the Association ---------------------------- (a) Functions. The Association shall have all of the powers of a --------- Texas non-profit corporation, as such powers may exist from time to time, subject only to such limitations upon the exercise of such powers as may be expressly set forth in this Declaration, Articles and Bylaws. It shall further have the power to do and perform any and all acts which may be necessary or proper for or incidental to the exercise of any of the express powers granted to it by the laws of Texas or by this Declaration, Articles or Bylaws. Without in any way limiting the generality of the two (2) preceding sentences, the Association and the Board acting on behalf of the Association, shall have the power and authority to perform the following functions: (1) Maintenance. The Association shall provide maintenance for ----------- the Common Area. The Association shall have the power, but not the obligation, to provide maintenance for all dedicated rights-of-way and public areas to the extent the applicable governmental agencies have not accepted such for maintenance. The Association shall have the power, but not the obligation, to provide maintenance for any property located within the Property with respect to which the Association has accepted an easement. The Association shall also have the power, but not the obligation, to supplement the services provided by any governmental agencies or to provided special maintenance or services for particular areas in the Property which it deems desirable. The Association reserves a perpetual right of access on and across all or any part of the Property in order to provide any maintenance or services required or authorized to be performed or undertaken by the Association. (2) Enforcement. The Association shall have the power to take ----------- any and all actions necessary to enforce all covenants, conditions and restrictions affecting the Property and to perform any of the functions or services delegated to the Association in any covenants, conditions or restrictions applicable to the Property, Articles, Bylaws or Rules and Regulations, including, without limitation, those contained within this Declaration and as set forth in any amendment. (3) Management. The Association shall conduct the ---------- business of the Association, including, but not limited to, administrative services such as legal, accounting, financial and communication services. The Association shall have the right to enter into management agreements with companies affiliated with Declarant in order to provide its services and perform its functions and to retain professionals necessary or proper in the operation of the Association. (4) Insurance. The Association shall have the power, but not the --------- obligation, to purchase and maintain in effect general liability, flood and hazard insurance covering improvements and activities on the Common Area and such other insurance and in such amounts as the Board deems necessary. The Association shall cause all officers or employees having fiscal responsibility to be bonded in such amounts as the Board deems necessary. (5) Security. The Association shall have the power, but not the -------- obligation, to engage the services of a security company or security guard to provide security for the Development. (6) Architectural Control. The Association shall operate the ACC --------------------- in accordance with the terms of this Declaration. (7) Regulations. The Association shall adopt, publish and ----------- enforce the Rules and Regulations. (8) Lighting. The Association shall have the power, but not the -------- obligation, to provide lighting on the Common Area. (9) Construction. The Association may construct improvements on ------------ the Common Area. Any construction of improvements by the Association shall be subject to the same approval process and procedures as are provided herein. (10) Failure to Maintain. The Association may provided exterior ------------------- maintenance upon any building or part of the Property which, in the Association's opinion requires such maintenance because such building or part of the Property is being maintained in a sub-standard manner. The Association shall notify the Owner in writing, specifying the nature of the condition to be corrected, and if the Owner has not corrected such condition within fifteen (15) days after the date of such Notice, the Association may correct such condition. The cost of such maintenance shall be assessed against the part of the Property and Owner as provided in Section 5.22 an individual assessment. For the purpose of performing the exterior maintenance authorized by this section, the Association, through its duly authorized agents or employees, shall have the right to enter upon any part of the Property or building. (11) Use of Assessments. The Association may carry out any of the ------------------ functions and services specified in this Section 3.4 to the extent such maintenance and services can be provided with the proceeds first from annual assessments and then, if necessary and appropriate, from special assessments or individual assessments. The functions and services allowed herein to be carried out or offered by the Association at any particular time shall be determined by the Board taking into consideration proceeds of assessments and the needs of the Association. The functions and services which the Association is authorized to carry out or to provide may be added to or reduced at any time upon the affirmative vote of a majority of the Board. The Association may additionally carry out all other powers and duties set forth in the Articles, Bylaws and Rules and Regulations. ARTICLE IV COVENANT FOR MAINTENANCE ASSESSMENTS Section 4.1 Creation of the Lien and Obligation of Assessments. The -------------------------------------------------- Declarant, for the Property, hereby covenants, and each Owner of any part of the Property, by acceptance of a deed therefor, whether or not it shall be so expressed in such deed, is deemed to covenant and agree to pay to the Association: (a) annual assessments or charges, and (b) special assessments for capital improvements, such assessments to be established and collected as hereinafter provided, and (c) individual assessments. The annual and special assessments, together with interests, costs and reasonable attorney fees, shall be a charge on the part of the Property of the Owner and shall be a continuing lien upon such part of Property against which each such assessment is made. Each such assessment, together with interest, costs and reasonable attorney fees, shall also be the obligation of the Owner at the time when the assessment fell due. The obligation for delinquent assessments shall not pass to an Owner's successors in title unless expressly assumed by the successor. Section 4.2 Purpose of Annual Assessments. The annual assessments levied ----------------------------- by the Association may be used for the payment of costs associated with the operation of the Association as more specifically set forth in Section 3.4. Section 4.3 Maximum Annual Assessments. Until January 1, 1999 the -------------------------- maximum annual assessment shall be established based on the following formula: FOR PARTS OF THE PROPERTY WITH IMPROVEMENTS: $0.09 per square foot of office space $0.05 per square foot of manufacturing or warehouse space. FOR UNIMPROVED PARTS OF THE PROPERTY: $400.00 per acre (a) From and after January 1, 1999, the maximum annual assessment may be increased each year not more than five percent (5%) (such percentage increase may be cumulative from year to year) above the maximum assessment for the previous year without a vote of the membership. (b) From and after January 1, 1999, the maximum annual assessment may be increased above five percent (5%) by the vote or written consent of two- thirds (2/3) of each class of members who are voting in person or by proxy at a meeting dully called for this purpose. (c) The Board of Directors may fix the annual assessment at an amount not in excess of the maximum annual assessment established in accordance herewith. Section 4.4 Special Assessments for Capital Improvements. In addition to -------------------------------------------- the annual assessments authorized above, the Association may levy, in any assessment year, a special assessment applicable to that year only for the purpose of defraying, in whole or in part, the cost of any construction, reconstruction, repair or replacement of a capital improvement upon the Common Area, including fixtures and personal property related thereto, provided that any such assessment shall have the vote or written consent of two-thirds (2/3rds) or more of the votes of each class of members. Section 4.5 Notice and Quorum for Any Action Authorized Under Section --------------------------------------------------------- 4.3 and 4.4. Written Notice of any meeting called for the purpose of taking any - ----------- action authorized under Section 4.3 or 4.4 shall be sent to all members not less than ten (10) days nor more than fifty (50) days in advance of the meeting. At the first such meeting called, the presence of members or of proxies entitled to cast sixty percent (60%) of all votes of each class of membership shall constitute a quorum. If the required quorum is not present, another meeting may be called subject to the call notice requirements, and the required quorum at the subsequent meeting shall be one-half (1/2) of the required quorum at the preceding meeting. No such subsequent meeting shall be held more than sixty (60) days following the preceding meeting. Section 4.6 Uniform Rate of Assessments. The Declarant shall not be --------------------------- required to pay assessments on any part of the Property owned by the Declarant. All other parts of the Property shall be assessed that portion of the aforesaid annual or special assessments bearing the same ratio to the total thereof as the number of square feet comprising such part of the Property shall bear to the total number of square feet comprising all of the other parts of the Property, which are not owned by the Declarant. Section 4.7 Date of Commencement of Annual Assessments -Due Dates. The ----------------------------------------------------- annual assessments provided for herein shall commence as to each part of the Property, other than those owned by the Declarant, at such time as the Declarant shall designate. The Board of Directors shall fix the amount of the annual assessment against each part of the Property at least thirty (30) days in advance of each annual assessment period; provided, however, that the failure of the Board of Directors to fix the annual assessment as above provided shall be conclusively deemed to be an election by the Board of Directors to continue in effect the annual assessment made for the preceding annual assessment period. Written Notice of the annual assessment shall be sent to every Owner subject thereto. The due dates of the annual assessment shall be established by the Board of Directors. The Association shall, upon demand, and for a reasonable charge, furnish a certificate signed by an officer or designated agent of the Association setting forth whether the assessments have been paid. Section 4.8 Effect of Nonpayment of Assessments - Remedies of the ----------------------------------------------------- Association. Any assessment not paid within thirty (30) days after the due date - ----------- shall bear interest from the due date at the rate determined by the Board of Directors. The Association may bring an action at law against the Owner obligated to pay the same, or foreclose the lien against such part of the Property. Each such Owner, by its acceptance of a deed to a part of the Property, hereby expressly vests in the Association, or its agents, the right and power to bring all actions against such Owner personally or the collection of such charges as a debt and to enforce the aforesaid lien by all methods available for the enforcement of such liens, including judicial foreclosure by an action brought in the name of the Association in a like manner as a mortgage or deed of trust lien on real property, and such Owner hereby expressly grants to the Association a power of sale in connection with said lien. The lien provided for in this Section shall be in favor of the Association and shall be for the benefit of all other Owners. No Owner may waive or otherwise escape liability for the assessments provided for herein by non-use of the Common Area or abandonment of its part of the Property. Section 4.9 Subordination of the Lien to Mortgages. The lien of the -------------------------------------- assessments provided for herein shall be subordinate to the lien of any first mortgage and the leasehold rights of a tenant. Sale or transfer of any part of the Property shall not affect the assessment lien. However, the sale or transfer of any part of the Property pursuant to mortgage foreclosure or any proceeding in lieu thereof, shall extinguish the lien of such assessments as to payments which became due prior to such sale or transfer. The foreclosure of the lien of the assessment shall not terminate the leasehold rights of a tenant. No sale or transfer shall relieve such part of the Property from liability for any assessments thereafter becoming due or from the lien thereof. Section 4.1 Exempt Property. The property dedicated to, and accepted by, --------------- a local public authority and all property owned by a charitable or nonprofit organization exempt form taxation by the laws of the State of Texas shall be exempt from the assessments created herein except in respect to any land used for business or proprietary functions. However, no land or improvements devoted to a business use shall be exempt from said assessments. Section 4.1 Change in Billing Period For Assessments. Notwithstanding ---------------------------------------- anything to the contrary set forth herein, the Board of Directors shall have the right to change the billing period for the annual assessments to a quarter- annual or semi-annual billing period. Written Notice of any such change in billing period shall be sent to every Owner at least thirty (30) days prior to the date such change goes into effect. The due dates for assessment under any such revised billing period shall be established by the Board of Directors. ARTICLE V USE RESTRICTIONS The Property shall be occupied and used as follows: Section 5.1 Obstruction of Common Area. There shall be no obstruction of -------------------------- the Common Area. Nothing shall be stored in the Common Area without the prior written consent of the Declarant or Board of Directors. Section 5.2 Nuisance. No noxious, or offensive activity or any kind -------- shall be conducted on any portion of the Property as provided herein. No use shall be permitted which is hazardous by reason of excessive danger of fire or explosion, or offensive by reason of odor (not including reasonable odors inherent in the operation of restaurant or food processor), fumes, vibrations, dust, smoke, noise or pollution, in such condition or amount as to adversely affect the surrounding area or premises which shall constitute a violation of any law of the United States, the State of Texas, County of Bexar, or the City of San Antonio. Section 5.3 Use of Land: No part of the Property shall be used or ------------ maintained for any of the following activities: (a) Sexually oriented businesses - This restriction shall be defined as adult bookstores, adult entertainment establishments and adult motion picture theaters as described herein: Adult bookstore - a business enterprise which has a substantial --------------- or significant portion of its stock in trade, or which has as its main purpose the offering for sale of books, magazines, or sound recordings, or printed, visual or audio material of any kind, which are characterized by their emphasis on the description or depiction of specified anatomical areas or specified sexual activities; or a business establishment which offers for sale books, magazines, pamphlets, pictures, drawings, photographs, motion picture films, or sound recordings or printed, visual or audio material of any kind, which business establishment, because of the depiction of description of specified anatomical areas or specified sexual activities in the materials offered for sale, is restricted to adults, or is advertised or promoted as being restricted to adults. Adult entertainment establishment - a place of business where --------------------------------- live entertainment is provided for patrons, or a portion of a business set aside for providing live entertainment to patrons, in which an emphasis on the exhibition, depiction, or description of specified anatomical areas or specified sexual activities; or a place where exhibition of specified anatomical areas or specified sexual activities, admittance is limited to adults, or admittance is advertised or promoted as being restricted to adults. Adult motion picture theater - a place of business where motion ---------------------------- pictures are shown to paying customers when such place is used for presenting material having as its dominant theme, or distinguished or characterized by, an emphasis on the depiction or description of specified anatomical areas or specified sexual activities for observation by patrons, and where admittance to such showings is totally limited to adults. (b) Commercial landfills (c) Incineration of garbage, dead animals or refuse fat rendering -This restriction will not apply to a laboratory which may require incineration of certain materials. (d) Stockyard or slaughtering of animals - This restriction will not apply to the continued agricultural use of all or part of the Property for cattle grazing. In addition, this restriction will not prohibit the killing of animals in a laboratory, or a veterinarian clinic, or packaging of food products. (e) Refining of petroleum or its products - This restriction will not apply to laboratory situations, molding of plastics or wraps to contain products. (f) Smelting of iron, tin, zinc, lead, or other ores -This restriction will not apply to laboratory conditions, or the soldering or welding of wire or metals for the assembly of products. (g) Cole or coke storage or sales - This restriction will not apply to storage, sales, or distribution of such products by retailers such as Home Depot, H.E.B., Albertsons, Builders Square, or any other such company which may be storing charcoal or other products for distribution to retail centers. (h) Night Clubs (Bars) - defined as a business which derives over fifty percent (50%) of its gross revenues from the onsite sale of alcoholic beverages for the purpose of onsite consumption. Some of the uses mentioned above may be incidental to an acceptable large scale use at a site. These restrictions are not intended to prohibit such incidental uses, the Declarant may review incidental uses on a case by case basis, and grant approval of such uses in the Development. Section 5.4 Open Storage. No open storage (defined as any storage other ------------ than within a permanent structure) shall be permitted on any part of the Property unless such storage is to the rear or side of such part of the Property and is screened by landscaping or other approved screening, so that such storage cannot be seen from any Street and/or adjacent part of the Property. The Declarant reserves the right to approve open storage, on any part of the Property, subject to written approval and specific guidelines determined by Declarant on a case by case basis. Section 5.5 Temporary Buildings. No structure of a temporary character, ------------------- trailer, tent, shack, garage, barn or other outbuilding shall be built, used or maintained on any part of the Property within the Development at any time, other than during the construction or remodeling period of buildings or other permanent structures on any part of the Property. The Declarant reserves the right to approve temporary buildings on any part of the Property on a case by case basis, subject to written approval and specific guidelines determined by the Declarant. Section 5.6 Building Setback Restrictions. All buildings shall be ----------------------------- setback a minimum of 100 feet from public street right of ways. Buildings shall be setback a minimum of 50 feet from side and rear property lines. The Declarant reserves the right to reduce building setback restrictions on a case by case basis, provided such consent is given in writing by the Declarant. No building shall be constructed on any part of the Property, within 100 feet of the rear property line or any residential lot fronting on the Mountain Vista Drive. In addition, no building shall be constructed on the Property within 125 feet of the rear property line of any residential lot fronting on Vista Bluff Drive. Section 5.7 Building Height Limit. Any exterior wall which is located on --------------------- the Property and within 200 feet of the Vista subdivision shall be limited to 38 feet in height above the finished grade at the wall. Section 5.8 Masonry. The elevations of any structure facing any Street ------- within the Development, or Loop 1604, shall be constructed of windows, doors, and architectural grade masonry material as determined by the Declarant, except that non-masonry materials may be used upon the written approval of the Declarant to screen mechanical equipment. The Declarant may approve of non- masonry materials facing streets; however, Declarant may require that such materials are screened in a manor acceptable to Declarant. Section 5.9 Onsite Lighting. All exterior light fixtures shall be --------------- designed and placed to illuminate structures within the general confinement of the boundary lines. Such exterior lighting must conform to plans and be approved in writing by the Declarant or the Architectural Control Committee. Parking lot lighting and exterior building lights located on the Property and within 200 feet of a residential lot within the Vista subdivision, will be designed in a manner to prevent light from projecting directly toward the residential lot(s). Section 5.1 Landscaping. A landscaped greenbelt (roadway greenbelt) with ----------- a minimum width of 20 feet, shall be installed and maintained adjacent to all public street or highway right-of-way. The installation and maintenance of the roadway greenbelts will be the responsibility of the Owner of such part of the Property on which such greenbelt is located. Installation of landscaping in roadway greenbelts shall occur when improvements such as a building or parking lot are constructed on such part of the Property. Underground utility construction and drainage improvements may be constructed in the roadway greenbelts. Site signage, building signage, access roadways, sidewalks, fencing, or other improvements may be constructed in the roadway greenbelts subject to the written approval of the Declarant. The Owner of a Lot adjacent to a Street shall also be responsible for landscaping and maintenance of the parkway adjacent to such Lot. Installation of such landscaping shall occur when improvements such as a building or parking lots are constructed on such Lot. No fence, wall, hedge or shrub planting which obstructs sight lines shall be placed or permitted to remain on any corner part of the Property within the triangular areas formed by the street property lines and a line connecting them at points twenty-five feet (25') from the intersection of the street lines or in the case of a rounded property corner, from the intersection of the street line extended; the same sight lime limits shall apply on any Lot within ten feet (10') from the intersection of street property lines with the edge of a driveway or alley pavement. No tree shall be permitted to remain within such distance of such intersections, unless the foliage is maintained at sufficient height to prevent obstruction of such sight lines. Section 5.1 Sidewalks. The Owners of Lots adjacent to Streets and --------- highways shall install concrete sidewalks, with a minimum width of 4 feet, complying with all governmental regulations, along the frontage of such public streets or highways, where such sidewalks are required. Installation of such sidewalks shall be done in conjunction with the construction of building or parking improvements on the Lots. Section 5.1 Refuse Areas. Refuse areas shall be visibly screened from ------------ Streets and adjacent parts of the Property. All such areas shall be located to the rear of the building or to the side of a building, other than the Street side and at least 100 feet from the front of the building. Section 5.1 Roofs. Placement of any objects such as air conditioning ----- units or exhaust fans or other equipment located on the roof of any building or other permanent structure shall be effectively screened from view from streets and other parts of the Property. The screening plan shall be subject to the prior review and approval of the Declarant or the Architectural Control Committee. Section 5.1 Signs. All building or onsite signage shall be reviewed and ----- approved by the Declarant or Architectural Control Committee prior to installation. Section 5.1 Fences. No fence, wall, or hedge shall be built or ------ maintained in front of any buildings, except as required by governmental ordinance or approved by the Declarant. Rear yard fencing shall not be installed nearer than 15 feet to the front wall line of the building or nearer than 15 feet to any adjoining building. Chain link fencing shall be permitted only to the rear of the building and along the side or rear yard of the building, provided such building is not along the Street side and not visible from the Street, except if needed to provide security to the Lots for unauthorized entry from public areas. Section 5.1 Screening. All required screening within any Lot in the --------- Property shall be constructed of 100 percent masonry or stucco, except that berms or shrubs may be allowed subject to the written approval of the Declarant, for screening if properly landscaped and maintained. Section 5.1 Parking. All present and future vehicle parking shall be ------- constructed and maintained on the Lots. The number of parking spaces to be included in the parking area shall conform to the City Code of San Antonio, Texas, and all other applicable government regulations. All such areas shall be paved with permanent surfacing materials such as asphalt, macadam or concrete. Any other materials shall be subject to the prior approval of the Declarant as a part of the site plan. Parking areas shall be curbed and paved with appropriate materials as specified and approved by the Declarant. No parking area shall be allowed to be constructed within 20 feet from any public Street right-of-way line. All parking shall be adequately screened by use of berm, trees, landscaping, or other means acceptable to the Declarant. Parking areas for trucks and vans shall be provided at the rear of the building or at the side of the building within properly screened areas in accordance with the landscaping provision. No on-Street parking of any vehicle shall be permitted and parking areas shall be designed so as to insure that no on-Street parking will occur. Section 5.1 Utilities. All onsite utility service lines, including --------- electrical lines and telephone lines, located within a Lot shall be placed underground unless approved in writing by the Declarant. Utility distribution lines servicing the Property may be placed above ground. Any transformer or terminal equipment provided within 150 feet of a public street or highway shall be visibly screened from view from Streets and adjacent parts of the Property, with appropriate screening material provided by, maintained by and at the sole cost and expense of the Owner. Section 5.1 Utility Easements. Easements for installation and ----------------- maintenance of utilities and drainage facilities are reserved as shown on the recorded plat. No structure, planting or other material shall be placed or permitted to remain within the easements which may damage or interfere with the installation and maintenance of utilities; or in the case of drainage easements, which may change the direction of flow of water through drainage channels in such easements. The easement area of each part of the Property, if any, and all improvements in such area shall be maintained continuously by the Owner of such part of the Property, except for those improvements for which a public authority or utility company is responsible. Neither Declarant nor any utility company using the easements herein referred to shall be liable for any damage done by them or their assigns, agents, employees, or servants to shrubbery, streets or flowers or other property of the Owners situated on the land covered by said easements. Section 5.2 Drainage Easements. Easements for drainage throughout the ------------------ Property, in the event same are applicable to such parts of the Property situated therein, are reserved as shown on the aforementioned recorded plats, such easements being depicted thereon as "drainage easements." No Owner of any part of the Property may perform or cause to performed any act which would alter or change the course of such drainage easements in a manner that would divert, increase, accelerate or impede the natural flow of water over and across such easements. More specifically, and without limitation, no Owner may: (a) alter, change or modify the existing natural vegetation of the drainage easements in a manner that changes the character of the original environment of such easements; (b) alter, change or modify the existing configuration of the drainage easements, or fill, excavate or terrace such easement or remove trees or other vegetation therefrom without the prior written approval of the Architectural Control Committee and the City of San Antonio Drainage Engineer; (c) construct, erect or install a fence or other structure of any type or nature within or upon such drainage easements; (d) permit storage, either temporary or permanent, of any type upon or within such drainage easements; or (e) place, store, or permit to accumulate trash, garbage, leaves, limbs, or other debris within or upon the drainage easements, either on a temporary or permanent basis. The failure of any Owner to comply with the provisions of this Section 5.20 shall in no event be deemed or construed to impose liability of any nature on the Architectural Control Committee and/or Declarant, and such Architectural Control Committee and/or Declarant shall not be charged with any affirmative duty to police, control or enforce such provisions. The drainage easements provided for in this Section 5.20 shall in no way affect any other recorded easement in the Property. Section 5.2 Lot Maintenance. Each Owner shall maintain its part of the --------------- Property and any road parkways adjacent to such part of the Property, in a neat and attractive manner keeping the premises in good repair. This shall include, but shall not be limited to: (a) lawn mowing; (b) tree and shrub pruning (c) watering (if not restricted by governmental entities) (d) keeping exterior lighting and mechanical facilities in working order (e) keeping lawn and garden areas alive, free of weeds and attractive (f) keeping parking areas, driveways and roads in good repair (g) painting on all buildings (h) maintaining signs, fencing, screening, private parks, sidewalks, Streets, Street lights and all other landscaped areas and unimproved areas (i) complying with all government health and police requirements (j) repair of exterior damage to improvements (k) prompt removal of all litter, trash, refuse, and waste Owner(s) shall not remove earth or trees, except with the permission of the Declarant. Each Owner shall maintain the screened areas around transformers or terminal equipment which serves such part of the Property. During construction, it shall be the responsibility of each Owner to insure that construction sites are kept free of unsightly accumulation of rubbish and scrap materials, and that construction materials, trailers, shacks and the like are kept in a neat and orderly manner. The Declarant reserves the right to approve of a maintenance plan and the level of maintenance for developed and vacant lots. Section 5.2 Maintenance Enforcement. If, in the opinion of the Declarant ----------------------- or the Association, any such Owner or occupant has failed in any of the duties or responsibilities, described in Section 5.21, then the Declarant or the Association may give such Owner written Notice of such failure and such Owner must within ten (10) days after receiving such Notice, perform the care and maintenance required. Should any Owner fail to fulfill this duty and responsibility within such period, then the Declarant or the Association, through its authorized agent or agents, shall have the right and power (but not the obligation) to enter onto the Owner's part of the Property and perform such care maintenance without any liability for damages or wrongful entry, trespassing or other wise to any Owner. The Owner of the part of the Property in which such work is performed shall be liable for the cost of such work and shall promptly reimburse the Declarant or the Association for such cost. If such Owner or occupant shall fail to reimburse the Declarant or the Association within thirty (30) days after receipt of the statement for such work from the Declarant or the Association, then said indebtedness shall constitute a lien against the part of the Property on which the work was performed. Such lien shall have the same attributes as the lien for assessments and special assessments set fourth in Article IV, which provisions are incorporated herein by reference, and the Association shall have identical powers and rights in all respects, including but not limited to, the right of foreclosure. Section 5.2 Architectural Control. In order to maintain landscaping and --------------------- architectural compatibility, a primary consideration for the protection of the occupants of a planned business park and light industrial development is that no building, fence, sign, or other structure shall be erected, placed or altered on any part of the Property until such part of the Property has been platted and the plans and specifications for such building, fence, sign or other structure and the location of such building, fence, sign or other structure and site plan showing the location such building, fence, sign or other structure and the location and nature of parking and landscaped area shall have been approved in writing as to the quality of workmanship and materials, color coordination, conformity and harmony of architectural design with existing structures within the Property, and as to the conformity with all other provisions of this Declaration, by the ACC. The plans and specifications to be submitted for review and approval shall include the following: (a) a topographical plot showing existing contour grades and showing the location of all improvements, structures, walks, patios, driveways, fences and walls. Existing and finished grades shall be shown at Lot corners and at corners of proposed improvements. Lot drainage provisions shall be indicated as well as cut and fill details if any appreciable change in the Lot contours is contemplated. (b) exterior elevations (c) exterior materials, colors, textures, and shapes (d) structural design (e) landscaping plan, including walkways, fences and walls (f) parking area and driveway plan (g) screening, including size, location and method (h) utility connections (i) exterior illumination, including location and method (j) signs, including size, shape, color, location and materials The ACC shall consist of three (3) regular members: the chairman of the ACC ("Chairman") and two (2) regular members to be appointed by the Chairman within ten (10) days following his appointment. The ACC may also include up to two (2) alternate members, each of whom shall be appointed by the Chairman and may be authorized by the Chairman to attend any meeting of the ACC in the absence of any regular member and to vote on all matters that come before the ACC at such meeting. The ACC also may include up to two (2) associate members, which will be appointed by the Chairman, any and all of whom may be authorized to attend such meetings as the Chairman shall specify and to participate in any discussion at such meetings, but not to vote on any matters. In the event one (1) of the members of the ACC other than the Chairman is removed, resigns or is no longer able to serve as a member, the Chairman shall appoint a new member of the ACC so that there will continue to be three (3) regular members of the ACC. A record of the members of the ACC shall at all times be kept at the offices of the Association or Declarant and such information shall be provided to any Owner upon request. Members of the ACC need not be officers, directors nor members of the Association. Members of the ACC shall be reimbursed for reasonable out- of-pocket expenses incurred in their capacity as members of the ACC. The Declarant hereby appoints J. Steven Brown to be the first Chairman. The Declarant shall have the right to remove the Chairman and any and all other members from the ACC at any time for any reason, with or without cause. Any successor Chairman of the ACC shall be appointed by the Declarant. As of January 31 of each year, the Declarant shall review the composition of the members of the ACC and shall either re-appoint the Chairman or shall appoint a new Chairman. In the event of death or resignation or other inability to serve of any member of said committee, the Declarant shall designate a successor committee member or members. The Declarant may also appoint staff and consultants to the ACC, including, but not limited to architects, landscape architects, planners, engineers, attorneys and other individuals whose knowledge or skills will assist the ACC in carrying out its functions. In each instance where improvements have been erected, or the construction thereof is substantially advanced, in such manner that the same violates the restrictions contained in this Declaration, ACC approvals or any other covenants which the ACC has the power to enforce, or in such manner that the same encroaches on any easement or the Common Area, the ACC reserves the right (but shall not be obligated in any manner) to release such Lot from the restriction which it violated and to grant an exception to permit the encroachment or violation so long as the ACC, in the exercise of its good faith discretion, determines that the release or exception will not materially and adversely affect the health, safety and appearance of the Property. All such modification, releases or exceptions shall be within the sole opinion and absolute discretion of the ACC. The ACC has the right, but not the obligation, to grant waivers for minor deviations and infractions of this Declaration. In the event said committee or its designated representative fail to approve or disapprove any plans and specifications or plats within thirty (30) days after the same have been submitted to it, such approval shall not be required and the party shall be deemed to have fully complied with this Section, however, such non-action shall not constitute the approval of any provisions of such plans and specifications or plats in violation of any other covenants contained herein which approval may be granted by affirmative action taken pursuant to this Section. The Architectural Control Committee shall have the express authority to perform fact finding functions hereunder and shall have the power to construe and interpret any covenant herein that may be vague, indefinite, uncertain or capable of more than one construction. All decisions of the committee shall be final and binding, and there shall be no revisions of any action of the committee except by procedure for injunctive relief when such action is patently arbitrary and capricious. The Declarant or members of the Architectural Control Committee shall not be liable to any persons subject to or possessing or claiming the benefits of these covenants for any damage or loss arising out of their acts hereunder, it being understood and agreed that the remedy of an aggrieved party shall be restricted to injunctive relief. Section 5.2 Variances. The Architectural Control Committee or the --------- successor of the Architectural Control Committee shall have the sole authority to grant variances to the covenants set forth in Article V of this Declaration. Variances shall be granted only by the unanimous approval of the Architectural Control Committee. The Declarant shall have sole authority to modify the boundaries of the plat of the Property, attached hereto and incorporated herein. ARTICLE VI GENERAL PROVISIONS Section 6.1 Enforcement. The Declarant, Association, the Architectural ----------- Control Committee or any Owner, shall have the right to enforce, by any proceeding at law or in equity, all restrictions, conditions, covenants, reservations, liens and charges now or hereafter imposed by the provisions of this Declarant. Failure by the Declarant, Association, or by any Owner to enforce any covenant or restriction herein contained shall in no event be deemed a waiver of the right to do so thereafter. Declarant, for itself, its successors or assigns, reserves the right to enforce these restrictive covenants, though it may have previously sold and conveyed all of its interest in the Property, controlled by these covenants. The reservation of this right of enforcement shall not create an obligation or liability of any kind to enforce same. Section 6.2 Severability. Invalidation of any one of these covenants or ------------ restrictions by judgment or court order shall in no wise affect any other provision which shall remain in full force and effect. Section 6.3 Term. The covenants, conditions and restrictions of this ---- Declaration shall run with and bind the Property, and shall inure to the benefit of and be enforceable by the Association, Declarant and any Owner, their respective legal representatives, heirs, successors and assigns until January 1, 2028, at which time said covenants shall be automatically renewed and extended for successive periods of ten (10) years. The number of ten (10) year renewal periods hereunder shall be unlimited with this Declaration being automatically renewed and extended upon the expiration of each ten (10) year period for an additional ten (10) year period; provided, however, that there shall be no renewal or extension of this Declaration if during the last year of the initial thirty (30) year period, or during the last year of any subsequent ten (10) year renewal period, a majority of the total eligible votes of the membership of the Association cast at a duly held meeting of the Members of the Association vote in favor of terminating this Declaration at the end of its then current term. It shall be required that written notice of any meeting at which such proposal to terminate this Declaration is to be considered, setting forth the fact that such a proposal will be considered, shall be given at least thirty (30) days and no more than sixty (60) days in advance of such meeting. In the event that the Association votes to terminate this Declaration, the President and Secretary of the Association shall execute a certificate which shall set forth the resolution of termination adopted by the Association, the date of the meeting of the Association at which such resolution was adopted, the date that Notice of such meeting was given, the total number of votes of Members of the Association, the total number of votes cast in favor of such resolution and the total number of votes cast against such resolution. The certificate shall be recorded in the Real Property Records and Deed and Plat Records of Bexar County, Texas, and may be relied upon for the correctness of the facts contained therein as they relate to the termination of this Declaration. Section 6.4 Assignment of Rights and Duties. Any and all of the rights, ------------------------------- powers and reservations of the Association and Declarant may be assigned to any person, corporation or association which will assume the duties of the Association or Declarant, as applicable, pertaining to the particular rights, powers and reservations assigned. Upon such assignee evidencing its consent in writing to accept such assignment, have the same rights and powers and be subject to the same obligations and duties, it shall, to the extent of such assignment, have the same rights and powers and be subject to the same obligations and duties as are herein given to and assumed by the Association or Declarant. Further, the Association or Declarant may from time to time delegate any and all of its rights, powers, discretion and duties hereunder to such agent or agents as it may nominate. Section 6.5 Power of Attorney. The Association is hereby granted an ----------------- irrevocable power of attorney to represent the Owners in any proceedings, negotiations, settlements or agreements relating to the damage, destruction or condemnation of the Common Area and dedicated rights-of-way. Section 6.6 Mineral Reservation. Declarant hereby reserves and retains ------------------- all of its rights, title and interest in all oil, gas, coal, caliche and other minerals in and to the Property. The minerals herein reserved include all minerals regardless of the method of mining or exploitation. Declarant agrees not to drill, extract or mine the oil, gas, coal, caliche or other minerals in and to the Property without the express written permission of all Owners. Section 6.7 Incorporation of Other Documents. The Architectural Design -------------------------------- Guidelines, Articles, Bylaws and Rules and Regulations as may, from time to time, be amended or modified are incorporated herein for all purposes. Section 6.8 Authorized Action. All actions which the Association is ----------------- permitted to take under this instrument shall be authorized actions of the Association as approved by the Board of Directors in the manner provided for in the Bylaws of the Association, unless the terms of this Declaration provide otherwise. Section 6.9 Limitation of Liability. Declarant, as well as its ----------------------- partners, agents, employees, officers, directors, partners and their respective officers, directors, agents and employees, shall not be liable to any Owner or lessee of the Lot or any portion thereof or to any other party for any loss, claim or demand in connection with a breach of any provision of these covenants by any party other than Declarant. Section 6.1 Amendment by Members. This Declaration may be amended, at a -------------------- regular or special meeting of the Members, by a vote of at least a majority of the total eligible votes of the membership of the Association. Section 6.1 Notice and Quorum. For any meeting called to amend the ------------------ Declaration, the following must be followed: (a) Notice. Written notice of any meeting called for the purpose of ------ amending the Declaration shall be sent to all Members not less than fifteen (15) days nor more than fifty (50) days in advance of the meeting. (b) Quorum. At the first meeting called the presence at the meeting ------ of Members, or of proxies, entitled to cast sixty percent (60%) of all the votes of each class of membership shall constitute a quorum. If the required quorum is not forthcoming at any meeting, another meeting may be called, subject to the Notice requirements set forth herein, and the required quorum at any such subsequent meeting shall be one-half ( 1/2) of the required quorum at the preceding meeting, provided that such reduced quorum requirement shall not be applicable to any such subsequent meeting held more than sixty (60) days following the preceding meeting. (c) Amendment by Declarant. Until such time as Declarant ceases to be ---------------------- a Class B Member, Declarant specifically reserves for itself, its successors and assigns, the absolute and unconditional right to alter, modify, change, revoke, rescind or cancel any or all of the restrictive covenants contained in this Declaration by filing, in the real property records, an amendment to the Declaration. The Declarant is not required to send out notices or conduct a meeting in order to amend the Declaration under this Section. Section 6.1 Severability. Should any covenant, condition, or ------------ restriction herein contained, or any article, section, paragraph, sentence, clause, phrase or term of this Declaration be declared to be void, invalid, illegal, or unenforceable, for any reason, by the adjudication of any court or other tribunal having jurisdiction over the parties hereto and the subject matter hereof, such judgment shall in no way affect the other provisions hereof which are hereby declared to be severable and which shall remain in full force and effect. Section 6.1 Interpretation. The Board shall have the right except as -------------- limited by any other provisions of this Declaration, Articles or Bylaws, to determine all questions arising in connection with this Declaration and to construe and interpret its provisions, and its good faith determination, construction or interpretation shall be final and binding. Section 6.1 Singular, Plural and Gender. Whenever the context so --------------------------- permits, the use of the singular shall include the plural and the plural shall include the singular, and the use of any gender shall be deemed to include all genders. Section 6.1 Construction. The provisions of this Declaration shall be ------------ liberally construed to effectuate its purpose of creating a uniform plan for the operation and development of the Property. Section 6.1 Articles and Sections. Article and section headings in this --------------------- Declaration are for the convenience of reference and shall not affect the construction or interpretation of these covenants. Unless the context otherwise requires, reference herein to articles, divisions and sections are to articles and sections of this declaration. Section 6.1 Violations Defined. Any act of commission or omission ------------------ contrary to the commands or directives of this Declaration, or any breach of any duty imposed by this Declaration shall constitute a violation hereof. Notwithstanding anything contained herein to the contrary, the Association will perform no act nor undertake any activity which will violate its non-profit status under applicable state or federal law. Section 6.1 Penalties. Failure of an Owner to comply with this -------- Declaration, guidelines set by the ACC, Articles, Bylaws or Rules and Regulations shall be grounds for action which may include, without limitation, an action to recover sums due for damages, injunctive relief or any combination thereof, including costs and attorneys' fees incurred in bringing such actions, and if necessary, costs and attorney's fees for appellate review. The Association shall also have the right to amend the Rules and Regulations in order to provide for the imposition of fines for failure to comply with this Declaration or the Rules and Regulations. Section 6.1 Enforcement. Enforcement of the covenants, conditions and ----------- restrictions contained in this Declaration shall be by any proceeding at law or in equity and may be instituted by Declarant, its successors or assigns, the Association, its successors or assigns, or any Owner against any person or persons violating or attempting to violate or circumvent any covenant, condition or restriction, either to restrain violation or recover damages, and against the land, and to enforce any lien created by this Declaration. Failure by Declarant, the Association or any Owner to enforce any covenant, condition or restriction herein contained for any period of time shall in no event be deemed a waiver or estoppel of the right to enforce same thereafter. Section 6.2 Effect of Other Regulations. Wherever higher or more --------------------------- restrictive standards are established by the provisions of any other applicable statute, ordinance or regulation than are established by the provisions of this Declaration, the provisions of such statute, ordinance or regulation shall govern. Section 6.2 Hearing by the Board. In addition to other remedies -------------------- provided for the enforcement of these covenants, the Board of Directors is authorized to hear and determine the facts in cases of alleged nuisances and where it finds that facts exist which constitute a nuisance, the Board may order the cessation and abatement of such nuisance. [signature page to follow] IN WITNESS WHEREOF, the undersigned, being the Declarant, herein have hereunto set its hand and seal this 24th day of March, 1998. GREEN MOUNTAIN ASSOCIATES, LTD., a Texas limited partnership By: M. DOLAN CORPORATION, a Texas corporation, its general partner ________________________________ By: Michael J. Dolan Its: President GREEN MOUNTAIN VENTURES I, LTD., a Texas limited partnership By: M. DOLAN CORPORATION, a Texas corporation, its general partner ________________________________ By: Michael J. Dolan Its: President State of Texas (S) (S) County of Bexar (S) Before me, the undersigned, a Notary Public on this day personally appeared MICHAEL J. DOLAN, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was acting on behalf of the said Green Mountain Ventures I, Ltd., a Texas limited partnership, and that he had executed the same as the act of such partnership for the purpose and consideration therein express, and in the capacity therein stated. Given under my hand and seal of office, this _____ day of March, 1998. ___________________________________ Notary Public, State of Texas State of Texas (S) (S) County of Bexar (S) Before me, the undersigned, a Notary Public on this day personally appeared MICHAEL J. DOLAN, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was acting on behalf of the said Green Mountain Associates, Ltd., a Texas limited partnership, and that he had executed the same as the act of such partnership for the purpose and consideration therein express, and in the capacity therein stated. Given under my hand and seal of office, this _____ day of March, 1998. ___________________________________ Notary Public, State of Texas AFTER RECORDING RETURN TO: Mr. Ronald W. Hagauer Attorney at Law 745 E. Mulberry, Suite 850 San Antonio TX 78212 EXHIBIT "E" TO LEASE AGREEMENT Subordination/Non-Disturbance Agreement --------------------------------------- as attached SUBORDINATION/NON-DISTURBANCE AGREEMENT THIS AGREEMENT made and entered into effective as of the ___ day of _______________________, 1998 by and between ______________________________________________, having its principal office at _____________________________("Mortgagee"), and _____________________________________, a ________________ corporation. ("Tenant"). RECITALS: -------- WHEREAS, Tenant entered into a lease with Green Mountain I, a Texas limited partnership (the "Landlord") for a portion (the "Leased Premises") of the real property (the "Premises") described in Exhibit "A", attached hereto, said lease being dated as of _____________ (attached hereto as Exhibit "B"), said lease and Addenda (hereinafter collectively referred to as the "Lease"); and WHEREAS, Mortgagee holds a Mortgage (called the "Mortgage"); and WHEREAS, Tenant and Mortgagee desire hereby to establish certain rights, safeguards, obligations and priorities with respect to their respective interest by means of the following non-disturbance, attornment and subordination agreements. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and in consideration of One Dollar ($1.00) by each of the parties hereto paid to the other, receipt of which is hereby acknowledge, the parties do hereby covenant and agree as follows: 1. The Lease is and shall be subject and subordinate to the Mortgage insofar as it affects the Premises of which the Leased Premises forms a part, and to all renewals, modifications, consolidations, replacements and extensions thereof, to the full extent of the principal sum secured thereby and interest thereon. 2. In the event it should become necessary to foreclose the Mortgage, the Mortgagee thereunder will not join the Tenant under the Lease in summary or foreclosure proceedings, and no foreclosure of the lien of the Mortgage, or any other proceeding in respect thereof, shall divest, impair, modify, abrogate or otherwise adversely affect any interests or rights whatsoever of Lessee under the Lease, so long as the Tenant is not in default, beyond the applicable period to cure, under any of the terms, covenants or conditions of the Lease. 3. In the event that the Mortgagee shall, in accordance with the foregoing, succeed to the interest of the Landlord under the Lease, the Mortgagee agrees to be bound to the Tenant under all the terms, covenants and conditions of the Lease, as renewed and extended, and the Tenant agrees, from and after such event, to attorn to the Mortgagee and/or purchaser at any foreclosure sale of the Premises, all rights and obligations under the Lease to continue as though the interest of Landlord had not terminated or such foreclosure proceedings had not been brought, and the Tenant shall have the same remedies against the Mortgagee for the breach of an agreement contained in the Lease that the Tenant might have had against the Landlord if the Mortgagee had not succeeded to the interest of the Landlord: provided, however, that the Mortgagee shall not be: a. liable for any act or omission of any prior landlord (including the Landlord); or b. subject to any offsets or defenses which the Tenant might have against any prior landlord (including the Landlord) relating to matters occurring prior to the acquisition of title by mortgagee, its successors and assigns; or c. except for rent pre-paid in accordance with paragraph 3(d) of the Lease, bound by any rent or additional rent which the Tenant might have paid for more than the current month to any prior landlord (including the Landlord); or d. bound by any amendment or modification of the Lease made without its consent; or e. liable for the return of any security deposit not actually received. 4. Notwithstanding anything to the contrary hereinabove contained, to the extent the provisions of the Mortgage dealing with application of casualty insurance proceeds and condemnation proceeds may be inconsistent with corresponding provisions of the Lease, the provision of the Mortgage shall be controlling. 5. Mortgagee does not intend hereby to waive or negate any covenant or agreement in said Lease, if any, which provides Landlord an option to cancel independently of any default on the part of Tenant. 6. This Agreement may not be modified other than by an Agreement in writing, signed by the parties hereto or by their respective successors in interest. 7. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns and to no other persons. 8. It is expressly understood and agreed that this Agreement shall supersede, to the extent inconsistent herewith, any provisions of the Lease relating to the Subordination of the Lease and interest and estates created thereby to the Lien or charge of the Mortgage. 9. This Agreement shall be governed by and construed in accordance with the laws of the state in which the property is located. 10. The parties hereto agree to execute and deliver, in recordable form if necessary, any and all further documents and instruments reasonably requested by any party hereto or any title insurance company to give effect to the terms and provisions of this Agreement. 11. If this Agreement is not executed by all parties then no parties that have executed this Agreement shall be bound by the terms of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed these presents, effective as of __________________, 1998. TENANT: BUSINESS PARTNER SOLUTIONS, INC., a Texas corporation ___________________________________ By: ___________________________________ Its: ___________________________________ MORTGAGEE: ________________________________________ By: ___________________________________ Its: ___________________________________ Date:___________________________________ STATE OF ___________ (S) (S) COUNTY OF ___________ (S) The foregoing was acknowledged before me this ___ day of ______________________, 19___ by __________________, as ______________ of BUSINESS PARTNER SOLUTIONS, INC., a Texas corporation, on behalf of said corporation. ___________________________________ NOTARY PUBLIC, STATE OF STATE OF ___________ (S) (S) COUNTY OF ___________ (S) The foregoing was acknowledged before me this ___ day of ______________________, 19___ by _______________, as _____________ of ___________________________________________, on behalf of said company. ___________________________________ NOTARY PUBLIC, STATE OF EXHIBIT "F" TO LEASE AGREEMENT Short Form Memorandum --------------------- as attached SHORT FORM MEMORANDUM OF LEASE ------------------- GREEN MOUNTAIN VENTURES I, Ltd., a Texas limited partnership (hereinafter referred to as "Lessor") has heretofore demised and let unto BUSINESS PARTNER SOLUTIONS, INC. (hereinafter called "Lessee"), and Lessee has heretofore leased and taken from Lessor, upon the terms and conditions and subject to the limitations more particularly set forth in a certain agreement between Lessor and Lessee dated the 27th day of February, 1998 (hereinafter referred to as the "Lease"), certain premises containing approximately 87,061 square feet situated in the 116,102 square foot building in Green Mountain Business Park in the City of San Antonio, State of Texas, said building being situated on the tract of land described in Exhibit "A" hereto and said leased premises being identified on the site plan attached hereto as Exhibit "B", together with all rights in and to the Common Area associated with the building granted by the Lease to have and to hold the same for a term to commence on or about July 1, 1998. EXECUTED this 27th day of February, 1998. LESSOR: GREEN MOUNTAIN VENTURES I, LTD., a Texas limited partnership BY: M. DOLAN CORPORATION, a Texas corporation, its general partner ________________________________________ By: Michael J. Dolan Its: President LESSEE: BUSINESS PARTNER SOLUTIONS, INC., a Texas corporation ________________________________________ By:_____________________________________ Its:____________________________________ STATE OF TEXAS (S) (S) COUNTY OF BEXAR (S) THIS INSTRUMENT was acknowledged before me on the _____ day of February, 1998, by MICHAEL J. DOLAN as President of M. DOLAN CORPORATION, a Texas corporation, as general partner of GREEN MOUNTAIN VENTURES I, LTD., a Texas limited partnership, on behalf of said limited partnership. ___________________________________ NOTARY PUBLIC, STATE OF TEXAS STATE OF TEXAS (S) (S) COUNTY OF BEXAR (S) THIS INSTRUMENT was acknowledged before me on the _____ day of February, 1998, by ___________________________, as ________________ of BUSINESS PARTNER SOLUTIONS, INC., a Texas corporation, on behalf of said corporation. ___________________________________ NOTARY PUBLIC, STATE OF TEXAS AFTER RECORDING RETURN TO: Mr. Kerry T. Benedict COX & SMITH INCORPORATED 112 East Pecan Street, Suite 1800 San Antonio TX 78205-1521 EXHIBIT "G" TO LEASE AGREEMENT Plans and Specifications ------------------------ as attached EXHIBIT G --------- BUSINESS PARTNER SOLUTIONS, INC. 87,001 SQUARE FOOT OFFICE/WAREHOUSE SPACE GREEN MOUNTAIN BUSINESS PARK SAN ANTONIO, TEXAS PERFORMANCE SPECIFICATION January 13, 1998 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 PREPARED BY: DOLAN CONTRACTORS PREFACE This contract specification was prepared by Dolan Contractors, based on information that was provided by BPS. These specifications are intended to describe and detail the major components of the proposed office/warehouse space and the level of both finish and construction quality. This information should not be reproduced or copied in whole or in part without the written consent of Dolan Contractors. The work in this project involves the design and construction of office/warehouse space to be constructed within a building which is approximately 116,102 square feet in size. The space will include approximately 30,538 square feet of warehouse space, and 56,463 square feet of single floor finished office space. The proposed building will be located on a 7.589 acre site situated along the south frontage road of Loop 1604 approximately 1/4 mile east of Green Mountain Road in San Antonio, Texas. The intended purpose and use of the facility is for administrative offices and warehouse space. The building will not be used to store or handle hazardous materials in quantities that exceed the exempt amounts as defined by the Unified Building Code/1997. 01000 GENERAL CONDITIONS Dolan Contractors, Inc. (CONTRACTOR) will provide all engineering and architectural design, supervision, labor, materials, and building permits necessary for the completion and utilization of the facility for the intended purpose. All such expenses related to the interior fit out work as described in this specification, will be included in the rental rate. DESIGN CRITERIA: - ---------------- The work will be designed under the direction of engineers, and in compliance with the Unified Building Code/1997, Unified Plumbing Code/1997, Unified Fire Code/1997, and all requirements of applicable State, Federal, and other regulatory agencies having jurisdiction over such work. In the event of conflicts between the referenced codes, local design criteria, or interpretations by such local review authorities, the design engineer shall determine the design, which based on the engineer's professional opinion, meets the relevant written objective of the codes. DOLAN CONTRACTORS, INC. 1 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 GEOTECHNICAL STUDY/FOUNDATION DESIGN: - ------------------------------------- A detailed geotechnical investigation of the subsurface and the soil types will be prepared by our soils engineer. All foundation and site engineering design will be based on this report. A maximum concentrated floor load of 10,000 lbs. due to racking posts (with 4" x 4" x 3/8" thick base plate) will be assumed for the slab design. Roof collateral loading will be assumed to be 3 lbs. per square foot to accommodate sprinkler piping, lighting, etc. Additional information for actual floor loading due to racking, and roof loading due to suspended equipment will be required for final design. ENVIRONMENTAL REPORT: - --------------------- A comprehensive Phase 1 environmental investigation of the proposed site has been performed by qualified personnel from an environmental engineering consultant. The Phase 1 ESA determined that the site has a low environmental risk based upon the following: a) a visual inspection of the surface of the site and surrounding areas for presence of possible contaminants. b) examination of the Federal and State lists of Superfund Sites, title abstracts of the names of prior owners, tenants and other users of the property from January 1, 1940. This environmental report will be supplemented by visual on-site inspections to check for presence of non-gaseous contaminants that may be exposed during construction work. An updated ESA may be provided at the LESSEES expense. LESSEE RESPONSIBILITIES: - ------------------------ The LESSEE will be directly responsible for the following: a) LESSEE shall provide necessary information and documentation so that LESSOR may determine the correct commodity classification for the stored products as defined by the Unified Building Code/1991, Unified Fire Code, and applicable NFPA (National Fire Protection Association) Specifications. b) any applications for State air quality permits or any other permits required for Lessee-supplied equipment that will be operated by the building occupant. c) supply and installation of LESSEE-specific signage (including permit application), material handling equipment (including conveyors), security systems, battery chargers, racking, shelving, furnishings, fire extinguishers, and lockers. WARRANTY: - --------- CONTRACTOR warrants that all materials and equipment furnished for this project shall be new unless otherwise specified and that all work will be of good quality, free from faults and defects and DOLAN CONTRACTORS, INC. 2 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 in conformance with the plans and specifications. Substitutions not properly agreed to by the parties may be considered defective. CONTRACTOR shall, at its sole expense, remedy any defect in workmanship or materials of the building, provided that such defect shall be called to its attention in writing by the LESSEE on or before the first anniversary of the substantial completion of the project or, with respect to each punch list item, one year form the date of completion of such punch list item. CONTRACTOR shall extend and/or assign any and all warranties to LESSEE which CONTRACTOR has received from any manufacturer, dealer or installer in connection with any equipment or other mechanical systems installed in the project. A fifteen (15) year labor and materials warranty shall be provided for the roofing system by the manufacturer of the roofing materials and the authorized installer. 02000 SITE WORK A preliminary site plan showing the buildings location, site boundaries and site improvements is attached with this proposal. The site work comprises the on-site soil conservation measures, clearing and stripping of topsoil, mass excavation, soil stabilization via moisture injection under the building pad ( if required ), placement of crushed stone base, site drainage, water service for fire protection and domestic supply, sewer service, paving, re-top soiling, landscaping, and exterior concrete work. All site work will be done in compliance with State and local established standards. Key features of the site work include the following: BUILDING PAD: - ------------- The proposed site is moderately sloped and contains soils that range from weathered limestone, to mildly expansive pecan gap soils; however, the soils at the site are well suited for office/warehouse development if handled correctly. Any extremely "fat" or expansive soil found in the top strata will be removed, and the sub-grade strata will be cut and filled to form the building pad. All sub-grade and building pad work will be done in conformance with the recommendations of the project geologist or soils engineer. A layer of crushed stone base may be placed between the floor slab and the select sub-grade if required by the engineer. PAVEMENT DESIGN AND CONSTRUCTION: - --------------------------------- Construction of pavement for vehicular and truck traffic will be designed and constructed in accordance with expected traffic volumes and local soil conditions. A six (6) inch concrete apron constructed with 4,000psi concrete, will be poured within 50 feet of the loading dock wall adjacent to the warehouse dock doors as shown on the approved site plan. Two (2) inch asphalt paving (220 lbs. per sq. yd.) placed on a 12 inch granular compacted base is planned for the exterior paved services DOLAN CONTRACTORS, INC. 3 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 subject to truck traffic. A seven (7) inch cement stabilized base or eight (8) inch asphalt stabilized base may be substituted in lieu of the 12 inch compacted base. Parking areas for vehicular traffic will be constructed with 1 1/2 inches of asphaltic paving (165 lbs. Per sq. yd.)surface on a minimum of six (6) inches of compacted granular base. Concrete curbing will be installed along the edge of all asphaltic paving. All paved areas utilized for vehicular parking shall be designed in accordance with CBR(California Bearing Ratio) tests. All pavements will be installed over sub-grade compacted to a minimum of 90% standard proctor density. Where possible on-site materials will be used for sub-grade. All access drives for vehicular traffic will be a minimum of 25 feet wide. Driveway entrances that are used by heavy truck traffic will be 30 feet wide. TRUCK MANEUVERING AREA: - ----------------------- A 120 ft. wide truck maneuvering area will be provided along the north side of the building adjacent to the truck loading docks as shown on the approved site plan. This area will serve two (2) 4ft. high loading docks and one (1) 2ft. high loading dock. A concrete ramp twelve (12) feet wide will be installed from the truck area to serve a 10' (w) x 10' (h) overhead door. Pipe bollards will be installed in the concrete ramp to prevent vehicular access into the warehouse. If possible, pipe bollards will be designed to be removal by tenant. A six (6) inch concrete pavement section, 50' in width, will be installed adjacent to the loading docks. All unpaved areas within 120 feet behind the adjacent space will be paved by Lessor at no additional cost to Lessee, subject to execution of a lease for adjacent space. If the adjacent space is utilized for warehouse, Lessee may request pavement consistent with the existing truck maneuvering area which would include concrete and heavier pavement designs. If the space is used for office use, the area may be paved to accommodate vehicular parking. FENCING: - -------- The truck maneuvering area will be enclosed with a six (6) foot industrial grade chain link security fence with three (3) strands of barb wire along the top. The fencing will be constructed with 9 ga. galvanized fabric, 1 5/8" - 2.27 # / ft. top railing, 1 7/8"- 2.72 # / ft. line posts, and 2 7/8" - 5.79 #/ft. terminal posts. A 30 foot access gate on a mechanical roller mechanism will be installed at the truck access points. REQUIRED PARKING: - ----------------- Parking for 290 cars (including six handicap spaces) will be provided. Approximately 1.18 acres adjacent to the north boundary of the site(as shown on the approved site plan) will be reserved, as provided in the lease, to accommodate an additional eighty (80) parking spaces. Forty (40) parking spaces in excess of the additional eighty spaces are also available on the adjacent site to the west. All additional parking in excess of the 290 spaces will be funded by the LESSEE in accordance with the Lease. DOLAN CONTRACTORS, INC. 4 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 Parking spaces will be sized at 9' wide by 18' deep. All asphaltic parking areas will be bound with six (6) inch concrete curbing, and will include all paint striping and handicap signage required for such spaces. SIDEWALKS: - ---------- Sidewalks will be placed along the south face, east face of the building, and a portion of the north face, in an area between the parking lot and the building as shown on the approved site plan. Sidewalks will be constructed with concrete and shall have a minimum width of four (4) feet. Concrete sidewalks will also be constructed along the streets as required by municipal codes. A concrete paved pad area will be constructed at the location shown on the approved site plan. The pad will be approximately 25 feet wide by 30 feet long and paved with concrete. A metal covering, approximately 25 feet wide and 20 feet long will be constructed over a portion of this pad. DUMPSTER PAD: - ------------- A concrete dumpster pad approximately 15 feet wide and 15 feet long will be provided in the area shown on the approved site plan. Landscaped screening will be provided to comply with the Business Park Covenants. LANDSCAPING: - ------------ Landscaping including berms, trees, shrubs and lawn sprinklers will be provided adjacent to the main office and parking areas in accordance with the City of San Antonio landscape ordinance. Twenty (20) Oaks or Cedar Elms (minimum 1 1/2" caliper) will be planted along the street and Loop 1604 as shown on the site plan and five (5) Oaks or Cedar Elms (minimum 1 1/2" caliper) will be planted in various areas adjacent to the building. Landscaped areas adjacent to the building and within 200 feet of the building entrance will be fully sodded with Bermuda grass. Approximately 700 square yards of sodding is included in this proposal. All other disturbed areas within the building site will be hydro mulched with Bermuda or Rye grass. One hundred eighty (180) 5 gallon shrubs will be planted for adjacent to the building and parking lots. Planting beds will also be placed at two (2) parking lot entrances and at the entrance to the building. A lawn sprinklering system will be installed for all landscaped areas adjacent to south and west sides (street frontage) of the building, which are between the building and the parking lots, and between the parking lots and the adjacent streets. Portions of the southeast corner of the site may be landscaped, sprinkled and maintained by the Business Park Association. DOLAN CONTRACTORS, INC. 5 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 FIRE LINE: - ---------- A fire department connection will be provided in accordance with the requirements of the local Fire Marshal. WATER AND SEWER SERVICE: - ------------------------ A two (2) inch domestic water service line will be provided for water service to the interior of the building. A separate two (2) inch water service will be provided for the lawn sprinkler system. A six (6) inch sanitary sewer lateral will be provided, sufficient to serve the toilet facilities for 340 employees. Some additional waste water generated by future expansions has been considered. 03000 CONCRETE Concrete for foundations and footings will be a minimum design mix of 3,000 psi compressive strength tested at 28 days. The interior floor slabs will utilize 4,000 psi design mix and will have a minimum thickness of 6" in warehouse areas. All construction joints will use an American Concrete Institute approved keyway. All interior floors will be finished with steel trowels until a hard burnished surface is achieved, and either wet-cured or cured with a "cure and seal" product complying with the requirements of ASTM C-309. Flatness and levelness will meet requirements as determined by Business Partner Solutions, and Dolan Contractors for Face Floor Profile Numbers (F-Numbers) as determined by ASTM E 1155 for random traffic floors. This method of specifying floor flatness/levelness provides information which can be compared with actual field measurements taken using a floor profilometer and will ensure that the floor is flat and level enough for use of a specific type of lift equipment. Dolan Contractors will perform occasional flatness and levelness testing for random traffic paths, however should the Lessee require comprehensive testing of the floor slabs this could be performed at additional cost. The exterior slabs on grade will utilize 4,000 psi. design mix. All construction joints will use an American Concrete Institute approved keyway. All exterior concrete drive ramps or paving pads (if any) will be constructed utilizing 3000 psi design mixed and reinforcement as determined by the engineer. The exterior walls will be load-bearing reinforced concrete tilt-up panels utilizing a minimum 4,000 psi. design mix. Panel thicknesses and sizes will be determined by the structural engineer. All exterior wall surfaces will be smooth with some architectural rustication. DOLAN CONTRACTORS, INC. 6 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 04000 MASONRY No masonry block construction is anticipated in this project. 05000 METALS STRUCTURAL STEEL, JOINTS & ROOF DECK: - ------------------------------------- The structural system of the building will be a conventional steel structure using either standard "H sections" or square tubes for columns. The roof structure will be open-web bar-joist and joist-girder construction with a 22 gauge Type B metal deck with a white baked enamel visible from inside the building. The minimum clear height under roof steel in all warehouse storage areas will be 28 feet. The interior bay sizes for the main building area will be @ 40 feet by 60 feet. The partition wall placement may reduce the area between columns, and interior wall locations. STEEL STAIRS: - ------------- Steel stairways with hand rails will be provided at all exit doors from the warehouse to the truck maneuvering area. ROOF ACCESS LADDER: - ------------------- One roof access ladder will be provided. The roof access ladder will be placed within the warehouse, and will access the roof through a 4' by 4' roof hatch. COVERED PARKING: - ---------------- Fourteen (14) covered parking spaces will be provided adjacent to the executive office area, with one space reserved for access to the building. Covered parking spaces will be equipped with lights below the roof covering. 06000 WOOD AND PLASTIC BLOCKING: - --------- Blocking, nailers and backing strips, will be installed as required for toilet partitions, urinals, lavatories, built-ins and doors as shown on the plans. WINDOW SILLS: - ------------- Wood window sills in the finished office area will be finish grade pine or fir with a clear varnish or enamel painted finish. The contractor, at its option, may upgrade the window sills to plastic laminate covered board. LESSEE may select the laminate color subject to the contractor's approval. DOLAN CONTRACTORS, INC. 7 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 07000 THERMAL AND MOISTURE PROTECTION ROOFING: - -------- The roofing will be a mechanically fastened single-ply membrane (from an approved manufacturer) over a 2 inch thick rigid polyisocyanurate board (R-14). The roof will be designed to comply with the Unified Building Code/1997 and will carry a full 15 year warranty on labor and materials. All roof slopes will be a minimum of 1/4 inch per foot. The roofing system will have a Class A fire resistance rating. Roofing installation will be thoroughly inspected by the roof manufacturer's representative. ROOF HATCH: - ----------- One insulated, galvanized, steel roof access hatch (4' x 4') will be provided at the roof access ladder location. The hatch will be designed to allow for locking from the interior of the warehouse. HEAT AND SMOKE VENTS: - --------------------- Heat and smoke vents will be provided in the warehouse area as required by the Uniform Fire Code and Local fire department requirements. The vents will be Underwriters Laboratory listed with either a dome top metal lid or a dome acrylic lid. One (1) 4' x 8' vent with an acrylic lid shall be installed, when acceptable under local codes, in each 40' x 60' warehouse bay, adjacent to the truck loading areas. Four (4) acrylic lid vents are planned in the warehouse area. The heat and smoke vents shall be manufactured by Naturalite (model UFV- 55102) or approved equal. 08000 DOORS AND WINDOWS OVERHEAD DOORS: - --------------- Four (4) overhead doors @( 10'W x 10'H) will be located at the dock area. The overhead doors will be manually operated with a chain hoist, vertical lift, foam-filled (R-7 minimum), sectional steel (minimum 25 gauge exterior skin) doors with a single insulated view window. Overhead door finishes will be factory-applied baked enamel paint (white). The doors will be manufactured by Clopay (model 3200), Overhead Door (model 426), or approved equal. Pipe bollards will be placed at the exterior location of the grade level ramp access door to the warehouse. The bollards will be designed and placed to prevent vehicular access through the ramp door. FOLDING GUARD GATES: - -------------------- A folding guard gate will be provided at each 10' x 10' warehouse door opening. The gates shall be manufactured by Folding Guard Corporation or approved equal. DOLAN CONTRACTORS, INC. 8 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 EXTERIOR DOORS AND FRAMES: - -------------------------- Store front glass entrance doors will be provided at five (5) entrances to the office areas. Entrances will include four (4) dual 3' x 7' doors and two (2) single 3' x 7' doors. Two (2) of the dual doors and one of the single doors will be installed as exit only doors. Hollow metal doors will be provided in exterior walls along the dock area as required. The doors will be 3' x 7' and constructed with 16 ga. steel, 1 3/4" polyurethane cores and installed with 16 ga. door frames. The doors will be manufactured by CECO, Dean Steel or approved equals. Egress hardware and closers will be installed on each door as specified below. EXTERIOR DOOR HARDWARE: - ----------------------- Heavy duty commercial hardware (grade 1) will be used on entrance doors to the office areas. The finish will match the door finish as specified by Lessee. The door levers will be manufactured by Arrow (series B) or Schlage (series D). Door closers will be installed on all exterior doors from the office area. The closers will be manufactured by Norton (model 8501), LCN (model 1461) or approved equal. Door hinges will be heavy weight, high frequency hinges with non-removable pins and a brass finish over stainless steel. Hinges will be manufactured by Hager (model BB 1199) or approved equal. Heavy duty commercial hardware (grade 1) with a satin chrome finish will be used on exterior hollow metal doors. A rim exit device with outside lever and key will be installed as manufactured by Arrow (model 3808xSl08) or approved equal. Door hinges will be heavy weight, high frequency hinges with non-removable pins and a satin chrome finish. Hinges will be manufactured by Hager (model BB 1168) or approved equal. INTERIOR DOORS AND FRAMES: - -------------------------- Two (2) dual - 3' x 7' store front glass doors will be provided in the main lobby and waiting area. Interior office doors will be 3' x 9'(except as otherwise specified in this section) with a plastic laminate exterior to be selected by LESSEE from the manufacturers standard colors. Interior office doors shall be constructed with particle core (ANSI type A208.1LD-2) except where fire rated doors are required, and shall be manufactured by Marlite (type PC-HPDL), or approved equal. Interior door frames shall be satin clear aluminum as manufactured by Rayco, Altura or approved equal. This proposal includes eighty (80) single office doors and four (4) dual office doors. Sliding closet doors will be provided in the training rooms. These doors will be 2 1/2' x 7' with plastic laminate exterior matching the office doors. Closet doors shall be hollow core as manufactured by Marlite (type SHC) or approved equal. This proposal includes sixteen (16) closet doors. Hollow metal doors 3' x 7',(18 ga.) 16 ga. hollow metal door frames and hardware, will be installed within the warehouse and between the warehouse and office areas. The doors connecting office areas DOLAN CONTRACTORS, INC. 9 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 with the warehouse, will be constructed with glass kits. Three (3) single doors and one (1) double door are included in the proposal. INTERIOR DOOR HARDWARE: - ----------------------- Standard commercial grade hardware (grade 2) with a bright chrome finish will be installed on all interior doors except as specified below. Interior office door levers will be manufactured by Arrow (series M), Schlage (series AL) or approved equal. Heavy duty commercial hardware (grade 1) with a satin chrome finish will be used on interior hollow metal doors between the waiting area and hallways, and the office hallways and the warehouse. A rim exit device with outside lever and key(except on doors which are designated for exit only) will be installed as manufactured by Arrow (model 3808xSl08) or approved equal. Door hinges will be heavy weight, high frequency hinges with non-removable pins and a satin chrome finish. Hinges will be manufactured by Hager (model BB 1168) or approved equal. Door hinges for hollow metal doors between the warehouse and office areas will be heavy weight, high frequency hinges with non-removable pins and a satin chrome finish over steel. These hinges will be manufactured by Hager (model BB1168) or approved equal. Door hinges for interior office doors will be standard weight, medium frequency hinges, with a satin chrome finish over steel. These hinges will be manufactured by Hager (model 1279) or approved equal. EXTERIOR WINDOWS: - ----------------- The exterior shell of the building will be designed to allow for exterior glass as shown on the approved elevation. No exterior windows will be placed in the integration and lab tech areas. Exterior windows will be constructed with 1/4 inch bronze tinted monolithic glass and tempered as required by code. Window frames will be bronze aluminum (1 3/4" x 4"). INTERIOR GLASS: - --------------- All interior glass will be clear, tempered as required by code, and installed in aluminum frames with a satin chrome finish, except for interior glass installed in glass kits for hollow metal doors or glass frames exposed to the warehouse. Glass exposed to the warehouse will be installed in hollow metal frames. Each interior office shall be constructed with clear single sheet glass adjacent to the door. The glass will be 16" wide by 8' high. The break room will include three (3), 4' x 5' glass windows. The computer room will include seven (7), 4' x 5' glass windows. The integration and lab tech room will include two (2), 4' x 5' glass windows. One director and three manager offices will include one (1), 4' x 5' glass window in each. The total interior finish will include 832 square feet of interior glass. DOLAN CONTRACTORS, INC. 10 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 09000 FINISHES The Exterior face of concrete walls will be painted with a weather resistant textured paint. The underside of exposed metal roof deck in the warehouse area will be factory-painted white. Interior space planning and architectural services for the interior space will be included as part of the base rent. The orientation of this space will be mutually acceptable to Business Partner Solutions, Inc. and Dolan Contractors. INTERIOR STUD WALLS AND DRYWALL: - -------------------------------- Metal studs and drywall shall be installed in conformance with the office layout as shown on drawing CP-1, prepared by David L. Barger and Associates, dated 12/12/97, or approved modifications thereto. The interior partition wall will be full height, constructed to the bottom of the roof deck. The partition wall will be constructed with 6" metal studs, will have sheet rock on both sides, and will be taped and spackled, within the leased space. Insulation shall be placed in the partition wall to the ceiling height of the adjacent areas used as offices. Metal studs (4") and drywall (5/8" thickness) will be used within the following areas and installed to the specified ceiling heights: AREA CEILING HEIGHT (FT.) - ---- -------------------- Main Lobby 16' Work Station Areas 14' Main Hallways 12' Integration and Lab Tech 12' Break Room 12' Training Rooms 1 & 2 12' Computer Room/Guest Services 12' Executive Area 10' All Other Areas 9' Insulation shall be placed in the interior walls surrounding all offices, conference rooms, restrooms, the computer room, training rooms, the break room wall adjacent to the hall, and in all exterior walls. TAPE AND SPACKLE DRYWALL: - ------------------------- All drywall surfaces, shall be taped, spackled, and prepared for painting. DOLAN CONTRACTORS, INC. 11 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 INTERIOR PAINTING: - ------------------ All interior drywall surfaces shall be painted with commercial grade latex paint (eggshell sheen). All interior wood surfaces shall be stained or painted with an oil based satin or semi-gloss paint. All interior metal surfaces with the office areas (excluding prefinished aluminum door and window frames) shall be painted with latex eggshell or semi-gloss paint. The paint shall be roller or brush applied in conformance with the manufacturers specifications for the paint. The paint manufacturer shall be Devoe (Wonder tones) or an approved equal. The LESSEE may select the paint color for various areas from the standard paint colors provided by the manufacturer, subject to the approval of the color by the Contractor. EXTERIOR PAINTING: - ------------------ All exterior concrete surfaces shall be painted with commercial grade weather resistant textured paint. The paint shall be a high build latex textured coating as manufactured by Devoe (Spra-Max) or approved equal. The exterior paint shall be spray applied in conformance with the manufacturers recommendations. Paint colors will be selected by the CONTRACTOR subject to LESSEE's approval. OFFICE CEILING: - --------------- Office ceilings shall be installed with lay-in ceiling support grids on a 2' x 4' grid spacing. The grids will be attached to the roof framing via wire tie connections. The suspension system will be designed to support insulation (if required), lighting, diffusers and all other grid mounted equipment, and will be installed at the heights listed under the stud and drywall section. The ceiling tiles shall be white and manufactured by Armstrong (style: Second Looks II) or approved equal. OFFICE FLOORS: - -------------- The following floor finishes and quantities are included in this proposal for the areas listed. The anticipated unit costs for the flooring is shown for reference.
OFFICE FLOOR APPROX. UNIT AREA COVERING AREA (SF) COST(PSF) - ----------------------------- ------------------ --------- --------- Entry and Waiting Quarry Tile 1,985 $6.50 Hallways High Endurance 3,970 $2.50 Vinyl Break Room High Endurance 1,520 $2.50 Vinyl Executive Area Nylon Carpet 3,275 $1.50 36 oz. Cut Pile
DOLAN CONTRACTORS, INC. 12 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998
OFFICE FLOOR APPROX. UNIT AREA COVERING AREA (SF) COST(PSF) - ----------------------------- ------------------ --------- --------- Computer Room Computer Raised Flooring 845 $7.00 Integration/Lab Tech. Anti -Static VCT 5,772 $4.00 Executive Storage/File/Work VCT 152 $1.15 Accounting File Room VCT 1,233 $1.15 Accounting Work/Copy VCT 289 $1.15 Mail Room VCT 616 $1.15 Phone/Utility Areas VCT 300 $1.15 Storage VCT 100 $1.15 Janitor VCT 42 $1.15 Admin. Storage/Food Prep. VCT 640 $1.15 Sales Files Storage VCT 520 $1.15 Prod. Group & Tech Support VCT 352 $1.15 Bathrooms 2"x2" Ceramic Tile 860 $6.50 Other Areas Carpet 33,689 $1.40 - ----------------------------- ------------------ ------- ----- 56,160 SF
This proposal also includes 7,550 linear feet of rubber cove base, materials, labor, taxes, permits, and other charges related to the installation by a commercial flooring supplier and installer. LESSEE will be allowed to select floor finishes and colors for product types provided by CONTRACTOR; however, if the cost of such finishes exceeds the allowance, LESSEE shall pay the difference prior to installation. OFFICE BATHROOMS, FLOORING AND WALLS: - ------------------------------------- All bathrooms within the office area shall be finished with 2' x 2' ceramic tile on the floors with 4" trim to match the walls, and 4" x 4" ceramic tile from the floor to a height of eight (8) feet above the floor, along the wet walls. Floor tiles may be selected by LESSEE from Group 1 or Group 2 colors. Wall tile may be selected by LESSEE from Group 2 colors. Ceramic tile will be manufactured by Dal-Tile or approved equal. All other walls in the bathroom space shall be painted drywall, unless otherwise specified by Owner. WAREHOUSE FLOORS: - ----------------- The following floor finishes and quantities for the warehouse areas are included in this proposal for the listed areas.
WAREHOUSE FLOOR APPROX. AREA COVERING AREA (SF) - ----------------- --------------- --------- Secure Storage Anti-Static VCT 800 Toilet Room VCT 48 All Other Areas Concrete
DOLAN CONTRACTORS, INC. 13 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 010000 SPECIALTIES FLAGPOLES: - ---------- One (1) flagpole shall be installed at the exterior of the building in a location acceptable to LESSEE. The pole shall be commercial grade, 35 feet in height, with a natural anodized aluminum finish, and a gold anodized finial, as manufactured by Sentry or approved equal. TOILET PARTITIONS: - ------------------ Toilet partitions shall be installed for each water closet provided more than one water closet is located in a bathroom. The partitions shall be floor braced, pre-finished with standard colors and installed with heavy duty chrome/stainless steel hardware. Partitions and urinal screens will be manufactured by the Mills Company (series 500), Global (Regal Model) or approved equal. WASHROOM ACCESSORIES: - --------------------- Washroom accessories shall be commercial grade stainless steel with a satin finish as manufactured by Bradley or approved equal. Each bathroom shall be equipped with the following: One (1) model 234 towel dispenser/waste receptacle, one (1) model 5234 double roll toilet tissue holder for each water closet, a 36" and 42" grab bar (series 812) for each handicap water closet, and one (1) soap dispenser (model 6324) per lavatory. Women's bathrooms will include the model 5263 toilet tissue dispenser in lieu of the model 5234. Women's bathrooms will also include one (1) napkin disposal unit (model 4781) within each water closet location. 011000 EQUIPMENT The following dock equipment will be provided: Two (2) 6 ft. x 1 ft. 20,000 lb. mechanical dock levelers (Edge O Dock type) with bumpers. The cost of the dock equipment will be included in the warehouse finish out allowance on 4'docks. 012000 FURNISHINGS COUNTER TOPS, CABINETS AND VANITIES: - ------------------------------------ Counter tops, cabinets, vanities, and other built-ins (collectively called built-ins) will be provided as shown on the approved plans and as described below: DOLAN CONTRACTORS, INC. 14 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998
AREA TYPE OF BUILT-IN LINEAR FEET COMMENTS___________ - --------------------------- --------------------------- ------------------- ----------------------------------------------------- Bathrooms Vanities 48' One sink in each bathroom will allow for handicap access. Break Room Base w/ Counter Top 16' Upper Cabinets (30") 16' 1/2 wall with 12" Counter Tops 22' location and orientation to be approved by Lessor. 1/2 wall with 12" Counter Tops 22' location and orientation to be approved by Lessor. Sales File Storage Base w/ Counter Top 8' Upper Cabinet 8' Production Group& 36" Table Top(Against Wall) 48' 36"above finished floor, Tech Support open underneath Upper Bookshelf 48' 30"above table top Training Room #1 Base w/ Counter Top 28' Training Room #2 Base w/ Counter Top 24' Executive Conf. Base w/ Counter Top 22' Executive Break Base w/ Counter Top 16' Upper Cabinets (30") 8' Integration&Lab Tech. 40" Table Tops 225' 4'above finished floor, open underneath (Free Standing) 12" Shelf 225' 2' above table tops Guest Services 2'x4' Phone Banks 32' 32" above finished floor 3'x4' Laptop & Phone Banks 32' 32" above finished floor
All built-ins will be constructed to commercial standards, with colors and laminates selected by the LESSEE from the manufacturers standard colors. Laminates may be selected from standard colors provided by Wilsonart, Pionite, Formica, Nevamai or approved equal. LESSEE may request additional built-ins, provided LESSEE shall pay the difference prior to installation. Closets will be constructed along one wall of each training room. The closets will be constructed using studs and drywall with 2 1/2'x 7' sliding access doors. The bottom area of the closets will be open and sized to allow for stacked storage of chairs. A shelve (18" in width) will be installed at 6' above the floor running the full length of each closet. DOLAN CONTRACTORS, INC. 15 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 013000 SPECIAL CONSTRUCTION No special construction is anticipated for this project. 014000 CONVEYING SYSTEMS No conveying systems are anticipated in this project. 015000 MECHANICAL SYSTEMS PLUMBING: - --------- Toilet room facilities sufficient to handle 340 employees will be provided in accordance with the Unified Plumbing Code general standards assuming 60% of the employees are women and 40% are men. Plumbing fixtures will be commercial grade (American Standard, Kohler, or a equal) and will include the following:
AREA FIXTURE QUANTITY TYPE - ------------------------ ------------ ------------------ ------------------------------------- Mens Toilet Room #1 Water Closet 3 Power Flush (East Office) Urinal 2 Lavatory 2 Drop-In Faucets 2 Single Lever ADA Floor Drain 1 Mens Toilet Room #2 Water Closet 4 Power Flush (South Office) Urinal 3 Lavatory 3 Drop-In Faucets 3 Single Lever ADA Floor Drain 1 Women's Toilet Room #1 Water Closet 8 Power Flush (East Office) Lavatory 4 Faucets 4 Single Lever ADA Floor Drain 2 Women's Toilet Room #2 Water Closet 5 Power Flush (South Office) Lavatory 2 Drop-In Faucets 2 Single Lever ADA Floor Drain 1 Executive Break Room Sink 1 18 ga. Stainless Steel-8" single bowl Ice Maker 1 Under counter type Water Line Outlet 1 With connection for coffee maker
DOLAN CONTRACTORS, INC. 16 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998
Break Room Sink 1 18 ga. Stainless Steel-8" double bowl Ice Maker 1 Under counter type Dish Washer 1 Water Line Outlet 1 With connection for coffee maker Janitor's Room Mop Sink 1 Molded Stone Type Faucet 1 Floor Drain 1 Warehouse Toilet Water Closet 1 Sink 1 Wall Mounted Faucet 1 Single Lever ADA type Floor Drain 1 Other Hot Water Heaters 3 Low Boy Style-120V Drinking Fountains 4
Water closets, urinals, and lavatories will be manufactured by American Standard, Kohler, or an approved equal. Flush valves will be manufactured by Sloan(Regal Model). Bathroom faucets will be manufactured by American Standard(Reliant Plus Series), Kohler(Coralias), Moen(L 4621), Delta(D 520), or an approved equal. Sinks will be manufactured by Elkay(LR Series 3322)and(LR Series-A D 2522-65-3) or an approved equal. The mop sink and faucet will be manufactured by Fiat(sink-MSB-2424, faucet-830-AA)or approved equal. Hot water heaters will be manufactured by AL Smith, Rheem, or approved equal. Drinking fountains will be manufactured by Elkay ( EB-FSA-8) or approved equal. Ice makers will be under counter types as manufactured by Scotsman or an approved equal. No special tanks (including grease separators and acid neutralizers), showers or eyewash stations have been included. Gas piping to heating units will be installed in accordance with local and State codes. HVAC: - ----- Rooftop single package HVAC units will be used in the finished office area to provide heating and air conditioning. The system will be designed to provide 68 degrees F when the outside ambient temperature is 30 degrees F, and the air conditioning will be designed to provide 78 degrees F when the outside air is at 100 degrees F and 30% relative humidity. A fiberglass duct system and standard 2' x 2' perforated diffusers will be sized to supply air circulation in the office area. HVAC units will be high efficiency units with a minimum standard energy efficiency rating (SEER) of 11.0 as manufactured by York(sunline 2000 series);Carrier, Trane or approved equal. Dolan Contractors will prepare an HVAC layout, showing HVAC unit locations, thermostat locations and zones. This HVAC plan will be submitted to Business Partners Solutions (BPS) for review and approval prior to finalizing the design and proceeding with construction. Heating will be provided in the warehouse utilizing a single gas indirect fired radiant heater as manufactured by Johnson or E.R. Camplell, or by direct fired gas units as provided by Reznor, Modine, Trane, or approved equal. DOLAN CONTRACTORS, INC. 17 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 Exhaust fans will be provided in the finished office area including bathrooms, to meet code requirements. Exhaust fans will be manufactured by Cook, Greehack, Karnes. or approved equal. FIRE SUPPRESSION SPRINKLERING: - ------------------------------ The finished office area will be provided with an automatic wet sprinkler system throughout, designed in accordance with NFPA 13 and subject to approval by reviewing agencies. Occupancy will be Class I (light hazard) use. Ceiling height will vary from approximately 9'-0" above floor to 16'-0" above the floor. Office sprinklers will be designed to provide a density of 0.15 g.p.m. per square foot over any remote 1500 square feet using concealed pendent heads in all areas excluding the warehouse. The warehouse sprinkler system will be designed to accommodate class 3 commodities in storage heights, not to exceed 28' above the finished floor. The pump room for the fire pump will be situated in the adjacent space at the north west corner of the building. The area required for the fire pump and operating expense will be included in the common area costs for the building. Interior hose stations, flow and tamper switches, alarm bells, fire extinguishers, signs, backflow preventers and fire department connections will be provided as required by code. Sprinkler risers may be equipped with inside control valves. All systems will be hydraulically calculated to provide the required flow at the minimum needed sprinkler discharge pressure. All sprinkler system piping (underground and overhead) will be installed and tested in accordance with the requirements of NFPA 13, 231C and 24. The installation will also conform to all State and local requirements. 016000 ELECTRICAL All work will be done in accordance with the Unified Electrical Code and all local requirements. The building service will be 480V, 3 phase, and sized to handle the anticipated loads. ELECTRICAL WORK: - ---------------- The electrical work will include service to the building, interior transformers for the warehouse and office, materials, labor, taxes, permits, and other charges related to the installation of the items included in this section. SITE LIGHTING: - -------------- Site Lighting will be provided such that all drives, car parking and loading dock areas are illuminated in accordance with local standards. Seven (7) pole- mounted lights (400 watt, metal halide) will be installed on 25 ft. high laminated wood, steel or aluminum poles in the car parking areas as shown on the approved site plan. Wall-mounted lights DOLAN CONTRACTORS, INC. 18 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998 (400 watt or 250 watt as required) will be installed around the perimeter of the building in the location shown on the approved elevation plan. This proposal includes twenty four (24) wall lights. Each exit door will have an exterior wall-mounted light above it, unless a site lighting is located in the immediate vicinity. All exterior lights shall be controlled by photo-cell. WAREHOUSE LIGHTING: - ------------------- Warehouse lighting fixtures will be 400 watt, metal halide high-bay lights spaced at 25' center to center in the racking aisles. An additional four (4) lights will be placed above each interior staging area (40' x 40') adjacent to the loading docks. A total of 85 light fixtures are planned in the warehouse. Emergency exit lights will be provided at the exit doors in accordance with code requirements. OFFICE LIGHTING: - ---------------- Finished office area lighting will be provided by a 2ft. by 4ft. drop-in flourescent lights with electronic ballast and parabolic lenses. Office lighting will be designed to allow for a minimum of 50 foot candles at desk height. Recessed lighting, complete with dimmer switches will be used to supplement the parabolic lighting in both training rooms, and the board room. Approximately one (1) recessed light will be spaced along every eight feet of wall within these rooms. Bathroom lighting will be provided by a 2ft. by 4ft. drop-in fluorescent lighting with acrylic lenses to provide 30 foot-candle at floor level. SWITCHES, RECEPTACLES, AND MODEM/TELEPHONE DROPS: - ------------------------------------------------- Switches and duplex receptacles are planned for each of the following areas as indicated below. In addition, this proposal includes conduits for modem, computer wiring, and telephone lines from the wall location shown on the approved plans, to a point above the ceiling. Dolan Contractors will submit a drawing to Business Partner Solutions, Inc. (BPS) showing the location of all switches, standard receptacles, computer receptacles and conduit drops. BPS shall have the right to review and approve such plan prior to final design and construction. Any additional conduit, unless specified in this section, will be the responsibility of the LESSEE.
EQUIPMENT PER AREA ------------------ COMPUTER NUMBER STANDARD COMPUTER MODEM/TELEPH. AREA OF AREAS SWITCHES RECEPTACLE RECEPTACLE DROP(S) OTHER - ----------------------- -------- -------- ----------- ---------- ---------- ---------- GENERAL OFFICE AREAS: - -------------------- Entrance Doors 5 3 0 0 0 Waiting 1 4 8 0 1 Reception 1 2 1 2 1 Main Hallways 1 26 22 0 0 Guest Serv. 1 2 4 8 4
DOLAN CONTRACTORS, INC. 19 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998
EQUIPMENT PER AREA ------------------ COMPUTER NUMBER STANDARD COMPUTER MODEM/TELEPH. AREA OF AREAS SWITCHES RECEPTACLE RECEPTACLE DROP(S) OTHER - ----------------------- -------- -------- ----------- ---------- ---------- ---------- GENERAL OFFICE AREAS: - -------------------- Computer Room 1 2 1 10 4 Four(4)-208V-30A Break Room 1 6 11 3 2 Training Rooms 2 3 8 8 12 One(1) Floor Plug Acct. Files 1 2 10 3 3 Acct.Ops/Work Copy 1 3 9 4 4 Phone Utility Room 1 1 3 1 1 Shipping Receiving 1 3 3 1 4 Admin. Storage 1 2 9 2 2 Sales Files/ Storage/Copy 1 2 8 2 8 Phone/Utility Room 1 1 3 1 1 Library 1 2 4 4 4 Mkt./Display/Stor. 1 2 7 2 0 Prod. Group/ Tech. Support 1 2 4 4 4 EXECUTIVE: - --------- Waiting 1 4 6 2 2 Hall 1 2 3 0 0 Board Room 1 3 6 4 4 Two(2)floor plugs Exec. Conf. 1 2 4 1 1 Files 1 1 4 0 1 Break 1 2 2 0 0 OFFICE/CONF. ROOMS: - ------------------ Executive 4 2 4 1 1 Sales VP/Director 8 1 3 1 1 Managers 34 1 2 1 1 IBM Office 1 2 2 2 2 Conference Rooms 7 1 3 1 1 WORKSTATION AREAS: - ----------------- Workstations 283 0 By Lessee By Lessee Power Poles by Lessee Exterior Wall 1 0 10 10 20 Interior Walls 1 7 29 0 0 Filing Areas 3 1 1 1 1
DOLAN CONTRACTORS, INC. 20 BUSINESS PARTNER SOLUTIONS, INC. EXHIBIT G JANUARY 30, 1998
NUMBER OF COMPUTER AREAS SWITCHES STAND. COMPT. MODEM/TELEPH. OTHER --------- -------- ------ ------ ------------- ---------------- INTEGRATION & LAB TECH: - ------------------------- Work Tables 3 0 0 10 2 Ten(10)-208V-30A Work Tables 2 0 0 15 2 Exterior Walls 1 4 5 0 3 Interior Walls 1 4 12 2 2 WAREHOUSE: - ------------------------- Secure Storage 1 2 4 0 0 Janitor/Whs. Toilet 1 1 1 0 0 Air Compression 2 1 0 0 0 1 Dedicated 220V Packaging 1 1 0 0 0 1 Dedicated 110V Overhead Doors 4 0 1 0 0 Exit Doors 2 2 1 0 0 Interior Walls 1 0 10 0 0 Partition Doors 2 2 1 0 0 - ------------------------- --- --- --- --- --- Totals 188 357 200 162
The LESSEE will provide workstations complete with receptacles, wiring within the workstation to a power pole. LESSEE will also provide power poles capable of connecting all circuitry, modem and telephone lines from the workstations to a connections box above a 14 foot ceiling. Workstations adjacent to walls will not require power poles. LESSEE will be responsible for providing all power and circuitry to the workstation power poles. LESSOR will be responsible for the power poles to the ceiling, in the workstation areas, except where workstations are located adjacent to walls in which case LESSOR will be responsible for the whip connections. Computer receptacles will be provided in the locations shown on the approved plan and further described above. No more than eight (8) computer receptacles will be placed on a circuit, unless the workstation wiring within the workstations will not allow for a reduced receptacle count on specific circuits. Floor conduit and floor plugs will be provided in the training rooms and board rooms as specified by the LESSEE, and shown on the approved plan. Wiring for telephone, computer communication, CCTV, and security systems are not included in this specification, and are the responsibility of LESSEE. DOLAN CONTRACTORS, INC. 21 EX-10.3 4 IBM BUSINESS PARTNER AGREEMENT Exhibit 10.3 CONFIDENTIAL TREATMENT REQUESTED, CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION IBM BUSINESS PARTNER AGREEMENT [IBM LOGO] DISTRIBUTOR ATTACHMENT - -------------------------------------------------------------------------------- These terms prevail over and are in addition to or modify the Remarketer Terms Attachment. 1. MARKETING APPROVAL You are approved to market Products and Services to Remarketers (but not to IBM approved Distributors unless we specify otherwise in your Profile) and to End Users. Your Profile will specify to whom you may market Products and Services. 2. YOUR RESPONSIBILITIES TO IBM You agree: 1. to develop a mutually acceptable business plan with us, if we require one. Such plan will document each of our marketing plans as they apply to our relationship. We will review the plan, at a minimum, once a year; 2. that, unless precluded by applicable law, one of the requirements for you to retain this relationship is that you achieve the minimum annual attainment we specify in your Profile: 3. to order Products and Services as we specify in the operations guide; 4. to maintain trained personnel, as we specify in your Profile or Exhibit, as applicable; 5. to provide us, on our request, relevant financial information about your business so we may, for example, use this information in our consideration to extend credit terms to you. We may require an annual audited financial report; 6. unless we specify otherwise in the Exhibit, to maintain the capability to demonstrate the Products we approve you to market; 7. to maintain sufficient inventory of Products to meet Remarketer demands. We may specify in your Exhibit certain Products we require you to have regularly available; 8. to secure from your Remarketers a signed Program license agreement for Programs requiring signature; and 9. to ensure that the terms in any agreement you may have with Remarketers are not in conflict with this Agreement. If, during our review of your Remarketer's compliance with its Business Partner Agreement with us, we find the Remarketer has materially breached the terms of the Agreement, you agree to refund the amount equal to the discount (or fee, if applicable) we gave you for the Products that are the subject of the breach, if we require you to do so. 3. YOUR RESPONSIBILITIES TO REMARKETERS You agree to: 1. provide Products and Services to them on an equitable basis; Page 1 of 3 2. provide development, demonstration, evaluation and internal use Products (we specify eligible Products in the Exhibit) to those Remarketers who are eligible to acquire such Products. You must make such Products available to each of them on the same terms, regarding the maximum quantity of Products that may be acquired and the minimum retention period, as we make available to you; 3. fulfill all their valid orders for eligible Products and Services; 4. give written notification to the Remarketer of any modification you make to a Product and the name of the warranty service provider, and advise that such modification may void the warranty for the Product; 5. provide the Program license agreement to them, if applicable, and require them to provide the agreement to the End User, and 6. provide the following Items to Remarketers when we have given such items to you for distribution to them: a. promotional offerings and material; b. incentives; c. marketing funds; d. support documentation; and e. advertising material. You agree to distribute them proportionally and according to the procedures we specify, and to require the Remarketer to properly implement or distribute them, as applicable. Except for personal computer Products, you also agree to: 1. inform them that you are available to provide Product and Services support to them; 2. provide pre- and post-installation sales support to them. You agree you are responsible for their satisfaction with such support; 3. provide configuration support to them, for Products we specify; 4. assist them in Product problem determination and resolution; and 5. advise them of the terms regarding the date of installation for Products IBM installs. 4. YOUR REMARKETERS' RESPONSIBILITIES When you market Products and Services to Remarketers who do not have a contractual relationship with IBM for such Products and Services, you agree to inform them of their responsibility to: 1. provide the support necessary to maintain customer satisfaction; 2. provide Program Services to their End Users; 3. provide Product configuration support to their End Users; 4. assist their End Users to achieve productive use of the Products and Services they marketed; Page 2 of 3 5. inform their End Users of Product installation requirements; 6. comply with all terms regarding Program upgrades; 7. refund the amount paid for a Product returned if such return is provided for in its warranty or license or a money-back guarantee we offer End Users. The Remarketer may return the Product to you for credit, as we specify in the operations guide 8. for a Program requiring the End User's signature on the Program license agreement, obtain the signature before providing the Program to the End User and return the agreement as we specify; 9. provide warranty information to their End Users, when applicable; 10. comply with all export laws and regulations including those of the United States, the Governing Law section of this Agreement and any laws and regulations of the country in which the Product is imported or exported, and advise their End User that IBM's warranty responsibilities do not apply (unless the warranty terms state otherwise); 11. provide a dated sales receipt or its equivalent (such as an invoice) to their End User; 12. give their End Users written notice of any modification you or the Remarketer made to a Product and the name of the warranty service provider and advise that such modification may void the warranty for the Product; 13. inform their End Users that the sales receipt (or other documentation, such as Proof of Entitlement if it is required) will be necessary for proof of warranty entitlement or for Program upgrades; 14. inform their End Users of educational offerings, as applicable; 15. advise their End Users of the terms regarding a Machine's production status; 16. assist you in locating Products if we require such assistance from you; and 17. retain records of each sales transaction for three years. Page 3 of 3 IBM BUSINESS PARTNER AGREEMENT REMARKETER TERMS ATTACHMENT - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Section Title Page 1. Our Relationship............................................ 2 2. Ordering and Delivery....................................... 3 3. Inventory Adjustments....................................... 3 4. Price, Invoicing, Payment and Taxes......................... 4 5. Licensed Internal Code...................................... 5 6. Programs.................................................... 6 7. Export...................................................... 6 8. Title....................................................... 7 9. Risk of Loss................................................ 7 10. Installation and Warranty................................... 7 11. Warranty Service............................................ 8 12. Marketing of Services for a Fee............................. 8 13. Marketing of Financing...................................... 9 14. Engineering Changes......................................... 9 15. Ending the Agreement........................................ 9
Page 1 of 10 IBM BUSINESS PARTNER AGREEMENT REMARKETER TERMS ATTACHMENT - -------------------------------------------------------------------------------- 1. OUR RELATIONSHIP As our IBM Business Partner, you market to your Customers the Products and Services (including shrink-wrap Services) we provide to you. These terms apply to a Business Partner whose method of distribution is under our remarketer terms, and includes Distributors, Resellers, Solution Providers, and Systems Integrators. RESPONSIBILITIES Each of us agrees: 1. we offer a money-back guarantee to End Users for certain Products. You agree to inform the End User of the terms of this guarantee before the applicable sale. For any such Product, you agree to 1) accept its return in the time frame we specify, 2) refund the full amount paid to you for it, and 3) dispose of it (including all its components) as we specify. We will pay a transportation charge for return of the Product to us and will give you an appropriate credit. 2. each of us is free to set its own prices and terms: and 3. neither of us will discuss its Customer prices and terms in the presence of the other. Other Responsibilities You agree: 1. to refund the amount paid for a Product or Service returned to you if such return is provided for in its warranty or license. You may return the Product to us for credit at our expense, as we specify in the operations guide; 2. to provide us with sufficient, free and safe access to your facilities, at a mutually convenient time, for us to fulfill our obligations; 3. to retain records, as we specify in the operations guide, of each Product and Service transaction (for example, a sale or credit) for three years; 4. to provide us with marketing, sales, installation reporting and inventory information for our Products and Services, as we specify in the operations guide; 5. that, when you are approved to market to Remarketers, to market Products and Services which require certification, only to Remarketers who are certified to market them; 6. to comply with all terms regarding Program upgrades; 7. to provide a dated sales receipt (or its equivalent, such as an invoice) as we specify in the operations guide, to your Customers, before or upon delivery of Products and Services; and 8. to report to us any suspected Product defects or safety problems, and to assist us in tracing and locating Products. Page 2 of 10 2. ORDERING AND DELIVERY You may order Products and Services from us as we specify in the operations guide. You agree to order them in sufficient time to count toward your minimum annual attainment, if applicable. We will agree to a location to which we will ship. We may establish criteria for you to maintain at such location (for example, certain physical characteristics, such as a loading dock), as we specify in the operations guide. Upon becoming aware of any discrepancy between our shipping manifest and the Products and Services received from us, you agree to notify us immediately. We will work with you to reconcile any differences. Although we do not warrant delivery dates, we will use reasonable efforts to meet your requested delivery dates. We select the method of transportation and pay associated charges for Products and Services we ship, We may not be able to honor your request for modification or cancellation of an order. We may apply a cancellation charge for orders you cancel within 10 business days before the order is scheduled to be shipped. The Exhibit will specify if a cancellation charge applies and where we will specify the charge. If we are unable to stop shipment of an order you cancel, and you return such Product to us after shipment, our inventory adjustment terms apply. 3. INVENTORY ADJUSTMENTS We will specify in your Exhibit the Products and Services to which this section applies. Products and Services you return to us for credit must have been acquired directly from us. You must request and receive approval from us to return the Products and Services. Products and Services must be received by us within one month of our approving their return, unless we specify otherwise to you in writing. We will issue a credit to you when we accept the returned Products and Services. Certain Products may be acquired only as Machines and Programs packaged together as a solution. These Products must be returned with all their components intact. For certain Products and Services you return, a handling charge applies. We will specify the handling charge percentage in the Exhibit. We determine your total handling charge by multiplying the inventory adjustment credit amount for the Products and Services by the handling charge percent. You agree to pay transportation and associated charges for Products and Services you return. Unless we specify otherwise, returned Products and Services must be in their unopened and undamaged packages. You agree to ensure the returned Products and Services are free of any legal obligations or restrictions that prevent their return. We accept them only from locations within the country to which we ship Products and Services. Page 3 of 10 We will reject any returned Products and Services that do not comply with these terms. 4. PRICE, INVOICING, PAYMENT AND TAXES PRICE AND DISCOUNT The price, and discount if we specify one, for each Product and Service will be made available to you in a communication which we provide to you in published form or through our electronic information systems or a combination of both. Unless we specify otherwise, discounts do not apply to Program upgrades, accessories, or field-installed Machine features, conversions, or upgrades. The price for each Product and Service is the lower of the price in effect on the date we receive your order, or the date we ship a product or "shrink- wrap" Service, or the start date of a Service, if it is within six months of the date we receive your order. PRICE AND DISCOUNT CHANGES We may change prices and increase discounts at any time. We may decrease discounts on one month's written notice. Price increases for Products and Services included in a project do not apply to you for up to two years from the start date of a project (we will protect the price that was in effect at the time we received the first order for the project) if you documented the project to us and we approved and accepted such documentation. We will specify additional details, if any, to you in writing. We will specify in your Exhibit if the following credit terms do not apply to Products and Services we approve you to market. If we decrease the price or increase the discount for a Product or Service, you will be eligible to receive a price decrease credit or a discount increase credit for those you acquired directly from us that are in your inventory, or in transit, or if the Product's date of installation or Service start date not occurred. However, Products acquired from us under special offering (for example, a promotional price or a special incentive) may not be eligible for a full credit. You must certify your inventory to us in writing within one month of the effective date of the change. The credit is the difference between the price you paid, after any adjustments, and the new price. The following terms apply to Programs licensed on a recurring-charge basis: We may increase a recurring charge for a Program by giving you three months' written notice. An increase applies on the first day of the invoice or charging period on or after the effective date we specify in the notice. INVOICING, PAYMENT AND TAXES Amounts are due upon receipt of invoice and payable as specified in a transaction document. You agree to pay accordingly, including any late payment fee. Details of any late payment fee will be provided upon request at the time of order and will be included in the notice. You may use a credit only after we issue it. If any authority requires us to include in our invoice to you a duty, tax, levy, or fee which they impose, excluding those based on our net income, upon any transaction under this Agreement, then you agree to pay that amount. Page 4 of 10 RESELLER TAX EXEMPTION You agree to provide us with your valid reseller exemption documentation for each applicable taxing jurisdiction to which we ship Products. If we do not receive such documentation, we will charge you applicable taxes and duties. You agree to notify us promptly if this documentation is rescinded or modified. You are liable for any claims or assessments that result from any taxing jurisdiction refusing to recognize your exemption. PURCHASE MONEY SECURITY INTEREST You grant us a purchase money security interest in your proceeds from the sale of, and your accounts receivable for, a Product, until we receive the amounts due. You agree to sign an appropriate document (for example, a "UCC-1") to permit us to perfect our purchase money security interest. FAILURE TO PAY ANY AMOUNTS DUE If you fail to pay any amounts due in the required period of time, you agree that we may do one or more of the following, unless precluded by law: 1. impose a finance charge, as we specify to you in writing, up to the maximum permitted by law, on the portion which was not paid during the required period; 2. require payment on or before delivery of Products and Services; 3. repossess any Products and Services for which you have not paid. If we do so, you agree to pay all expenses associated with repossession and collection, including reasonable attorneys' fees. You agree to make the Products and Services available to us at a site that is mutually convenient; 4. not accept your order until any amounts due are paid; 5. terminate this Agreement; or 6. pursue any other remedy available at law. We may offset any amounts due you, or designated for your use (for example, marketing funds or promotional offerings), against amounts due us or any of our Related Companies. In addition, if your account with any of our Related Companies becomes delinquent, we may invoke any of these options when allowable by applicable law. 5. LICENSED INTERNAL CODE We will identify each Specific Machine in the Exhibit. We grant the rightful possessor of a Specific Machine a license to use the Code (or any replacement we provide) on, or in conjunction with, only the Specific Machine, designated by serial number, for which the Code is provided. We license the Code to only one rightful possessor at a time. You agree that you are bound by the terms of the separate license agreement that we will provide to you. YOUR RESPONSIBILITIES You agree to inform your End User, and record on the sales receipt, that the Machine you provide is a Specific Machine using Licensed Internal Code. You agree to provide the applicable license agreement to your End User before the sale is finalized. Page 5 of 10 6. PROGRAMS You agree to ensure the End User has signed the license agreement for a Program requiring a signature, as we specify in the Exhibit, before such Program is provided to the End User, and to provide any required documentation to us. All other Programs are licensed under the terms of the agreement provided with them. You agree, where applicable, to provide the Program license to the End User before such Program is provided to the End User. We will designate in the Exhibit if 1) we will ship the media and documentation to you or, if you request and we agree, to the End User, 2) you may copy and redistribute the media and documentation to the End User, or 3) you must copy and redistribute the media and documentation to the End User. If we ship the media and documentation, we may charge you. We will specify such charge to you in writing. If you copy and redistribute, you must be licensed to use the Program from which you make the copies. A Program license you acquired for use under the Demonstration, Development and Evaluation Products terms fulfill this requirement. Programs licensed to you on a recurring-charge basis are licensed for the period indicated in our invoice. You may market such Programs only on the same basis as licensed to you. You may not charge an End User a one-time charge for a Program you license from us on a recurring-charge basis. However, you may charge the End User whatever amount you wish for the recurring-charge. PROGRAM SERVICES Program Services are described in the Program's license agreement. You are responsible to provide your Customers, who are licensed for a Program, the Program Services we make available to you. If the End User agrees in writing, you may: 1. delegate this responsibility to another IBM Business Partner who is approved to market the Product, or 2. provide an enhanced version of this support through the applicable IBM Service you market to the End User. If you delegate your support responsibilities to another IBM Business Partner, you retain customer satisfaction responsibility. However, if you market our applicable Services to the End User, we assume customer satisfaction responsibility for such support. 7. EXPORT You may actively market Products and Services only within the geographic scope specified in this Agreement. You may not market outside this scope, and you agree not to use anyone else to do so. If a Customer acquires a Product for export, our responsibilities, if any, under this Agreement no longer apply to that Product unless the Product's warranty or license terms state otherwise. You agree to use your best efforts to ensure that your Customer complies with all export laws and regulations, including those of the United States and the country specified in the Governing Law Section of this Agreement, and any laws and regulations of the country in which the Product is imported or exported. Before your sale of such Product, you agree to prepare a support plan for it and obtain your Customer's agreement to that plan. Within one month of sale, you agree to provide us with the Customer's name and address, Machine type/model and serial number, date of sale, and destination country. Page 6 of 10 We exclude these Products from: 1. any of your attainment toward your objectives; and 2. qualification for applicable promotional offerings and marketing funds. We may also reduce future supply allocations to you by the number of exported Products. 8. TITLE When you order a Machine, we transfer title to you when we ship the Machine. Any prior transfer to you of title to a Machine reverts back to IBM when it is accepted by us as a returned Machine. We do not transfer a Program's title. 9. RISK OF LOSS We bear the risk of loss of, or damage to, a Product or Service until its initial delivery from us to you or, if you request and we agree, delivery from us to your Customer. Thereafter, you assume the risk. 10. INSTALLATION AND WARRANTY We will ensure that Machines we install are in good working order and conform to their specifications. We provide instructions to enable the set- up of Customer-Set-Up Machines. We are not responsible for the installation of Programs or non-IBM Machines. We do, however, preload Programs onto certain Machines. We provide a copy of our applicable warranty statement to you. You agree to provide it to the End User for review before the sale is finalized, unless we specify otherwise. We calculate the expiration date of an IBM Machine's warranty period from the Machine's Date of Installation. Warranty terms for Programs are described in the Programs' license terms. We provide non-IBM Products WITHOUT WARRANTIES OF ANY KIND, unless we specify otherwise. However, non-IBM manufacturers, suppliers, or publishers may provide their own warranties to you. For non-IBM Products we approve you to market, you agree to inform your Customer in writing 1) that the Products are non-IBM, 2) the manufacturer or supplier who is responsible for warranty (if any), and 3) of the procedure to obtain any warranty service. DATE OF INSTALLATION FOR A MACHINE WE ARE RESPONSIBLE TO INSTALL The Date of Installation for a Machine we are responsible to install is the business day after the day 4) we install it or, 5) it is made available for installation, if you (or the End User) defer Installation. Otherwise (for example, if others install or break its warranty seal), it is the day we deliver the Machine to you (or the End User). In such event, we reserve the right to inspect the Machine to ensure its qualification for warranty entitlement. THE DATE OF INSTALLATION FOR A CUSTOMER-SET-UP MACHINE The Date of Installation for a Customer-Set-Up Machine is the date the Machine is installed which you or your Remarketer, if applicable, record on the End User's sales receipt. You must also notify us of this date upon our request. Page 7 of 10 INSTALLATION OF MACHINE FEATURES, CONVERSIONS, AND UPGRADES We sell features, conversions and upgrades for installation on Machines, and, in certain instances, only for installation on a designated, serial numbered Machine. Many of these transactions involve the removal of parts and their return to us. As applicable, you represent that you have the permission from the owner and any lien holders to 1) install features, conversions and upgrades and 2) transfer the ownership and possession of removed parts (which become our property) to us. You further represent that all removed parts are genuine, and unaltered, and in good working order. A part that replaces a removed part will assume the warranty and maintenance Service status of the replaced part. You agree to allow us to install the feature, conversion, or upgrade within 30 days of its delivery. Otherwise, we may terminate the transaction and you must return the feature, conversion, or upgrade to us at your expense. 11. WARRANTY SERVICE We will specify in the Exhibit whether you or we are responsible to provide Warranty Service for a Machine. When we are responsible for providing Warranty Service for Machines, you are not authorized to provide such Service, unless we specify otherwise in the Exhibit. When you are responsible for providing Warranty Service, you agree to do so according to the terms we specify in the Warranty Service Attachment. 12. MARKETING OF SERVICES FOR A FEE If you marketed a Product to an End User under this Agreement, or if you are approved in your Profile to market a Service, you may, as we specify in the Exhibit, 1) market Services, or 2) provide a qualified lead to us so that we may market Services, to the End User on any machine or program, and receive a fee from us. We provide Services to the End User under the terms of our applicable agreement, signed by the End User. You will receive a fee for a lead when it 1) is submitted on the form we provide to you, 2) is for an opportunity which is not known to us, and 3) results in the End User ordering the Service from us within six months from the date we received the lead from you. Alternatively, you will receive a fee for marketing when 1) you identify the opportunity and perform the marketing activities, 2) you provide us with the order and any required documents signed by the End User, and 3) if a standard Statement of Work is used, there are no changes, and no marketing assistance from us is required. You may market Services on eligible non-IBM Products regardless of whether you marketed a Machine or Program to the End User. We will not pay you the fee if the machine or program is already under the applicable Service or if there is agreement to place the Machine or Program under the applicable Service or if the Service was terminated by the End User within the last six months. If the Service is terminated within three months of the date payment from the End User was due us, you agree to reimburse us for any payments we made to you associated with it. The reimbursement may be prorated if the Service is on a recurring charge basis. We periodically reconcile amounts we paid you to amounts you actually earned. We may deduct amounts due us from future payments we make to you, or ask you to pay amounts due us. Each of us agrees to promptly pay the other any amounts due. Page 8 of 10 13. MARKETING OF FINANCING If we approve you on your Profile, you may market our Financing Services for Products and Services and any associated products and services you market to the End User. If you market our Financing Services, we will pay you a fee as we specify to you in your Exhibit. We provide Financing Services to the End User under the terms of our applicable agreements signed by the End User. You agree that, for the items that will be financed 1) you will promptly provide us any required documents including invoices, with serial numbers, if applicable, 2) the supplier will transfer clear title to us, and 3) you will not transfer to us any obligations under your agreements with the End User. We will pay you or the supplier when the End User has initiated financing and acknowledged acceptance of the items being financed. 14. ENGINEERING CHANGES You agree to allow us to install mandatory engineering changes (such as those required for safety) on all Machines in your inventory, and to use your best efforts to enable us to install such engineering changes on your Customers' Machines. Mandatory engineering changes are installed at our expense and any removed parts become our property. During the warranty period, we manage and install engineering changes at: 1. your or your Customer's location for Machines for which we provide Warranty Service; and 2. your location for other Machines. Alternatively, we may provide you with the parts (at no charge) and instructions to do the installation yourself. We will reimburse you for your labor as we specify. 15. ENDING THE AGREEMENT Either of us may terminate this Agreement, with or without cause, on three months' written notice. If, under applicable law, a longer period is mandatory, then the notice period is the minimum notice period allowable. If we terminate for cause (such as you not meeting your minimum annual attainment), we may, at our discretion, allow you a reasonable opportunity to cure. If you fail to do so, the date of termination is that specified in the notice. However, if either party breaches a material term of the Agreement, the other party may terminate the Agreement on written notice. Examples of such breach by you are: if you do not maintain customer satisfaction; if you do not comply with the terms of a transaction document; if you repudiate this Agreement: or if you make any material misrepresentations to us. You agree that our only obligation is to provide the notice called for in this section and we are not liable for any claims or losses if we do so. At the end of this Agreement, you agree to: 1. pay for or return to us, at our discretion, any Products or shrink-wrap Services for which you have not paid; and 2. allow us, at our discretion, to acquire any that are in your possession or control, at the price you paid us, less any credits issued to you. Page 9 of 10 Products and shrink-wrap Services to be returned must be in their unopened and undamaged packages and in your inventory (or in transit from us) on the day this Agreement ends. We will inspect them, and reserve the right of rejection. You agree to pay all the shipping charges. At the end of this Agreement, each of us agrees to immediately settle any accounts with the other. When allowable by applicable law, we may offset any amounts due you against amounts due us or any of our Related Companies. You agree that if we permit you to perform certain activities after this Agreement ends, you will do so under the terms of this Agreement. Page 10 of 10 IBM BUSINESS PARTNER AGREEMENT [IBM LOGO] FEDERAL REMARKETER ATTACHMENT - -------------------------------------------------------------------------------- These terms are in addition to or modify the Remarketer Terms Attachment, Remarketer Terms Attachment for Workstation Software and the Transaction Remarketer Terms. They apply only when you market Products and Services to a Federal End User. 1. FEDERAL END USER "Federal End User" includes federal government agencies or any other entity listed in GSA Order ADM 4800.2D, including those entities listed in Appendices A, B, and C of the Order, and any successor Order which may be published by the GSA in the Federal Register. The term Federal End User also includes federal government cost reimbursement prime contractors and management and operating contractors that receive proper authorization under FAR Part 51 from federal agencies to make federal purchases or acquisitions where licenses granted and title to equipment vest in the federal government. 2. TITLE You may propose an integrated solution through a higher-tier federal contractor in fulfillment of a specific government procurement where title to the Machine passes directly to the federal government. In no event shall you permit transfer of title for any Machine purchased under this Agreement to other than the federal government. Under no circumstances may you assign any of your responsibilities under this Agreement to the Federal End User. 3. BUY AMERICAN ACT / TRADE AGREEMENTS ACT (BAA/TAA) We make no representation or certification regarding the domestic or foreign origin of products we provide. 4. EXPORT OF PRODUCTS When the federal government purchases Products and Services for its own use outside the United States, (i.e., an embassy or military installation) they do count 1) toward your minimum annual attainment 2) toward determination of your discount or price, as applicable, or 3) for determining your marketing or promotional funds. Your future supply allocations will not be affected. If for such Products. the warranty will be voided unless the equipment is returned to the United States for service. Title to the products must reside with the United States government, and the government must be responsible for the program licenses. 5. GSA PRICE PROTECTION IBM will provide price protection to GSA Schedule holders. These schedule holders must have an appropriate GSA contract addendum provided by the IBM Government Industry Federal Business Partner Program Manager, before being eligible for the price protection terms set out in that addendum. 6. ENDING THE AGREEMENT (For federal contract obligations, excluding GSA) If we terminate this Agreement without cause, we will permit you to continue to market under the terms of this Agreement through the date on which this Agreement would otherwise have ended had we not terminated it. You agree to promptly withdraw any bids that include Products and Services which were anticipated to have been obtained under this Agreement, unless we agree to terms and conditions under the Federal Systems Integrator (FSI) Program (or similar or successor program) for the bid as offered. Page 1 of 1 IBM BUSINESS PARTNER AGREEMENT [IBM LOGO] IBM WARRANTY SERVICE ATTACHMENT - -------------------------------------------------------------------------------- IBM WARRANTY SERVICE RESPONSIBILITY You may provide IBM Warranty Service from locations we approve. You must apply for approval and meet the criteria we specify in the Service support guidelines we provide to you. If we do not approve you to provide IBM Warranty Service from a location, you agree to assign such Service to us or to any party approved by us to provide IBM Warranty Service (unless we specify Otherwise to you in the Service support guidelines). WHEN YOU ARE APPROVED TO PROVIDE IBM WARRANTY SERVICE FROM A LOCATION When you are approved to provide IBM Warranty Service from a location, you agree to do the following, as we specify in the Service support guidelines we provide: 1. validate that the End User is entitled to IBM Warranty Service; 2. maintain IBM Warranty Service approval status and capability; 3. ensure the Service is performed only by personnel trained to our standards and consistent with our service terms; 4. provide the Service even for Machines the End User did not acquire from you (unless you have assigned responsibility, as described below in the subsection entitled "Assignment of IBM Warranty Service Responsibility., for all units of such Machine type/model); 5. not assign, delegate or subcontract the IBM Warranty Service responsibility unless approved by us in writing; 6. service Machines only at locations we approve or at your End Users' locations; 7. submit only valid warranty-reimbursement requests to us: and 8. retain records for three years, by location, of each warranty claim you submit to us. We will: 1. inform you of the IBM Warranty Service approval process; 2. train you to provide IBM Warranty Service. We provide training for the minimum number of your Service personnel that we require and additional training at your request. We may charge a fee for the training. We will specify if there is a fee. Additionally, for each location from which we approve you to provide IBM Warranty Service, we will specify if there is a one-time Warranty Service start up fee, and we will: 1. provide you with necessary technical information; and 2. pay you for IBM Warranty Service you provided and exchange (or reimburse you for) parts. Such parts must be received by us within the time period we specify. In the event you are no longer approved to provide IBM Warranty Service, you agree to inform your End Users and any Business Partner for whom you were the assignee. Page 1 of 3 IF YOU ARE NOT APPROVED TO PROVIDE WARRANTY SERVICE FROM A LOCATION If you are not approved to provide IBM Warranty Service from a location, you agree to: 1. assign, without delay, the IBM Warranty Service to us or any party approved by us; and 2. notify your End User of the assignment. ASSIGNMENT OF IBM WARRANTY SERVICE RESPONSIBILITY Your IBM Warranty Service Responsibility as an Assignor: Unless we specify otherwise to you in writing, you may assign IBM Warranty Service responsibility to us or to any party approved by us to provide it for: 1) all IBM Machines, 2) all units of an IBM Machine type/model by specifying that choice in your Profile, or 3) for individual IBM Machines at the time of sale to the End User For Machines for which you assign IBM Warranty Service responsibility, you agree to: 1. ensure the assignee accepts IBM Warranty Service responsibility for each Machine assigned; 2. provide a copy of the sales receipt to the assignee. Such sales receipt must specify the End User's name, Machine type/model, serial number, date of sale, date of delivery and installed-at location. If you do not indicate an assignee's name or location on the sales receipt, or if the assignee's name or location is not valid, you will be responsible for providing IBM Warranty Service for that Machine; 3. notify your End User of the assignment; and 4. remain responsible for your End User's satisfaction with such Service. If you assign IBM Warranty Service for all units of an IBM Machine type/model to us or to a party approved by us as you specify in your Profile, you are not required to maintain the capability to provide IBM Warranty Service for that IBM Machine type/model. The responsibility to provide IBM Warranty Service reverts to you if the End User is not satisfied with the IBM Warranty Service provided by your assignee or if the assignee loses its approval to provide IBM Warranty Service. You may subsequently assign such responsibility consistent with the provisions of this subsection. In such event, you are responsible to provide the End User and the new assignee with written notice of the assignment. Your IBM Warranty Service Responsibility as an Assignee: If you accept assignment of IBM Warranty Service responsibility from an IBM Business Partner, the applicable provisions of this Attachment apply to you. As an assignee, you accept such responsibility for each Machine for which you are named on the End User's sales receipt. You may not reassign such responsibility. If, at a later date, the assignor is no longer approved to market the Machine type/model, you will have the additional responsibility for the End User's IBM Warranty Service satisfaction. MAINTENANCE PARTS We provide maintenance parts for use in providing IBM Warranty Service on IBM Machines and for maintaining Machines. You agree to maintain an inventory of such parts to meet your Customers' service requirements. We provide maintenance parts for Warranty Service on an exchange basis. We will inform you of the price of such parts. These maintenance parts may not be new, but will be in good working order. Page 2 of 3 COUNTRY UNIQUE TERMS FOR THE WARRANTY SERVICE ATTACHMENT EMEA The following terms apply to all countries in EMEA: In the subsection entitled "IBM Warranty Service Responsibility": The following replaces the second paragraph: If we do not approve you to provide Warranty Service from a location, you agree to assign such Service for that location to us or any party approved by us to provide IBM Warranty Service. The following replaces item 4: provide the service even for IBM Machines the End User did not acquire from you; The terms of the subsection entitled "Assignment of Warranty Service Responsibility" are not applicable. Add the following as the last item in the section entitled "If You Are Not Approved to Provide Warranty Service From a Location": remain responsible for your Customer's satisfaction with that service. Page 3 of 3 [IBM LOGO] BUSINESS PARTNER AGREEMENT AUTHORIZED ASSEMBLERS ATTACHMENT - -------------------------------------------------------------------------------- These terms are in addition to and prevail over the terms of the Remarketer Terms Attachment and the Distributor Attachment. By signing this Attachment you accept its terms. We approve you, as our Authorized Assembler, to 1) assemble and test (according to our specifications) an Approved Product and 2) market an Approved Product to Remarketers. Unless we specify otherwise, your Related Companies are not authorized to assemble and test Approved Products. We will specify in the Exhibit for Authorized Assemblers, additional terms such as those regarding Approved Products, inspection and packaging requirements and our returns process. We will also list approved Components in the Exhibit. We will notify you if we withdraw any ISUs or Components from marketing. If we do so, you agree that upon the effective date of the withdrawal you will no longer use such ISUs or Components in the assembly and testing of Approved Products. We will specify in a document we call an Authorized Assembler Operations Guide (Operations Guide), processes and guidelines for the assembly and testing of Approved Products, such as those regarding certification and quality control. 1. DEFINITIONS APPROVED PRODUCT is the IBM product you will configure, assemble, and test (for example from an ISU and Components), according to our specifications. The terms of the Agreement regarding a Product also apply to an Approved Product. AUTHORIZED LOCATION is a site, controlled and operated by you, at which we authorize you to perform your responsibilities under this Attachment. Certain requirements, such as the minimum number of trained personnel and pre- assembly certification must be met at each Authorized Location. COMPONENT means the IBM Machine parts (such as hard files, memory, and adapter cards), miscellaneous assembly parts (such as screws, brackets, and cables), and product ship - -------------------------------------------------------------------------------- Both of us agree that the complete agreement between us about this relationship consists of 1) this Attachment and 2) the IBM Business Partner Agreement (or any equivalent agreement signed by both of us).
Agreed to: (IBM Business Partner name) Agreed to: International Business Machines Corporation By________________________________ By________________________________ Authorized signature Authorized signature Name (type or print) Name (type or pint) Date: Date: IBM Business Partner number: IBM Office address: IBM Business Partner address:
- -------------------------------------------------------------------------------- After signing, please return a copy of this Attachment to the IBM address shown above. - -------------------------------------------------------------------------------- Page 1 of 6 groups (such as publications and power cords) we specify. The terms of the Agreement regarding a Machine also apply to a Component. INCOMPLETE SYSTEM UNIT (called "ISU") means the partially assembled IBM system unit we identify in the Exhibit, from which an Approved Product is to be configured. The terms of the Agreement regarding a Machine also apply to an ISU. PROGRAM TOOL means any program we provide for testing purposes (such as diagnostics code or virus-protection programs), and any preload-enabling code we provide. 2. ALLOCATION AND ORDERING Unless we specify otherwise in the Exhibit, you agree to: 1. provide us, on a monthly basis, with a forecast of your requirements and current on-hand inventory, for the next 4 (four) months (or otherwise, upon our request), for ISUs and Components. We will allocate a monthly supply of ISUs and Components to you, at our discretion, based upon consideration of your forecasts, current on-hand inventory, actual sales, availability, and other business factors we consider relevant; 2. purchase the monthly number of ISUs and Components allocated to you, within ten (10) days of our notification of such allocation. If you do not, we may reduce subsequent allocations of ISUs and Components; and 3. order the ISUs and Components, as described in the Exhibit. 3. ASSEMBLY AND TESTING We will: 1. provide initial training for your personnel. as we specify, in our assembly and testing processes included in the Operations Guide; and 2. certify each of your Authorized Locations upon your establishing their compliance with (a) our assembly and testing processes, (handling of any Program or return of Components or ISUs), and (b) the minimum number of trained personnel we specify. You agree to: 1. assemble and test Approved Products using new or used ISUs and Components provided by us under the terms of this Attachment. You may not assemble Approved Products, for example, using ISUs or Components that were used by you in any manner or were acquired from any other source, including a trade-in (an Approved Product returned to you must be treated as a used machine unless you can establish that the Approved Product has not been installed); 2. meet the certification requirements we specify in the Operations Guide, including maintaining a minimum number of IBM-trained assembly technicians at each Authorized Location, as we specify in the Product Approval Section of this Attachment; 3. create an electronic assembly record for each Approved Product in the format we specify and electronically transmit the record to us using the electronic systems we specify. You agree you are responsible for any associated costs; 4. include, in unmodified form, all publications, license agreements, certificates of authenticity, labels, and ship groups with each Approved Product, as we describe in the Exhibit; 5. make copies of the Exhibit, and allow your personnel to use such copies, only as necessary for the performance of your responsibilities under this Attachment; 6. assemble and test Approved Products only at Authorized Locations; 7. provide on-going assembly and testing training to your personnel, as we specify; 8. acquire and maintain any tools and other equipment necessary to perform our assembly and testing processes; 9. unless we specify otherwise in the Exhibit, use IBM ISUs and Components only as described in this Attachment. You may not, for example, distribute or resell such ISUs or Components; Page 2 of 6 10. ensure that each Approved Product and its carton have labels that indicate the Approved Product may contain used parts. You also agree to conspicuously mark the outside of the shipping container of the Approved Product, as we specify in the Exhibit, to identify the Approved Product as having been assembled according to our specifications by an IBM Authorized Assembler. You represent and warrant that an Approved Product will be free from defects in your workmanship under normal use and operation, for the duration of the applicable warranty. 4. PROGRAM TOOLS GRANT OF LICENSE A Program Tool is owned by International Business Machines Corporation or one of its subsidiaries or an IBM Supplier, and is copyrighted and licensed, not sold. We grant you a nonexclusive, nontransferable license to use a Program Tool only in the assembly and testing of Approved Products. You may make one copy of a Program Tool for backup purposes. No other rights under this license are granted. You may not, for example, do any of the following: 1. use or copy a Program Tool, except as provided in this Attachment; 2. modify or merge a Program Tool; 3. reverse assemble, reverse compile, or otherwise translate a Program Tool; 4. sublicense or assign the license for a Program Tool; or 5. distribute a Program Tool to any third party. NO WARRANTY SUBJECT TO ANY STATUTORY WARRANTIES WHICH CANNOT BE EXCLUDED, IBM MAKES NO WARRANTIES OR CONDITIONS EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF NON-INFRINGEMENT AND THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, CONCERNING THE FUNCTION, PERFORMANCE OR DOCUMENTATION FOR A PROGRAM TOOL. This exclusion also applies to any of our subcontractors, suppliers or program developers (collectively called "Suppliers-). RESPONSIBILITIES For each Authorized Location, we will provide you (electronically, on media or otherwise) with a single copy of each Program Tool we specify, in the Exhibit. You agree to: 1. for a Program Tool licensed under the terms of a third-party agreement, execute that agreement and comply with its terms; 2. not remove any identification code that may be placed on a Program Tool by us; and 3. make payments, if any, due for any additional programs or other code you add. 5. QUALITY, RELIABILITY, AND SAFETY We will, prior to including a machine type/model in the Exhibit as an Approved Product, test the standard configurations of such machine type/model to ensure that it meets FCC, UL, and other specifications. If you make any alterations or attachments to the standard configurations, you are responsible for ensuring compliance with FCC, UL, and the other specifications. You agree: 1. upon our request, to immediately stop assembly of Approved Products; Page 3 of 6 2. to comply with our recall process, if any, for Approved Products; 3. not to modify or alter the subassemblies (such as power supplies, processors, planars) or other mechanical subassemblies of any Component or ISU; 4. to identify the additional IBM components, if any, added to an Approved Product, in the electronic assembly record and identify any non-IBM components; 5. not to use any ozone-depleting substances in your assembly and testing processes; 6. to comply with all environmental laws and regulations regarding the disposal of materials used in assembly and test processes; 7. to make any changes and improvements we identify as a result of periodic audits of your processes and compliance with the terms of the Agreement; 8. if an IBM service representative determines that failure of an Approved Product is due to poor workmanship or noncompliance with our specifications, to reimburse us for any expenses we incur to correct the deficiency or noncompliance; 9. to track data on failure rates in the assembly process and to provide this data to us, as we specify in the Exhibit; 10. to allow us, at our discretion and at any time, to remove an in-process or completed Approved Product from your Authorized Location so that we may perform our own testing; 11. to establish a Quality Management System, as we specify in the Operations Guide; and 12. to establish an Electrostatic Discharge (ESD) protection program, as we specify in the Operations Guide. You represent and warrant that an Approved Product will fully comply with all functional, quality, and reliability specifications or standards, including all FCC, UL, and those for consumer product safety. 6. MARKETING OF APPROVED PRODUCTS You agree: 1. to specify in all bids, proposals, and invoices you provide to Remarketers: a. that an Approved Product was assembled by you according to our specifications, b. the serial number of the ISU, and all feature codes of the Components and additional components, as applicable, included in the Approved Product, including a clear and conspicuous reference to the manufacturer of any additional components, and c. the appropriate warranty terms, as described in the Exhibit, for the Approved Product and any additional components; 2. to comply with all applicable laws and regulations in marketing Approved Products that have "used" content; 3. to market Approved Products only to IBM Remarketers who we have approved to acquire Products from you; 4. that Approved Products you assemble: a. will count towards your minimum attainment requirements; b. will be included, if applicable, in the calculation of your annual system revenue performance attainment for establishing your discount, c. are eligible for participation in the North American Distributor Program if indicated as eligible in the IBM Business Partner Exhibit and installed as part of a RS/6000 System; d. may be used to fulfill End User orders under your Solution Provider relationship; e. may be used to fulfill your Remarketers' orders for internal use Products, f. may not be used to fulfill Development or Demonstration Product orders; and 5. not to place Approved Products under an IBM Business Partner Trial Program. Page 4 of 6 7. PRICES For an ISU, we will invoice you a net price equal to our list price for That model configuration, less 1) the price of the agreed-to removed components (listed in the Exhibit) and 2) your Remarketer discount. We will apply your Remarketer discount to your purchase of Components, as well as non-ISU standard Machine configurations; In the event that the price of a Component corresponding to a standard, specify or select feature of an Approved Product changes, and the related price of the Approved Product does not change accordingly, we reserve the right to adjust the price of an ISU so that the combined price of the ISU and Component is equal to the price of the Approved Product. When this results in a price increase for the ISU, we will charge you an amount equal to the difference between the new ISU and the previous ISU price, less your Remarketer discount, for any affected ISUs in your inventory. Otherwise, all the terms of the Agreement relating to a price increase or decrease apply. 8. RETURNS We accept returns of ISUs and Components and non-ISU standard Machine configurations acquired under the terms of this Attachment: 1. under the inventory adjustment terms of the Agreement. They must be returned in their original, unopened containers. No open-box returns will be accepted; or 2. if they fail during the assembly and testing process. You agree to return to us, subject to our authorization, the failed parts along with failure documentation, as we specify. Upon our receipt of the ISU or Component and verification of the failure, we will issue a credit to you. You may choose to (a) purchase a replacement for the failed item, in which case the credit issued will not apply toward your inventory adjustment category limit, or (b) notify us of your intent to include the defective part as a returned item under the inventory adjustment terms of the Agreement. Once assembled and tested, an Approved Product may not be returned. 9. OWNERSHIP AND LICENSE We own all intellectual property rights (including ownership of copyright) in and to the design, developed under our direction and at our expense, of 1) the Approved Products and 2) the processes used or developed to assemble and test Approved Products. We grant you a revocable, nonexclusive, nontransferable, paid-up, limited license to such designs to enable you to, solely in the performance of your responsibilities under this Agreement: 1. assemble, use for testing purposes, sell or otherwise transfer, the Approved Products; and 2. use, in connection with the assembly, testing, sale or distribution of Approved Products, the Approved Product name and its associated trademark. 10. INDEMNIFICATION In addition to the damages for which you are liable under law and the terms of this Agreement, you will defend, indemnify and hold us harmless from all fines, claims, and expenses of any kind (including reasonable attorney's fees and expenses) arising from or connected with: 1. allegations that you have violated or otherwise failed to comply with any applicable law, ordinance, rule or regulation in the performance of your obligations under this Attachment; 2. any breach, default, or noncompliance by you related to your representations, warranties or obligations under this Attachment; 3. alteration or modification by you of any Program Tool, whether we approved of such alteration or modification or not; 4. modification by you of any assembly or test process, agency compliance requirement, or other specifications contained in the Exhibit for Authorized Assemblers or the Operations Guide, as appropriate; and Page 5 of 6 5. unauthorized use or distribution of Program Tools by you or your employees or agents. 11. TERM AND TERMINATION This Attachment becomes effective on the date it is agreed-to by us and will remain in effect for the contract-period duration specified in your Profile, unless terminated earlier by either of us under the terms of this Section. This Attachment will end if your Distributor relationship ends. Either of us may terminate this Attachment, with or without cause, on three months' written notice. In addition, we will consider the following to be a material breach of these terms: 1) your failure to comply with our assembly and testing specifications; or 2) your failure to cure, within the 90 (ninety) day period, a deficiency in the number of trained personnel. In the event that notice of termination is given, we may 1) reject any or all orders received from you after such notice and prior to the effective date of termination or 2) limit shipments during this period. In addition, as of the date the notice of termination is given, we may discontinue extension of any pricing terms previously made available to you. When this Attachment ends, you agree to sell to us, at the price you paid us, all new and unused ISUs and Components in your inventory. 12. PRODUCT APPROVAL PRODUCTS YES/NO MINIMUM NUMBER OF IBM TRAINED ASSEMBLY TECHNICIANS BY AUTHORIZED LOCATIONS RS/6000 _________________ 2 STORAGE SYSTEMS _________________ 1 Page 6 of 6 IBM BUSINESS PARTNER AGREEMENT [IBM LOGO] NORTH AMERICAN DISTRIBUTOR ATTACHMENT - -------------------------------------------------------------------------------- The terms of this Attachment are in addition to or modify and prevail over the terms of the Remarketer Terms Attachment and the Distributor Attachment. You are approved to market Products to your Remarketers in Canada and the United States. 1. PRODUCT SOURCE You may acquire Products from us only in the country in which you have signed the IBM Business Partner Agreement. 2. ORDERING AND SHIPMENT We will specify in the Exhibit the Specific Products that are eligible for export under this offering. We will not export Products. We will ship Products to you, your Remarketer or their End Users only in the country in which you acquire the Products from us. 3. EXPORT OF PRODUCTS You, or your Remarketer, are responsible for all costs and expenses associated with exporting Products. This includes payment of transportation, duties and other expenses resulting from the export of the Products. You, or your Remarketer, are responsible for complying with all applicable United States and Canadian laws and regulations including, without limitation, United States Department of Commerce regulations regarding the export of restricted technology. Depending on the specific Products, other laws and regulations may apply. You are responsible for obtaining all necessary clearances required to export or re-export from the country of origin/shipment and import into the country of installation. 4. ADMINISTRATION AND NOTIFICATION TO IBM Within seven days of the date you export a Product, you agree to provide to us the specific Product type/model and serial number of the exported Product. You agree to notify us in writing of the name and address of each End User at which an exported Product has been installed within 10 days of the Date of Installation. 5. AVAILABILITY SERVICES Your Remarketer is authorized to market Availability Services under the terms and conditions of the country in which the Product is installed. When your Remarketer markets Availability Services with a Product which is installed in Canada, IBM Canada Ltd. will pay you the applicable Canadian fee. Likewise, when your Remarketer markets Availability Services with a Product which is installed in the United States, we will pay you the applicable U.S. fee. Page 1 of 1 BUSINESS PARTNER AGREEMENT [IBM BUSINESS IBM PRINTER REMARKETER PROFILE PARTNER LOGO] - -------------------------------------------------------------------------------- We welcome you as an IBM Business Partner. This Profile covers the details of your authorization to market our Products to Customers. Like you, we are committed to providing the highest quality Products to the Customer. As our distributor, please let us know if you have any questions or problems with our Products. By signing below, each of us agrees to the terms of the following (collectively called the "Agreement"): (a) this Profile; (b) Remarketer General Terms (Z125-4800-08 11/95); and (c) the applicable Attachments referred to in this Profile. This Agreement and its applicable Transaction Documents are the complete agreement regarding this relationship, and replace any prior oral or written communications between us. Once this Profile is signed, 1) any reproduction of this Agreement or a Transaction Document made by reliable means (for example, photocopy or facsimile) is considered an original and 2) all Products you order and Services you perform under this Agreement are subject to It. Revised Profile (yes/no): YES Date received by IBM:_____________ --------- Agreed to: (IBM Business Partner name) Agreed to: BUSINESS PARTNER SOLUTIONS, INC. International Business Machines SAN ANTONIO, TX 78216 Corporation By /s/ Joe Mertens By_______________________________ -------------------------------- Authorized signature Authorized signature Name (type or print): JOE MERTENS Name (type or print): LOUISE PARADIS Date: October 1, 1997 Date: IBM Business Partner address: IBM Office address: 888 ISOM ROAD 8300 DIAGONAL HIGHWAY SAN ANTONIO, TX 78216 BOULDER, CO 80301 - -------------------------------------------------------------------------------- After signing, please return a copy of this Profile to the local "IBM Office address" shown above. - -------------------------------------------------------------------------------- Page 1 of 3 DETAILS OF OUR RELATIONSHIP 1. CONTRACT-PERIOD START DATE (MONTH/YEAR): 08/97 DURATION (MONTHS): 12 --------- ---- The start date is always the first day of a month. The start date does not change with a revised Profile. 2. RELATIONSHIP APPROVAL/ACCEPTANCE OF ADDITIONAL TERMS: For our approved relationship, each of us agrees to the terms of the applicable Attachment by signing this Profile. Copies of those Attachments are included. Please make sure you have them (and the Remarketer General Terms) and notify us if any are missing. APPROVED AUTHORIZED RELATIONSHIP (YES/NO) ATTACHMENT 1) Remarketer yes Z125-5085-01 10/95 ----- 2) Attachment for Sales to Other Resellers yes Z125-5321-00 10/95 ----- 3. PRODUCT APPROVAL: The following Products are listed in the IBM Printing Systems Company Exhibit. APPROVED TO MARKET APPROVED TO MARKET EXHIBIT TO RESELLERS (1) TO END USERS CATEGORIES (YES/NO) (YES/NO) A Twinax Printers yes yes --------- --------- B Non-Certified Products yes yes --------- --------- C Network Printers (2) yes yes --------- --------- D Production Printers yes yes --------- --------- E Software yes yes --------- ---------- (1) You may market Products only to resellers who do not market to other resellers. (2) Please refer to Section 6 for additional terms. EXCLUSIONS, IF APPLICABLE: Although included by reference above, you are not approved for these individual products. ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ 4. MINIMUM RENEWAL CRITERIA: $2,000,000 ----------- *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION Page 2 of 3 5. AUTHORIZED LOCATIONS: TOTAL NUMBER OF AUTHORIZED LOCATIONS LISTED IN THIS PROFILE: 3 - ------------------------------------------------------------------------- Loc. ID Authorized Location (street address, city, state, ZIP code) ------------------------------------------------------------------------- 80711 12029 WARFIELD (APD) SAN ANTONIO, TX 78216-3231 ---------------------------------------------------------------- Minimum Number of Trained Personnel ---------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------------------------------------------------- Loc. ID Authorized Location (street address, city, state, ZIP code) ------------------------------------------------------------------------- 80711 888 ISOM ROAD (APR DEMO) SAN ANTONIO, TX 78216 ---------------------------------------------------------------- Minimum Number of Trained Personnel ---------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------------------------------------------------- Loc. ID Authorized Location (street address, city, state, ZIP code) ------------------------------------------------------------------------- 80711 888 ISOM ROAD (APR POOL) SAN ANTONIO, TX 78216 ---------------------------------------------------------------- Minimum Number of Trained Personnel ---------------------------------------------------------------- ---------------------------------------------------------------- 6. ADDITIONAL TERMS: The following terms apply to IBM Network Printers. You agree to: 1. maintain inventory only at Authorized Locations (we will ship products to your Authorized Locations and not to End Users); 2. test the Products you configure, prior to shipment to the End User (we do not configure Products); 3. use Partnerlink to communicate with us; and 4. use EDI to report your sales and inventory data, as we specify. Page 3 of 3 IBM BUSINESS PARTNER AGREEMENT [IBM LOGO] DISTRIBUTOR ATTACHMENT - -------------------------------------------------------------------------------- These terms prevail over and are in addition to or modify the Remarketer Terms Attachment. 1. MARKETING APPROVAL You are approved to market Products and Services to Remarketers (but not to IBM approved Distributors unless we specify otherwise in your Profile) and to End Users. Your Profile will specify to whom you may market Products and Services. 2. YOUR RESPONSIBILITIES TO IBM You agree: 1. to develop a mutually acceptable business plan with us, if we require one. Such plan will document each of our marketing plans as they apply to our relationship. We will review the plan, at a minimum, once a year; 2. that, unless precluded by applicable law, one of the requirements for you to retain this relationship is that you achieve the minimum annual attainment we specify in your Profile; 3. to order Products and Services as we specify in the operations guide; 4. to maintain trained personnel, as we specify in your Profile or Exhibit, as applicable; 5. to provide us, on our request, relevant financial information about your business so we may, for example, use this information in our consideration to extend credit terms to you. We may require an annual audited financial report; 6. unless we specify otherwise in the Exhibit, to maintain the capability to demonstrate the Products we approve you to market; 7. to maintain sufficient inventory of Products to meet Remarketer demands. We may specify in your Exhibit certain Products we require you to have regularly available; 8. to secure from your Remarketers a signed Program license agreement for Programs requiring signature; and 9. to ensure that the terms in any agreement you may have with Remarketers are not in conflict with this Agreement. If, during our review of your Remarketer's compliance with its Business Partner Agreement with us, we find the Remarketer has materially breached the terms of the Agreement, you agree to refund the amount equal to the discount (or fee, if applicable) we gave you for the Products that are the subject of the breach, if we require you to do so. 3. YOUR RESPONSIBILITIES TO REMARKETERS You agree to: 1. provide Products and Services to them on an equitable basis; 2. provide development, demonstration, evaluation and internal use Products (we specify eligible Products in the Exhibit) to those Remarketers who are eligible to acquire such Products. You must make such Products available to each of them on the same terms, regarding the maximum quantity of Products that may be acquired and the minimum retention period, as we make available to you; 3. fulfill all their valid orders for eligible Products and Services; 4. give written notification to the Remarketer of any modification you make to a Product and the name of the warranty service provider, and advise that such modification may void the warranty for the Product; 5. provide the Program license agreement to them, if applicable, and require them to provide the agreement to the End User; and 6. provide the following items to Remarketers when we have given such items to you for distribution to them: a. promotional offerings and material; b. incentives; Page 1 of 2 c. marketing funds; d. support documentation; and e. advertising material. You agree to distribute them proportionally and according to the procedures we specify, and to require the Remarketer to properly implement or distribute them, as applicable. Except for personal computer Products, you also agree to: 1. inform them that you are available to provide Product and Services support to them; 2. provide pre- and post-installation sales support to them. You agree you are responsible for their satisfaction with such support; 3. provide configuration support to them, for Products we specify; 4. assist them in Product problem determination and resolution; and 5. advise them of the terms regarding the date of installation for Products IBM installs. 4. YOUR REMARKETERS' RESPONSIBILITIES When you market Products and Services to Remarketers who do not have a contractual relationship with IBM for such Products and Services, you agree to inform them of their responsibility to: 1. provide the support necessary to maintain customer satisfaction; 2. provide Program Services to their End Users; 3. provide Product configuration support to their End Users; 4. assist their End Users to achieve productive use of the Products and Services they marketed; 5. inform their End Users of Product installation requirements; 6. comply with all terms regarding Program upgrades; 7. refund the amount paid for a Product returned if such return is provided for in its warranty or license or a money-back guarantee we offer End Users. The Remarketer may return the Product to you for credit, as we specify in the operations guide 8. for a Program requiring the End User's signature on the Program license agreement, obtain the signature before providing the Program to the End User and return the agreement as we specify; 9. provide warranty information to their End Users, when applicable; 10. comply with all export laws and regulations including those of the United States, the Governing Law section of this Agreement and any laws and regulations of the country in which the Product is imported or exported, and advise their End User that IBM's warranty responsibilities do not apply (unless the warranty terms state otherwise); 11. provide a dated sales receipt or its equivalent (such as an invoice) to their End User; 12. give their End Users written notice of any modification you or the Remarketer made to a Product and the name of the warranty service provider and advise that such modification may void the warranty for the Product; 13. inform their End Users that the sales receipt (or other documentation, such as Proof of Entitlement if it is required) will be necessary for proof of warranty entitlement or for Program upgrades; 14. inform their End Users of educational offerings, as applicable; 15. advise their End Users of the terms regarding a Machine's production status; 16. assist you in locating Products if we require such assistance from you; and 17. retain records of each sales transaction for three years. Page 2 of 2 IBM BUSINESS PARTNER AGREEMENT - [IBM LOGO] GENERAL TERMS - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Section Title Page 1. Definitions..................................................... 2 2. Agreement Structure and Contract Duration....................... 3 3. Our Relationship................................................ 4 4. Status Change................................................... 5 5. Confidential Information........................................ 5 6. Marketing Funds and Promotional Offerings....................... 6 7. Production Status............................................... 6 8. Patents and Copyrights.......................................... 6 9. Liability....................................................... 7 10. Trademarks...................................................... 7 11. Changes to the Agreement Terms.................................. 8 12. Internal Use Products........................................... 8 13. Demonstration, Development and Evaluation Products.............. 8 14. Electronic Communications....................................... 9 15. Geographic Scope................................................ 9 16. Governing Law................................................... 9
Page 1 of 9 IBM BUSINESS PARTNER AGREEMENT - [IBM LOGO] GENERAL TERMS - -------------------------------------------------------------------------------- 1. DEFINITIONS BUSINESS PARTNER is a business entity which is approved by us to market Products and Services under this Agreement. CUSTOMER is either an End User or a Remarketer. We specify in your Profile if we approve you to market to End Users or Remarketers, or both. END USER is anyone, who is not part of the Enterprise of which you are a part, who uses Services or acquires Products for its own use and not for resale. ENTERPRISE is any legal entity (such as a corporation) and the subsidiaries it owns by more than 50 percent. An Enterprise also includes other entities as IBM and the Enterprise agree in writing. LICENSED INTERNAL Code is called "Code". Certain Machines we specify (called "Specific Machines") use Code. International Business Machines Corporation or one of its subsidiaries owns copyrights in Code or has the right to license Code. IBM or a third party owns all copies of Code, including all copies made from them. MACHINE is a machine, its features, conversions, upgrades, elements, accessories, or any combination of them. The term "Machine" includes an IBM Machine and any non-IBM Machine (including other equipment) that we approve you to market. PRODUCT is a Machine or Program, that we approve you to market, as we specify in your Profile. PROGRAM is an IBM Program or a non-IBM Program provided by us, under its applicable license terms, that we approve you to market. RELATED COMPANY is any corporation, company or other business entity: 1. more than 50 percent of whose voting shares are owned or controlled indirectly, by either of us, or 2. which owns or controls, directly or indirectly, more than 50 percent of the voting shares of either of us, or 3. more than 50 percent of whose voting shares are under common ownership or control directly or indirectly with the voting shares of either of us. However, any such corporation, company or other business entity is considered to be a Related Company only so long as such ownership or control exists. "Voting shares" are outstanding shares or securities representing the right to vote for the election of directors or other managing authority. REMARKETER is a business entity which acquires Products and Services, as applicable, for the purpose of marketing. SERVICE is performance of a task, provision of advice and counsel, assistance. or use of a resource (such as a network and associated enhanced communication and support) that we approve you to market. Page 2 of 9 2. AGREEMENT STRUCTURE AND CONTRACT DURATION PROFILES We specify the details of our relationship (for example, the type of Business Partner you are) in a document called a "Profile." Each of us agrees to the terms of the Profile. the General Terms, the applicable Attachments referred to in the Profile, and the Exhibit (collectively called the "Agreement") by signing the Profile. GENERAL TERMS The General Terms apply to all of our Business Partners. ATTACHMENTS We describe, in a document entitled an "Attachment", additional terms that apply. Attachments may include, for example, terms that apply to the method of Product distribution (Remarketer Terms Attachment or Complementary Marketing Terms Attachment) and terms that apply to the type of Business Partner you are, for example, the terms that apply to a Distributor relationship as described in the Distributor Attachment. We specify in your Profile the Attachments that apply. EXHIBITS We describe in an Exhibit, specific information about Products and Services. for example, the Products and Services you may market, and warranty information about the Products. TRANSACTION DOCUMENTS We will provide to you the appropriate "transaction documents." The following are examples of transaction documents. with examples of the information and responsibilities they may contain: 1. invoices (item, quantity, price, payment terms and amount due); and 2. order acknowledgements (confirmation of Products and quantities ordered). CONFLICTING TERMS If there is a conflict among the terms in the various documents, the terms of: 1. a transaction document prevail over those of all the documents; 2. an Exhibit prevail over the terms of the Profile, Attachments and the General Terms; 3. a Profile prevail over the terms of an Attachment and the General Terms; and 4. an Attachment prevail over the terms of the General Terms. If there is an order of precedence within a type of document, such order will be stated in the document (for example. the terms of the Distributor Attachment prevail over the terms of the Remarketer Terms Attachment, and will be so stated in the Distributor Attachment). OUR ACCEPTANCE OF YOUR ORDER Products and Services become subject to this Agreement when we accept your order by: 1. sending you a transaction document; or 2. providing the Products or Services. Page 3 of 9 ACCEPTANCE OF TERMS IN A TRANSACTION DOCUMENT You accept the terms in a transaction document by doing any of the following: 1. signing it (those requiring a signature must be signed); 2. accepting the Product or Services; 3. providing the Product or Services to your Customer; or 4. making any payment for the Product or Services. CONTRACT DURATION We specify the contract start date and the duration in your Profile. Unless we specify otherwise in writing, the Agreement will be renewed automatically for subsequent two year periods. Each of us is responsible to provide the the other with three months written notice if this Agreement will not be renewed. 3. OUR RELATIONSHIP RESPONSIBILITIES Each of us agrees that: 1. you are an independent contractor, and this Agreement is non-exclusive. Neither of us is a legal representative or legal agent of the other. Neither of us is legally a partner of the other (for example, neither of us is responsible for debts incurred by the other), and neither of us is an employee or franchise of the other, nor does this Agreement create a joint venture between us; 2. each of us is responsible for our own expenses regarding fulfillment of our responsibilities and obligations under the terms of this Agreement; 3. neither of us will disclose the terms of this Agreement, unless both of us agree in writing to do so, or unless required by law; 4. neither of us will assume or create any obligations on behalf of the other or make any representations or warranties about the other, other than those authorized;. 5. any terms of this Agreement, which by their nature extend beyond the date this Agreement ends, remain in effect until fulfilled and apply to respective successors and assignees; 6. we may withdraw a Product or Service from marketing at any time; 7. we will allow the other a reasonable opportunity to comply before it claims the other has not met its obligations, unless we specify otherwise in the Agreement; 8. neither of us will bring a legal action against the other more than two years after the cause of action arose, unless otherwise provided by local law without the possibility of contractual waiver; 9. failure by either of us to insist on strict performance or to exercise a right when entitled does not prevent either of us from doing so at a later time, either in relation to that default or any subsequent one; 10. neither of us is responsible for failure to fulfill obligations due to causes beyond the reasonable control of either of us: 11. IBM reserves the right to assign, in whole or in part. this Agreement and any orders hereunder, to any other IBM Related Company; 12. IBM does not guarantee the results of any of its marketing plans; and 13. each of us will comply with all applicable laws and regulations (such as those governing consumer transactions). Page 4 of 9 OTHER RESPONSIBILITIES You agree: 1. to be responsible for customer satisfaction for all your activities, and to participate in customer satisfaction programs as we determine; 2. that your rights under this Agreement are not property rights and, therefore, you can not transfer them to anyone else or encumber them in any way. For example, you can not sell your approval to market our Products or Services or your rights to use our Trademarks; 3. to maintain the criteria we specified when we approved you; 4. to achieve and maintain the certification requirements for the Products and Services you are approved to market, as we specify in your Profile; 5. not to assign or otherwise transfer this Agreement, your rights under it, or any of its approvals, or delegate any duties, unless expressly permitted to do so under this Agreement. Otherwise, any attempt to do so is void; 6. to conduct business activities with us (including placing orders) which we specify in the operations guide, using our automated electronic system if available. You agree to pay all your expenses associated with it such as your equipment and communication costs; 7. that when we provide you with access to our information systems, it is only in support of your marketing activities. Programs we provide to you for your use with our information systems, which are in support of your marketing activities, are subject to the terms of their applicable license agreements, except you may not transfer them; 8. to promptly provide us with IBM documents we may require from you or the End User (for example, our license agreement signed by the End User) when applicable; and 9. to comply with the highest ethical principles in performing under the Agreement. You will not offer or make payments or gifts (monetary or otherwise) to anyone for the purpose of wrongfully influencing decisions in favor of IBM, directly or indirectly. IBM may terminate this Agreement immediately in case of 1) a breach of this clause or 2) when IBM reasonably believes such a breach has occurred. OUR REVIEW OF YOUR COMPLIANCE WITH THIS AGREEMENT We may periodically review your compliance with this Agreement. You agree to provide us with relevant records on request. We may reproduce and retain copies of these records. We, or an independent auditor, may conduct a review of compliance with this Agreement on your premises during your normal business hours. If, during our review of your compliance with this Agreement, we find you have materially breached the terms of this relationship, in addition to our rights under law and the terms of this Agreement, for transactions that are the subject of the breach, you agree to refund the amount equal to the discount (or fee, if applicable) we gave you for the Products or Services or we may offset any amounts due to you from us. 4. STATUS CHANGE You agree to give us prompt written notice (unless precluded by law or regulation) of any change or anticipated change in your financial condition, business structure, or operating environment (for example, a material change in equity ownership or management or any substantive change to information supplied in your application). Upon notification of such change, (or in the event of failure to give notice of such change) IBM may, at its sole discretion, immediately terminate this Agreement. 5. CONFIDENTIAL INFORMATION This section comprises a Supplement to the IBM Agreement for Exchange of Confidential Information. "Confidential Information" means: 1. all information IBM marks or otherwise states to be confidential; 2. any of the following prepared or provided by IBM: Page 5 of 9 a. sales leads, b. information regarding Prospects, c. unannounced information about Products and Services, d. business plans, or e. market intelligence; f. any of the following written information you provide to us on our request and which you mark as confidential: 1) reposing data, 2) financial data, or 3) the business plan. All other information exchanged between us is nonconfidential, unless disclosed under a separate Supplement to the IBM Agreement for Exchange of Confidential Information. 6. MARKETING FUNDS AND PROMOTIONAL OFFERINGS We may provide marketing funds and promotional offerings to you. If we do, you agree to use them according to our guidelines and to maintain records of your activities regarding the use of such funds and offerings for three years. We may withdraw or recover marketing funds and promotional offerings from you if you breach any terms of the Agreement. Upon notification of termination of the Agreement, marketing funds and promotional offerings will no longer be available for use by you, unless we specify otherwise in writing. 7. PRODUCTION STATUS Each IBM Machine is manufactured from new parts, or new and used parts. In some cases, the IBM Machine may not be new and may have been previously installed. You agree to inform your Customer of these terms in writing (for example, in your proposal or brochure). 8. PATENTS AND COPYRIGHTS For the purpose of this section only, the term Product includes Licensed Internal Code (if applicable). If a third party claims that a Product we provide under this Agreement infringes that party's patents or copyrights, we will defend you against that claim at our expense and pay all costs, damages, and attorneys' fees that a court finally awards, provided that you: 1. promptly notify us in writing of the claim; and 2. allow us to control, and cooperate with us in, the defense and any related settlement negotiations. If you maintain an inventory, and such a claim is made or appears likely to be made about a Product in your inventory, you agree to permit us either to enable you to continue to market and use the Product, or to modify or replace it. If we determine that none of these alternatives is reasonably available, you agree to return the Product to us on our written request. We will then give you a credit, as we determine, which will be either 1) the price you paid us for the Product (less any price-reduction credit), or 2) the depreciated price. This is our entire obligation to you regarding any claim of infringement. CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE We have no obligation regarding any claim based on any of the following: 1. anything you provide which is incorporated into a Product; 2. your modification of a Product, or a Program's use in other than its specified operating environment; Page 6 of 9 3. the combination, operation, or use of a Product with any Products not provided by us as a system, or the combination, operation, or use of a Product with any product, data, or apparatus that we did not provide; or 4. Infringement by a non-IBM Product alone, as opposed to its combination with Products we provide to you as a system. 9. LIABILITY Circumstances may arise where, because of a default or other liability, one of us is entitled to recover damages from the other. In each such instance, regardless of the basis on which damages can be claimed, the following terms apply as your exclusive remedy and our exclusive liability. OUR LIABILITY We are responsible only for: 1. payments referred to in the "Patents and Copyrights" section above; 2. bodily injury (including death), and damage to real property and tangible personal property caused by our Products; and 3. the amount of any other actual loss or damage, up to the greater of $100.000 or the charges (if recurring, 12 months' charges apply) for the Product that is the subject of the claim. ITEMS FOR WHICH WE ARE NOT LIABLE Under no circumstances (except as required by law) are we liable for any of the following: 1. third-party claims against you for losses or damages (other than those under the first two items above in the subsection entitled 'Our Liability'); 2. loss of, or damage to, your records or data; or 3. special, incidental, or indirect damages, or for any economic consequential damages (including lost profits or savings) even if we are informed of their possibility. YOUR LIABILITY In addition to damages for which you are liable under law and the terms of this Agreement, you will indemnify us for claims made against us by others (particularly regarding statements, representations, or warranties not authorized by us) arising out of your conduct under this Agreement or as a result of your relations with anyone else. 10. TRADEMARKS We will notify you in written guidelines of the IBM Business Partner title and emblem which you are authorized to use. You may not modify the emblem in any way. You may use our Trademarks (which include the title, emblem, IBM trade marks and service marks) only: 1. within the geographic scope of this Agreement; 2. in association with Products and Services we approve you to market; and 3. as described in the written guidelines provided to you. The royalty normally associated with non-exclusive use of the Trademarks will be waived, since the use of this asset is in conjunction with marketing activities for Products and Services. You agree to promptly modify any advertising or promotional materials that do not comply with our guidelines. If you receive any complaints about your use of a Trademark, you agree to promptly notify us. When this Agreement ends, you agree to promptly stop using our Trademarks. If you do not, you agree to pay any expenses and fees we incur in getting you to stop. You agree not to register or use any mark that is confusingly similar to any of our Trademarks. Page 7 of 9 Our Trademarks, and any goodwill resulting from your use of them, belong to us 11. CHANGES TO THE AGREEMENT TERMS We may change the terms of this Agreement by giving you one month's written notice. We may, however, change the following terms without advance notice: 1. those we specify in this Agreement as not requiring advance notice; 2. those of the Exhibit unless otherwise limited by this Agreement; and 3. those relating to safety and security. Otherwise, for any other change to be valid, both of us must agree in writing. Changes are not retroactive. Additional or different terms in an order or other communication from you are void. 12. INTERNAL USE PRODUCTS You may acquire Products you are approved to market for your internal use within your Business Partner operations. Except for personal computer Products, you are required to advise us when you order Products for your internal use. We will specify in your Exhibit the discount or price, as applicable, at which you may acquire the Products for internal use. Except for personal computer Products, such Products do not count toward 1) your minimum annual attainment 2) toward determination of your discount or price, as applicable or 3) for determining your marketing or promotional funds. Any value added enhancement or systems integration services otherwise required by your relationship is not applicable when you acquire Products for internal use. You must retain such Products for a minimum of 12 months, unless we specify otherwise in the Exhibit. 13. DEMONSTRATION, DEVELOPMENT AND EVALUATION PRODUCTS You may acquire Products you are approved to market for demonstration, development and evaluation purposes. unless we specify otherwise in the Exhibit. Such Products must be used primarily in support of your Product marketing activities. We will specify in your Exhibit the Products we make available to you for such purposes, the applicable discount or price. and the maximum quantity of such Products you may acquire and the period they are to be retained. The maximum number of input/output devices you may acquire is the number supported by the system to which they attach. If you acquired the maximum quantity of Machines, you may still acquire a field upgrade, if available. We may decrease the discount we provide for such Products on one month's written notice. You may make these Products available to a Customer for the purpose of demonstration and evaluation. Such Products may be provided to an End User for no more than three months. For a Program, you agree to ensure the Customer has been advised of the requirement to accept the terms of a license agreement before using the Program. Page 8 of 9 14. ELECTRONIC COMMUNICATIONS Each of us may communicate with the other by electronic means, and such communication is acceptable as a signed writing to the extent permissible under applicable law. Both of us agree that for all electronic communications, an identification code (called a 'user ID') contained in an electronic document h legally sufficient to verify the senders identity and the document's authenticity). 15. GEOGRAPHIC SCOPE All the rights and obligations of both of us are valid only In the United States and Puerto Rico. 16. GOVERNING LAW The laws of the State of New York govern this Agreement. The "United Nations Convention on Contracts for the International Sale of Goods" does not apply. Page 9 of 9 IBM Business Partner Agreement IBM Distributor Profile - -------------------------------------------------------------------------------- We welcome you as an IBM Business Partner-Distributor. This Profile covers the details of your approval to actively market Products and Services as our Distributor. By signing below, each of us agrees to the terms of the following (collectively called the "Agreement"): (a) this Profile; (b) General Terms (Z125-5478-02 06/97); (c) the applicable Attachments referred to in this Profile; and (d) the Exhibit. This Agreement and its applicable transaction documents are the complete agreement regarding this relationship, and replace any prior oral or written communications between us. Once this Profile is signed, 1) reproduction of this Agreement or a transaction document made by reliable means (for example, photocopy or facsimile) is considered an original, to the extent permissible under applicable law, and 2) all Products and Services you market and Services you perform under this Agreement are subject to it. If you have not already signed an Agreement for Exchange of Confidential Information (AECI), your signature on this Profile includes your acceptance of the AECI. After signing this Profile, please return a copy to the IBM address shown below. Revised Profile (yes/no): Yes Dated received by IBM:______________________ ------------ Agreed to: (IBM Business Partner name) Agreed to: Business Partner Solutions Inc International Business Machines Corporation By /s/ Joe Mertens By__________________________________________ ----------------------------------- Authorized signature Authorized signature Name (type or print): Joe Mertens Name (type or print): Date: 29 Sept 97 Date: IBM Business Partner address: IBM address: 888 Isom Road 4111 Northside Parkway San Antonio, TX 78216-4033 LO8C03 Atlanta, GA 30327
Page 1 of 4 DETAILS OF OUR RELATIONSHIP Contract Period Start Date (month/year): 01/97 Duration: 12 months ----------- --------------- RELATIONSHIP APPROVAL/ACCEPTANCE OF ADDITIONAL TERMS: For each approved relationship, each of us agrees to the terms of the following by signing this Profile. Copies of the Attachments are included.
APPROVED RELATIONSHIP APPLICABLE (YES/NO) ATTACHMENT Distributor Attachment yes Z125-5486-00 11/96 Remarketer Terms Attachment yes Z125-5497-00 11/96 Warranty Service Attachment yes Z125-5499-00 11/96 ---------- Authorized Assembler Attachment CA Location only yes Z125-5530-01 04/97 ---------- North American Distributor Attachment yes Z125-5527-00 11/96 ---------- Federal Remarketer Attachment yes Z125-5514-00 11/96
PRODUCT AND SERVICES APPROVAL: The following Products are listed in the Exhibit. The terms of an Exhibit apply to the Products listed in it. When we approve you for Products listed in the Exhibit, you are also approved to market their associated programs and peripherals and Product Services. When we approve you for Products included in the IBM Business Partner Exhibit, you are also approved for their associated Products listed in the IBM Personal Computer Products Exhibit and those eligible Products listed in PARTNERLink.
APPROVED TO MARKET TO: SYSTEM TYPES(1) IBM APPROVED REMARKETERS ALL REMARKETERS END USERS (YES/NO) (YES/NO) (YES/NO) 1) IBM System/390 (2) no ------------------------ IBM R/390 no ------------------------ IBM P/390 no ------------------------ 2) IBM RS/6000 yes ------------------------ 3) IBM RS/6000 SP yes ------------------------ 4) IBM AS/400 9401 yes ------------------------ 9401/150 yes ------------------------ 9402 yes ------------------------ 9406 yes ------------------------ 5) IBM 469X Point of Sale Products no ------------------------ IBM 4614 SureOne no ------------------------ 6) IBM Network Integration Products yes ------------------------ IBM PERSONAL COMPUTER PRODUCTS (3) 1) IBM PC Desktop yes ------------------------ 2) IBM PC Server yes ------------------------ 3) IBM Mobile yes ------------------------ 4) ASCII Terminals yes no no ------------------------ --------------- --------- 5) Cables & Associated Products yes no no ------------------------ --------------- --------- 6) PC Features & Options yes no no ------------------------ --------------- ---------
(1) When approved for other than IBM Personal Computer Products or IBM Printing Systems Company Products, additional terms apply. These terms are included in the attached Transaction Document, The IBM Distributor Schedule A. (2) Eligible Products are identified in Schedule A. (3) Please refer to the IBM Personal Products Exhibit for details on direct acquisition criteria. Page 2 of 4
APPROVED TO MARKET TO: ADDITIONAL PRODUCTS(1) IBM APPROVED REMARKETERS ALL REMARKETERS END USERS (YES/NO) (YES/NO) (YES/NO) 1) IBM Graphics no ------------------------ 2) Finance Products Category J1 no ------------------------ 3) IBM Storage Products no ------------------------ Category S1 Products no ------------------------ Category S2 Products no ------------------------ Category S3 Products no ------------------------ Category S4 Products no ------------------------ Category S5 Products no ------------------------ Category S6 Products no ------------------------ Category S7 Products no ------------------------ IBM PRINTING SYSTEMS COMPANY PRODUCTS 1) Impact Printers yes ------------------------ 2) Laser Printers yes ------------------------ 3) Network Printers yes ------------------------ 4) Printing Software no ------------------------ SERVICES (3) (4) 1) Product Services - Hardware Product Services yes ------------------------ - Software Services yes ------------------------ 2) System Management Services - Systems Mgmt - Desktop & no Distributed ------------------------ - Systems Mgmt - Data Center no ------------------------ 3) IT Environment & Infrastructure Services - Site & Connectivity Solutions no ------------------------ 4) Business & Technology Solutions no ------------------------ 5) Business Recovery Services yes ------------------------ FINANCING 1) Financing no ------------------------
Certain Products and Services, as we specify in your Exhibit, which we approved you to acquire from us will only be available from an IBM Supplier. In such case, the terms of the Agreement relating to your acquisition of Products and Services directly from us (for example, terms relating to the return and ordering of Products and Services) are not applicable. All other terms apply. CERTIFIED PRODUCTS YOU ARE APPROVED TO MARKET. RS/6000 SP - ------------------------ _________________________ _______________________ ________________________ _________________________ _______________________ Exclusion, if applicable: Although included by reference in Product approval, you are not approved for these individual Products. ________________________ _________________________ _______________________ ________________________ _________________________ _______________________ ________________________ _________________________ _______________________ (3) You may market this Service without the requirement to have marketed a Machine or Program. (4) The terms or remarketing Services (other than shrink-wrap Services) are contained in other documents which we provide to you. Page 3 of 4 Minimum Annual Attainment: Product/Service Volume/Revenue Measurement Period Dates Contract in effect to ---------------------------------- ______________ __________________ 12/31/97 ---------------------------------- ______________ __________________ __________________________________ ______________ __________________ __________________________________ ______________ __________________ Locations: - -------------------------------------------------------------------------------- Location (street address, city, state, ZIP code) - -------------------------------------------------------------------------------- 888 Isom Road - -------------------------------------------------------------------------------- Sam Antonio, TX 78216 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Assignment of Warranty Service Responsibility, if applicable: You assign to us, or an IBM Premier Personal Computer Servicer, Warranty Service responsibility for the following Machines. Type/Model Type/Model Type/Model Type/Model _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ _______________ Unless you are assigning to us, please specify the name of the IBM Premier Personal Computer Servicer: ________________________________________ Page 4 of 4 [IBM LOGO] International Business Machines Corporation Armonk, New York 10504 IBM BUSINESS PARTNER EXHIBIT IBM BUSINESS PARTNER AGREEMENT Exhibit No.: BPEX-05 Effective Date: May 1, 1997 GENERAL INFORMATION This Exhibit is designed to provide you with the Product information related to your IBM Business Partner relationship only. There are individual sections by Product family. We will provide you with those sections applicable to your Product Approval(s) along with your other Agreement documents. If you need additional information, these documents are available via IBMLink, or from your IBM representative. Products included in this Exhibit are available for marketing only in conjunction with your Value-Added Enhancement unless otherwise specified. Products included in this Exhibit may be available to Distributors. These available Products may be acquired at the discount indicated in this Exhibit, or they may be acquired at the discount specified in Distributor Schedule A. Products for which there is a discount specified in Distributor Schedule A are identified by an "A" in the DIST column in this Exhibit. If there is no "DIST" column, the Products are not available to Distributors. Internal Use of Products - ------------------------ Unless otherwise specified in this Exhibit, you may acquire Products included in this Exhibit which you are approved to market for internal use within your Business Partner operations. 1. Internal use products are available to Business Partners approved under: . Remarketer terms at the same discount as Products acquired for resale. . Complementary (Fee Based) terms at a **** discount. 2. One license of each eligible licensed program authorized for your approved processor category may be acquired for each internal use processor. Development and Demonstration Products - -------------------------------------- IBM Business Partners may obtain the quantity of Development/Demonstration System Products identified in this Exhibit for the Products they are approved to market. The indicated quantities may be acquired during each 12-month period, beginning on the date you are approved to market the Product. Products acquired under Development/Demonstration discounts and terms must be retained for a minimum of 12 months from the original Date of Installation.
PRODUCT QUANTITY RS/6000 Processors *** POWERparallel Processors *** AS/400 Processors *** Point of Sale Products* *** Network Integration Products** *** System/390 Processors *** Storage Systems Products *** Finance Industry Processors *** Printing Company Printers*** ***
* May acquire the quantities indicated for each machine type you are approved to market. ** In addition to approved Network Integration Solution Partners, Network Integration Products are available to IBM RS/6000, AS/400, System/390, and Point of Sale Business Partners for development, demonstration, or internal these installation. *** This is limited to a maximum of two of any model of a Product you are approved to market. IBM Licensed Programs are available for Development and Demonstration System installation at a *** discount, unless otherwise noted. One copy of each approved Licensed Program is available for each Development and Demonstration System. Process or Media charges associated with IBM Licensed Programs are not eligible for a discount. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION A-1 of 9 REMARKETER TERMS Inventory Returns - Inventory Adjustment Category (IAC) - ------------------------------------------------------- Inventory Adjustment Categories are specified in the Inventory Adjustment Category column in the attached Product Tables. When a Product is indicated as returnable (IAC 2, 3, 4), the machine type/model and its associated field installable features and model conversions ordered from IBM as MES orders are eligible for return under the same IAC. CATEGORY 1 Products indicated as IAC 1 are not eligible for return. CATEGORY 2 Handling charge: *** handling charge. Maximum returns: Number of units (within IAC 2) IBM shipped to you in the preceding 4 month period, minus any returns. Products being returned must have been shipped to you by IBM during that preceding 4-month period. Open box returns: None allowed. CATEGORY 3 Handling charge: - No handling charge for up to *** of the prior calendar quarter's net billings within IAC 3. - *** handling charge for an additional *** of the prior calendar quarter's net billings IAC 3. Maximum returns: *** of prior calendar quarter's net billings. Open box returns: Up to *** of returns. CATEGORY 4 Handling charge: No handling charge. Maximum returns: *** of prior calendar quarter's net billings within IAC 4. Open box returns: Up to *** of returns. RETURN OF WITHDRAWN PRODUCTS: Products eligible for return and announced as withdrawn from marketing by IBM: - must be returned by the return date specified in the withdrawal announcement; or - if there is no return date specified in the announcement, the request for return must be received by IBM within 60 days of the withdrawal announcement date. RETURN OF PRODUCTS IDENTIFIED AS DEFECTIVE ON ARRIVAL (DOA): You may return Products identified by us as Defective on Arrival (DOA) if a reasonable repair attempt was made (you requested IBM to repair). Such returns will not count in your allowable return percentages. EXCLUSIONS: The following may not be returned to IBM: - Products ordered for Demonstration/Development System use. - Non-Preloaded IBM Mid-Range Licensed Programs. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION A-2 of 9 REMARKETER TERMS (CONTINUED) ADDITIONAL INVENTORY ADJUSTMENT TERMS: IBM Licensed Programs shipped from IBM as PRE-LOADED on a processor may be returned under the Inventory Adjustment provisions when the processor is also returned. The PRE-LOADED Licensed Program is subject to the same Inventory Adjustment provisions as the processor on which it was shipped. Returns will be deducted from all attainment. All returns that exceed the stated limits will be returned to the Business Partner at their expense. Returns can be made once each calendar month. Price Decrease and Discount Increase Credits - -------------------------------------------- Unless stated otherwise, Products included in this Exhibit are eligible for Full Inventory Price Decrease and Discount Increase Protection. Price Decrease and Discount Increase Credits apply to machine type/models, associated field installable features, and model conversions shipped from IBM as MES orders. You may be required to report your inventory to us in order to receive a Price Decrease or Discount Increase Credit. We will specify in our announcement letter when, and in what format, reporting will be required. You may only use these Credits after they are issued and only towards amounts then or thereafter due IBM. IBM Licensed Programs - --------------------- Permission to Copy: IBM authorized remarketers are required to copy and redistribute IBM Licensed Programs that are included in this Exhibit unless otherwise noted. For specified Programs, we do not approve you to copy and redistribute. We will ship such Programs to you, or your End User, upon receipt of the required information and documents. We will distribute any defect correction information, and subsequent Program releases, to you or your end user. Programs we have specified may be marketed without your Value-Added Enhancement for use on non-IBM machines to any End User. Only IBM Licensed Programs acquired for development system installation are eligible for the IBM testing period. Upgrade Charges: For IBM Licensed Programs included in this exhibit, upgrades are available at the same discount as the installed Licensed Program for which the upgrade is being ordered unless otherwise specified in the Eligible Product Category. Upgrades for purposes of this section are defined as Group to Group and any other field installable features available for the license. Version to Version upgrades to a Licensed Program are available, and are identified in this exhibit as available for a discount, they are eligible for the same discount as an initial license order for the upgraded-to program. Programs licensed under a Monthly License Charge (MLC) are not eligible for a discount, but may be eligible for a fee. Details are indicated in individual Program announcements. When your relationship terminates with an end user, or if you delegate your support responsibilities for a recurring charge program to IBM, the associated MLC fees will be discontinued. For IBM Licensed Programs available with a Primary License Charge (PLC) and Annual License Charge (ALC), discounts, if any, apply only to the Primary License Charge. Annual License Charges may have unique IBM Remarketer pricing available. Process or media charges associated with IBM Licensed Programs are not eligible for a discount. Higher Education Software Consortium (HESC): Solution Providers approved for - ------------------------------------------- the AS/400 and RS/6000 are eligible for the following HESC terms. When you are approved for IBM Licensed Programs listed in this exhibit, that are also identified as eligible for the HESC (HESC Group List Z125-4199), you may be able to acquire them under the HESC provisions when the licenses are placed with an HESC qualifying end user. Eligible programs are identified in the HESC column of this Exhibit with the corresponding HESC group designation. A-3 of 9 REMARKETER TERMS (CONTINUED) Discount Provisions - ------------------- When a maximum discount is indicated for a specific product, the total of all available discounts may not exceed the stated maximum discount. Field installed features and model conversions for Products included in this Exhibit may qualify for a discount, otherwise, the IBM Single Unit Price applies. When model conversions are available at a discount, the discount will be the same as the MES discount of the converted-to model, unless otherwise noted. Certain Products included in this Exhibit may be eligible for additional discount incentives which are in addition to the remarketing discount. IBM may change or withdraw additional discount incentive programs at any time. End User Installation Reporting - ------------------------------- END USER INSTALLATION INFORMATION MUST BE REPORTED TO IBM WITHIN 10 DAYS OF THE DATE OF INSTALLATION FOR ALL PRODUCTS INCLUDED IN THIS EXHIBIT. Warranty Service Information - ---------------------------- Machines included in this Exhibit are Warranty Service Category A Machines unless specified otherwise in the Product Table. IBM does not authorize you to perform warranty service for Category A Machines. See Warranty Service Attachment for Warranty Service Category B Machines. Cancellation Charges - -------------------- Cancellation charges apply to the Products included in this Exhibit unless otherwise noted. Please refer to the Business Partner Operations Guide to determine applicable cancellation charges. Business Partner Project Discount Guidelines - -------------------------------------------- IBM Business Partners may be eligible for the IBM Project Discount in addition to their base discount identified in their Profile and this exhibit. The Project Discount is applicable to all products included in this exhibit, excluding IBM Printing Systems Co. printers and IBM Networking Products included in Categories D and D1. IBM Protect Discount - -------------------- A Project is defined as an engagement by an IBM remarketer with a single End User Customer which results in IBM revenue from that remarketer of at least one million dollars for that specific End User engagement spanning a period of up to two years. The Project Discount may be ***, ***, or *** based on the total amount of IBM revenue (based on net billed amount) realized for products ordered directly from IBM for one "project." However, for any given Product, the sum of the remarketer's base discount and the Project Discount may not exceed *** (excluding discount cap exceptions listed below). Eligible Products will be price protected for the term of the project, not to exceed two years from the start date of the project, at the IBM net price available to the remarketer at the date the first order is received by IBM for the first order for the project. . Discount Cap Exceptions - The maximum Project Discount is *** for Federal End Users. - System/390 Products do not have a maximum Project Discount. - The following Category A1 Products have a *** maximum Project Discount for both commercial and Federal End Users: 5696-041 Professional CADAM View 5696-138 Professional CADAM Drawing Mark-up Facility 5696-706 Professional CADAM Variational Design System 5696-885 Professional CADAM Graphics Enabler 5696-938 Professional CADAM MCX Translator 5697-258 Professional CADAM Hybrid Raster *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION A-4 of 9 REMARKETER TERMS (CONTINUED) 5756-091 Professional CADAM 3D Surface Design 5756-092 Professional CADAM Manufacturing System 5756-093 Professional CADAM Machining Center 5756-094 Professional CADAM Interactive Design 5756-095 Professional CADAM Access IUEing System 5756-096 Professional CADAM Interactive Solids Design 5756-295 Professional CADAM CADEX: Intelligent Data Integrator 5756-296 Professional CADAM MCAE Interfaces 5756-297 Professional CADAM AEC Schematics 5626-CCD CATIA/CADAM Drafting 5626-IUE CATIA/CADAM IUE 5626-MCX CATIA/CADAM MCX Translator 5626-RAS CATIA/CADAM Hybrid Raster 5626-MU2 CATIA/CADAM 2D Markup and Annotation . Project Discount Schedule - *** when IBM project revenues are equal to or greater than $1.0M, but less than $2.5M. - *** when IBM project revenues are equal to or greater than $2.5M, but less than $5.0M. - *** when IBM project revenues are equal to or greater than $5.0M. All Current Discount Maximums indicated in this exhibit continue to apply. Please refer to IBM announcement letter 595-035 dated May 9, 1995, for additional details. IBM CREDIT FOR SELECTED NETWORKING PRODUCTS OFFERING Effective October 1, 1996, if you are approved to sell IBM networking products, you can receive a credit for selected networking products that are installed at end-user locations during a calendar year quarter. The selected products that are eligible for credit are those included in Category D. The credits will be based on the IBM total Billed Value of the eligible machine type and features installed during the quarter. The following table will be used to determine your credit.
IBM Billed Value of Credit Quarterly Sales Percent *** *** *** *** *** *** *** *** *** ***
You can combine this offering with the base remarketing discount specified in the IBM Business Partner Exhibit. Eligible products acquired under a project discount or special bid discount and sold during the quarter will be included in the total Billed Value of Quarterly Sales to determine eligible credit percent; however, they will not be included in the calculation of your quarterly credit. Those products that were in your inventory as of October 1, 1996 will be included. This offering cannot be combined with any other discount, credit, rebate, or bonus on the eligible products. At the end of each quarter, the remarketer must complete the designated Credit Certification Form to qualify for the credit. This offering will be effective for products installed in fourth quarter 1996 and for each quarter thereafter until such time that IBM elects to modify or withdraw this offer. IBM reserves the right to modify or withdraw this offering at any time. Additional details are available in IBM Announcement, 596-158, dated 10/29/1996. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION A-5 of 9 REMARKETER TERMS (CONTINUED) Federal Remarketing - ------------------- Federal End User Definition The following definition of "end user" applies when marketing to Federal Government accounts: 1. "Federal End User" includes federal government agencies or any other entity listed in GSA Order ADO 4800.2D, including those entities listed in Appendices A, B, and C of the Order, and any successor Order which may be published by the GSA in the Federal Register. The term Federal End User also includes federal government cost reimbursement prime contractors and management and operating contractors that receive proper authorization under FAR Part 51 from federal agencies to make federal purchases or acquisitions where licenses granted and title to equipment vest in the federal government. 2. The IR may propose an integrated solution through a higher-tier federal contractor in fulfillment of a specific government procurement where title to the IBM equipment passes directly to the federal government. In no event shall the IR permit transfer of title for any IBM equipment purchased under this Agreement to other than the federal government. Under no circumstances may the IR assign any of its responsibilities under the IR Agreement to the Federal End User. Additional Terms for Federal Sales 1. Addition to Remarketer General Terms (Z125-4800), Section 25, Ending the Agreement. For federal contract (excluding GSA Schedule contract) obligations only. In the event IBM terminates this Agreement without cause, we will permit you to continue to provide Products under the terms of this Agreement through the date on which this Agreement would otherwise have ended had it not been terminated by IBM. The industry remarketer agrees to promptly withdraw any bids that include IBM products and services which were anticipated to have been obtained under this Agreement, unless IBM and the industry remarketer are able to agree to terms and conditions under the Federal Systems Integrator (FSI) Program (or similar or successor program) for the bid as offered. 2. Buy American Act/Trade Agreements Act (BAA/TAA). IBM makes no representation or certification regarding the domestic or foreign origin of products provided by IBM. A-6 of 9 COMPLEMENTARY TERMS The terms of this section are in addition to those of the IBM Business Partner Agreement and apply to Business Partners approved under the Complementary Marketing Terms Attachment or the Systems Integrator Attachment. We specify a fixed dollar fee (Fee Opportunity) or a percent (Fee Percent) for each Product. A description of each fee follows: BASE AMOUNT COMPENSATION The fee-based Solution Provider will determine the End User's discount percent (up to the maximum percent identified as the fee opportunity for the Product in the product table) which determines the amount invoiced to the Customer. The compensation received by the fee-based Solution Provider is the difference between the fee opportunity percent less the percentage discount provided to the customer (exclusive of taxes). The Product price to the customer cannot be more than the Product's list price as set by IBM at time of installation. FEE COMPENSATION If we specify a fee percent (used to determine the fee paid to you) for each Product, we apply it to the Product's one-time or recurring charge as invoiced to the Customer (exclusive of taxes), unless specified otherwise. For a recurring charge, we apply the fee percent to 1) 12 times the monthly charge or 2) the sum of the initial charge and the annual charge. Additional fees may be paid on other opportunities as outlined in this Exhibit. IBM NET REVENUE IBM Net Revenue is determined, where applicable, by: 1. the net purchase price or net one-time charge for an eligible Product; 2. the net revenue to IBM under a Product trade-in or asset exchange transaction; 3. for a recurring charge Product, an amount equal to 12 times the net monthly charge; or 4. the sum of the net initial license charge and net first annual license charge amounts, for a licensed program to which such charges apply. CONDITIONS WHERE THERE IS NO COMPENSATION Compensation for the following items will not be included in any element of this plan, unless we specify otherwise. . Placements of Products and other IBM offerings for which the IBM branch office responsible for the Customer receives no revenue. . Placement of Products acquired directly from IBM which are not ordered through the IBM Advanced Administration System (AAS). . The fee-based Solution Provider is performing as an IBM subcontractor for a Customer and the subcontractor tasks duplicate any of the Marketing Activities for the Customer. . Placements of Products by other IBM Complementary Business Partners or IBM Remarketers. . Temporary installations: IBM machine or programs installed at one customer location, for the purposes of testing or demonstration, that the customer intends to move to another location within a short period of time. . Products sold by IBM under a special bid contract approved by the IBM Federal Integrator Channel Department. . Products acquired for use outside of the United States and Puerto Rico, unless stated otherwise in this Exhibit. . Products acquired from non-IBM authorized sources. . Products acquired for resale. . Products sold without the IBM logo. . Products acquired by IBM subsidiaries or IBM employees. . Publications, supplies, cables, or accessories. . Taxes, separately itemized or invoiced. A-7 of 9 COMPLEMENTARY TERMS (CONTINUED) LEGEND - ------ ASRP Annual System Revenue Performance CERT Certification required "Y" (yes) or "N" (no). DIST Where indicated with an "A" in this column, the Product is available at the discount specified in the Distributor Schedule A. FEE FEE Opportunity HESC Products eligible for the Higher Education Software Consortium (HESC) are identified by their HESC group designation. IAC Inventory Adjustment Category INST Products included in this Exhibit are identified as Installation by IBM (IBI) or Customer Set Up (CSU) in the "INST" column of the Eligible Product Tables. CSU Customer Set Up IBI Installation by IBM (It is required that IBM perform the installation.) LIC Product requires a License for Internal Code "Y" (yes) or "N" (no). NA Using "Y" to denote yes and "N" to denote no, Products indicated with a "Y" in the NA (North America) column may be acquired in either Canada or the United States and marketed in either Canada or the United States. PRO Price Reduction Credit Category VAE Value-Added Enhancement required "Y" (yes) or "N" (no). A-8 of 9 ELIGIBLE PRODUCT TABLE
- --------------------------------------------------------------------------------------------------------------- SYSTEM OR PRODUCT TYPES - --------------------------------------------------------------------------------------------------------------- Network IBM POS Integration Storage Product Categories RS/6000 AS/400 Products Products System/390 Products - --------------------------------------------------------------------------------------------------------------- Primary A B C C1 D E E1 - --------------------------------------------------------------------------------------------------------------- ASSOCIATED PRODUCTS HARDWARE: ------------------------------------------------------------------------------- Displays G1 G2 G1 G2 G2 G2 ------------------------------------------------------------------------------- Storage Media H2 H1 H2 H1 H2 ------------------------------------------------------------------------------- Miscellaneous K K1 K2 K4 K5 K K1 K2 K5 K K K1 K2 K1 K2 K5 - --------------------------------------------------------------------------------------------------------------- Finance Industry Products J1 J1 J1 - --------------------------------------------------------------------------------------------------------------- Storage Products S1 S2 S3 S5 S6 S1 S2 S3 S6 S1* S2 S1 S2 S3 S5 S6 - --------------------------------------------------------------------------------------------------------------- IBM Printing Co. Printers P1 P1 P1 P1 P1 - --------------------------------------------------------------------------------------------------------------- IBM Licensed Program A A1 D1 F M B B1 F N C D1 M N E2 F SS Categories O R SS X Y O R SS X C2 O SS Y O Y - --------------------------------------------------------------------------------------------------------------- IBM Service Offerings Yes Yes Yes Yes Yes Yes - --------------------------------------------------------------------------------------------------------------- IGN - --------------------------------------------------------------------------------------------------------------- NOTE: * 9348 only - ---------------------------------------------------------------------------------------------------------------
BUSINESS PARTNER EXHIBIT PRODUCT TABLES DOCUMENT NAME DESCRIPTION 5505 Business Partner Exhibit General Terms RISC RS/6000 BP Product Table AS400 AS/400 BP Product Table POS Point-of-Sale BP Product Table NETW Network Integration BP Product Table S390 System/390 BP Product Table ASSOC Associated Products BP Product Table FIN Finance Industry BP Product Table STOR Storage Products BP Product Table PRINT Printing Systems Company BP Product Table FEE Fee Based Only Products BP Product Table SVC Services Offerings BP Product Table IGN Global Network Complementary Marketer Table BUSINESS PARTNER PROFILE APPROVED PRODUCT RELATED EXHIBIT DOCUMENTS RS/6000: Z1255505; RISC, ASSOC, FIN, STOR, SVC, PRINT, FEE. AS/400: Z1255505; AS400, ASSOC, FIN, STOR, SVC, PRINT, FEE. Point-of-Sale: Z1255505; POS, ASSOC, SVC, PRINT, FEE. Network Int: Z1255505; NETW, ASSOC, STOR, SVC, PRINT, FEE. System/390: Z1255505; S390, ASSOC, FIN, STOR, SVC, PRINT, FEE Storage: Z1255505; STOR, SVC, FEE. Printer Remarketer: Z1255505; PRINT, SVC, FEE. IGN: Z1255505; IGN A-9 of 9 IBM RS/6000 PRODUCT TABLE Products included in this Product Table are available to IBM Business Partners approved for the IBM RS/6000 system. Category A Products are eligible for the discounts or fees identified in the RS/6000 Discount Schedule below. Individual Business Partners' specific discounts are identified in their Business Partner Profiles. RS/6000 Business Partners may also acquire Products from the Associated Products Product Tables in this Exhibit in Categories D1, F, G1, G2, H2, J1, J2, K1, K2, K4, K5, M, O, P1, S1, S2, S3, S5, S6, SS, X, and Y. Products acquired from these Product Tables, as well as Products acquired from the Associated Products Product Tables, aggregate toward the RS/6000 Annual System Revenue Performance unless otherwise noted.
- ---------------------------------------------------------------------------------------------- ANNUAL SYSTEM REVENUE PERFORMANCE REMARKETING DISCOUNT HARDWARE DEMO/DEV FEDERAL HARDWARE DISCOUNT DISCOUNT - ---------------------------------------------------------------------------------------------- *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** - ----------------------------------------------------------------------------------------------
CATEGORY A MACHINES(1) MES orders for machines included in this Category are available at a *** Remarketing discount and a *** Federal discount.
- ------------------------------------------------------------------------------------------------------------------------------------ MACHINE DESCRIPTION FEE FEE N D L I I NOTES TYPE OPTY A I I A N S C C S T T - ------------------------------------------------------------------------------------------------------------------------------------ 6094(4) Spaceball 3-D Input Device (1) You are authorized to initially install your Models 030 and 040 *** *** Y A N 2 CSU programs and related IBM Licensed Programs, at 7006 RS/6000 Graphic Workstation *** *** Y A Y 4 CSU your authorized location, on RS/6000 processors 7009 RS/6000 Compact Server *** *** Y A Y 4 CSU subject to the provisions of the IBM Business 7011 POWERstation/POWERsvr *** *** Y A Y 4 CSU Partner Agreement, Remarketer Term Attachment. 7012 POWERstation/POWERsvr *** *** Y A Y 4 CSU 7013(2) POWERstation/POWERsvr *** *** Y A Y 4 IBI 7015(6) POWER/SERVER *** *** Y A Y 4 IBI (2) 7013 models J01 and J30 are CSU. 7016 POWERstation *** *** N A Y 2 IBI MES features and model conversions remain IBI. 7024 RS/6000 Server *** *** Y A Y 4 CSU 7025 RS/6000 Server *** *** Y A Y 4 CSU (3) The 0463 is NOT eligible for Price Reduction 7026 RS/6000 Workgroup Server *** *** N A N 4 IBI Protection. 7030 RS/6000 Graphic Workstation *** *** Y A Y 4 CSU 7043 RS/6000 43P Workstation/Commercial Server *** *** N A Y 4 CSU 0463-001 SW Customization for AIX/6000 7236 MediaStreamer Analog Subsystem *** *** N A Y 4 IBI 0463-002 Prestoserve Factory Inst'n Opt 7237 RS/6000 Graphic Accelerator *** *** Y A N 1 IBI 0463-SW1 CCS SW Package Solutions 7247 ThinkPad Power Series 820 *** *** N A N 4 CSU 7248(4) RS/6000 43P PowerPC Workstation *** *** Y A N 4 CSU (4) These Products are available for marketing 7249 ThinkPad Power Series 850 *** *** N A N 3 CSU without the standard Value-Added Enhancement RS/6000 Notebook 860 *** *** N A Y 4 CSU requirement. 7250 Power GXT1000 Graphic Accelerator *** *** Y A Y 2 IBI (6) The 7015 Model R00 System Rack is available 7317 RS/6000 Telecommunications in Category S5. Server *** *** N A N 4 IBI 7318 Serial Communications Network Server *** *** Y A Y 2 CSU (8) Individual authorization is required for IBM 7319 Fiber Channel Switch/Adapter *** *** Y A Y 2 IBI RS/6000 remarketers to be eligible to market 7999(17) Model RS6 RS/6000 Pseudo-Mach *** *** - - - - - the IBM POWERparallel System Type 9076. 0463(3) Software Customization/Factor Install Opt *** *** N - N 1 CSU 9076(8) POWERparallel System 2 (SP2) Scalable Parallel Processor *** *** Y A Y 2 IBI - ------------------------------------------------------------------------------------------------------------------------------------ NOTE: (17) The terms and conditions of features ordered using this pseudo-machine are the same as the RS/6000 machine in which they are installed. The *** MES discount applies to orders using the pseudo-machine. - ------------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION B-1 of 6 IBM RS/6000 PRODUCT TABLE (CONTINUED) CATEGORY A (CONTINUED) IBM LICENSED PROGRAMS Complementary Marketing fee percentages are as follows: Central Order = *** TBO Order = ***
- ------------------------------------------------------------------------------------------------------------------------------------ H N D E A I PROGRAM S S NUMBER PROGRAM DESCRIPTION C T NOTES - ------------------------------------------------------------------------------------------------------------------------------------ 5601-263(9) AIX Personal Computer Simulator/6000 IG Y A For Processor Group Information refer to Exhibit 5601-457(14) AIX XStation Manager IG Y A IBM RS/6000 Machines (Z125-8309). 5621-013 AIX Optimization Subroutine Library/6000 - N A (9) Maximum Remarketing Discounts: 5622-063(17) CMVC for SunOS - N A 5601-263 Processor categories D5 & E5 5622-129 DB2 Client Application Enabler/2 - N A = *** 5622-242 IBM NetView FTP Client for AIX - Y A 5765-526 = *** 5765-083 = *** 5648-127 IBM Intelligent Miner for AIX - N A 5648-B08 IBM Network Station Browser - N A (10) Permission to copy is NOT granted for the following Licensed programs: 5692-ADV IBM Software Upgrade Protection Plan for AIX and - Y A UNIX 5696-623 5696-624 5696-623(10, 14) AIX Performance Toolbox/6000 IH Y A 5696-735 5696-925 5696-624(10, 14) AIX Performance Aide/6000 IH Y A 5765-083 5765-421 5696-658(14) AIX HIPPI Driver Group/6000 - Y A 5765-423 5765-448 5696-893(14) IBM InfoCrafter for AIX V2 IG Y A 5765-496 5765-526 5696-898 IBM InfoExplorer Licensed Extension V1 IG Y A 5765-598 5765-599 5696-902(14) IBM Distributed SMIT for AIX V2.1 IH Y A 5765-628 5765-651 5696-904 IBM AIX Windows Display PostScript V1.1 IH Y A 5799-QQP 5765-653 5696-906(14) IBM Multimedia Services V2.1 for AIX - Y A 5696-907(14) PEX and PHIGS V4.1 for AIX IG Y A (14) Version to Version upgrades are eligible 5696-919 IBM Hypertext Information Base Libraries V1 IG Y A for the same discount as an initial license 5696-923(14) AIX HACMP/6000 IJ Y A order for the upgraded-to program. 5696-926 IBM AIXlink/X.25 V1.1 - Y A 5696-933(14) HACMP for AIX V4 IJ Y A 5696-393(14) OpenGL and GL 3.2, V4.1 for AIX IG Y A 5696-934 IBM SNA Application Access for AIX - Y A 5696-944 IBM SNA Client Access for AIX - Y A 5697-021(14) IBM Netware for AIX - Y A 5697-204 IBM Wireless Network Access Server - N A 5697-213 Multimedia Server for AIX IH Y A - ------------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION B-2 of 6 IBM RS/6000 PRODUCT TABLE (CONTINUED) CATEGORY A (CONTINUED) IBM LICENSED PROGRAMS
- --------------------------------------------------------------------------------------------------------------------------------- H D E I PROGRAM S N S NUMBER PROGRAM DESCRIPTION C A T NOTES - --------------------------------------------------------------------------------------------------------------------------------- 5765-001(14) IBM AIX DirectTalk/6000 - Y A For Processor Group Information refer to 5765-003 Numerical Control Post Processor Generator - N A Exhibit IBM RS/6000 Machines (Z125-8309). Library/6000 5765-011(14) AIX X-Windows 3270 Emulator/6000 VI Y A (9) Maximum Remarketing Discount: 5765-012 AIX APL 2/6000 - Y A 5765-042(14) IBM AIX ESSL/6000 - Y A 5765-526 = *** 5765-083(9,10,16) IGES Processor for AIX and UNIX - N A 5765-091(14) AIX Host Link/6000 IJ N A (10) Permission to copy is NOT granted for 5765-092(14) AIX Communications System/6000 IJ N A the following Licensed Programs: 5765-093(14) AIX Tools/6000 IJ N A 5765-094 AIX Communication Protocol Programs/6000 IJ N A 5765-096 AIX Data Collection Device Support/6000 IJ N A 5696-623 5696-624 5765-097(14) AIX Entry Communications System/6000 IH N A 5696-735 5696-925 5765-151 IBM AIX Speech Single User/6000 IJ N A 5765-083 5765-421 5765-423 5765-448 5765-176(14) AIX XL Fortran Compiler/6000 IG Y A 5765-496 5765-526 5765-195 AIX 5086 Connectivity Enabler/6000 V1 - N A 5765-598 5765-599 5765-198 IBM AIX Query/6000 - N A 5765-628 5765-651 5765-202(17) CMVC for HP-UX - N A 5799-QQP 5765-653 5765-207(14) IBM CMVC for AIX Systems IH Y A 5765-217 DB2 Client Application Enabler/DOS - N A (12) When marketed under a monthly license 5765-218 DB2 Client Application Enabler/6000 - N A charge, these programs are eligible for a 5765-227(17) Loadleveler for SUNOS SparCstation Systems - N A monthly fee payment equal to *** of the 5765-228(17) Loadleveler for Silicon Graphics, IRIX - N A monthly license charge for remarketed 5765-245 AIX XL Pascal Compiler/6000 IG Y A orders and *** of the monthly charge 5765-261 IBM AIX SNA Gateway/6000 V2 - N A for development or demonstration system 5765-268 IBM AIX Async Terminal Server-Accelerator/6000 for orders. Ethernet - Y A 5765-273 IBM Printing Systems Manager for AIX - N A 5765-287(17) Loadleveler for HP-UX Systems - N A (13) Aggregation toward Annual System Revenue 5765-297 Parallel I/O File System R2 - N A Performance does not apply. 5765-326 IBM Visualizer Query for AIX/6000 - N A (14) Version to Version upgrades are eligible 5765-328 DB2 Parallel Edition for AIX/6000 VI Y A for the same discount as an initial 5765-382 IBM AIX NetBIOS and IPX and SPX Support/6000 - Y A license order for the upgraded-to program. 5765-392 IBM Parallel OSL for 9076/SP2 and SP1 Systems VI Y A 5765-393(14) IBM AIX Version 4.1 IG Y A (15) Standard Remarketing Discount: 5765-397(17) CMVC for Solaris - N A 5765-398(14) IBM 3270 Host Connection for AIX IG N A 5765-496 = *** 5765-400(14) IBM UIM/X for AIX IH Y A 5765-B92 = *** 5765-418 IBM Data Encryption Standard Library Routines - Y A 5765-421(10,14) IBM C Set ++ for AIX IG Y A (16) The federal discount for this Product is: 5765-422(13,14) IBM Parallel ESSL for AIX V4 VI Y A 5765-423(10) IBM C for AIX IG Y A 5765-083 = *** 5765-435 IBM NetView FTP Server for AIX - Y A (17) Available for marketing without the 5765-448(10,17) C Set + + for Solaris Operating System - N A standard Value-Added Enhancement 5765-449(12) IBM MERVA for AIX - N - requirement: 5765-496(10,14,15)IBM Automatically Programmed Tool for AIX (APT/WS) - N A 5765-505(14) Print Services Facility for AIX V2 - N A 5622-063 5765-202 5765-509(14) Soft5080 for AIX V3 - Y A 5765-227 5765-228 5765-526(9,10,14) IBM XL FORTRAN Runtime Environment for AIX IG Y A 5765-287 5765-397 5765-528(14) Soft5080 for AIX V4 - Y A 5765-448 5765-598 5765-599 5765-628 - ----------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION B-3 of 6 IBM RS/6000 PRODUCT TABLE (CONTINUED) CATEGORY A (CONTINUED) IBM LICENSED PROGRAMS
- ---------------------------------------------------------------------------------------------------------------------------------- H D E I PROGRAM S N S NUMBER PROGRAM DESCRIPTION C A T NOTES - ---------------------------------------------------------------------------------------------------------------------------------- 5765-529 AIX Parallel System Support Program V2 VI Y A (10) Permission to copy is NOT granted 5765-541 IBM Printing Systems Manager GUI for AIX - N A for the following Licensed Programs: 5765-542 IBM Soft 5080 for AIX V2 - N A 5696-623 5696-624 5765-543(13,14) Parallel Environment for AIX V2 VI Y A 5696-735 5696-925 5765-544(13,14) IBM PVME for AIX V2 VI Y A 5765-B57 5765-C32 5765-550(14) IBM NetBIOS and IPX/SPX - Y A 5765-083 5765-421 5765-551 AIX HIPPI/6000 - Y A 5765-423 5765-448 5765-552 Starworks for AIX V2 - N A 5765-496 5765-526 5765-560(14) 5086 Connectivity Enabler for AIX V2 - Y A 5765-598 5765-599 5765-588 IGES Doctor for AIX and UNIX - N A 5765-624 5765-628 5765-591 IBM Soft 5080 Hostconnect for AIX - N A 5765-651 5765-653 5765-598(10,13,17) IBM NWAYS Campus Manager-ATM for HP-UX V1 - N A 5799-QQP 5765-599(10,13,17) IBM NWAYS Campus Manager Suite for HP-UX V1 - N A 5765-603 ESCON Channel Connectivity - Y A (13) Aggregation toward Annual System 5765-604 Block Multiplexer Channel IH Y A Revenue Performance does not apply. 5765-624(10) Netscape Catalog Server V1 IH N A 5765-628(10,13,17) IBM NWAYS Campus Manager-LAN for HP-UX V1 - N A (14) Version to Version upgrades are 5765-637 IBM Network Tape Access and Central System (NetTape) - Y A eligible for the same discount as an for AIX initial license order for the 5765-638 IBM Internet Connection Server for AIX - N A upgraded-to program. 5765-643 IBM NetTape Tape Library Connection - Y A 5765-651(10) Windows NT - Y A 5765-653(10,14) Solaris V2 Desktop Operating System - Y A (15) Standard Remarketing Discount: 5765-654 IBM Performance Toolbox for AIX V2 IH N A 5765-655 AIX V4 - Y A 5765-496 = *** 5765-657 IBM XL Fortran RTE for AIX V4 - N A 5765-C17 = *** 5765-658 IBM XL Fortran for AIX V4 - N A 5765-C18 = *** 5765-659 Open GL and GL 3.2 for AIX - N A 5765-660 PEX and PHIGS for AIX - N A (17) Available for marketing without the 5765-A25 High Availability Geographic Cluster for AIX - N A standard Value-Added Enhancement 5765-A86 HACMP for AIX V4 - N A requirement: 5765-B57 AIX MediaStreamer V1 - N A 5765-B61 VideoCharger Server for AIX V1 - N A 5765-448 5765-B67 Interactive Session Support (ISS) for AIX - N A 5765-598 5765-B96 DCE Manager for AIX V2 - N A 5765-599 5765-C17(15) IBM ARTour Gateway and Mobile Clients - N - 5765-628 5765-C18(15) IBM ARTour Web Express Server and Client - N - 5765-C32(10) Check Point's Firewall-1 V3 for AIX - N A (18) Single Remarketing Discount for 5765-C34 Repackaged AIX 4.1 and 4.2 - N A 5799-QQP = ***. A limit of one demonstration/development license per 5777-WCN IBM AIX Speech Client/6000 IJ Y A contract period applies. 5777-WCP IBM Speech Client/2 - Y A 5777-WCQ IBM AIX Speech Server/2 IJ Y A 5799-QQP(10,18) 7596 Distributed Resource Broker PS0156 - N - - ----------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION B-4 of 6 IBM RS/6000 PRODUCT TABLE (CONTINUED) CATEGORY A1 VALUE-ADDED ENHANCEMENT QUALIFYING LICENSED PROGRAMS The following IBM Licensed Programs are available to RS/6000 Business Partners who have been approved for these products as their Approved Value-Added Enhancement. These Products are eligible for the discounts specified in this subsection and are aggregated toward the RS/6000 Annual System Revenue Performance. IBM LICENSED PROGRAMS Complementary Marketing fee percentages are as follows: Central Order = *** TBO Order = ***
- ---------------------------------------------------------------------------------------------------------------------------------- D I PROGRAM RMKT S NUMBER PROGRAM DESCRIPTION DISC T NOTES - ---------------------------------------------------------------------------------------------------------------------------------- PROFESSIONAL CADAM: For Processor Group Information refer to Exhibit IBM RS/6000 Machines (Z125-8309). 5696-041(2) View *** - 5696-138(2) Drawing Mark-Up Facility *** - If a Program is offered under a Primary License 5696-706(2) Variational Design System *** - Charge/Annual License Charge, the indicated discount 5696-885(2) Graphics Enabler *** - applies only to the Primary License Charge. 5696-938(2) MCX Translator *** - Note: The *** Development Discount is applicable to 5697166(1) Total Info and Plan Sys FM *** A the OTC only. 5697-258(2) Hybrid Raster *** - 5756-091(2) 3D Surface Design *** - (1) Version to Version upgrades are eligible for the 5756-092(2) Manufacturing System *** - same discount as an initial license order for the 5756-093(2) Machining Center *** - upgraded-to program. 5756-094(2) Interactive Design *** - 5756-095(2) Access IUE *** - (2) Permission to copy is NOT granted for this 5756-096(2) Interactive solids Design *** - program. 5756-295(2) CADEX: Intelligent Data Integrator *** - 5756-296(2) MCAE Interfaces *** - 5756-297(2) AEC Schematics *** - 5765-020 Numerical Control Post Processor Generator/6000 *** - 5765-068 CAMkit/6000 *** - 5765-474(2) IBM 3D Interaction Accelerator *** - CATIA: 5626-CCD(2) CADAM Drafting *** - 5626-IUE(2) CADAM IUE *** - 5626-MU2(2) CATIA/CADAM 2D Mark and Annotation *** - 5626-MCX(2) CATIA/CADAM MCX Translator *** - 5626-RAS(2) CATIA/CADAM Hybrid Raster *** - IBM ARCHITECTURE & ENGINEERING SERIES: 5696-054(1) Graphics Application *** A 5696-055(1) Rendering application *** A 5696-057(1) HVAC Application *** A 5696-060(1) Structural Application *** A 5696-061(1) Piping Application *** A 5799-AES A&ES Base Graphics NT/95 P99000 *** A - -----------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION B-5 of 6 IBM NETWORK INTEGRATION LICENSED PROGRAMS TABLE The IBM Network Integration Licensed Programs identified in this table are available to eligible IBM RS/6000 Business Partners at the discounts or fees referenced below. CATEGORY D1 Complementary marketing fee percentages are as follows: Central Order = *** TBO Order = ***
- ---------------------------------------------------------------------------------------------------------------------------------- H D E I PROGRAM S RMKT N S NUMBER PROGRAM DESCRIPTION C DISC A T NOTES - ---------------------------------------------------------------------------------------------------------------------------------- 5648-016(1,2,3,6) Multiprotocol Network Program - *** N A (1) Version to Version upgrades eligible for the same discount as an initial license NETWORK MANAGEMENT FAMILY order for the upgraded-to program. 5621-107 AIX NetView Service Point IH *** Y A (2) Not available for copy/redistribution 5696-728(5) NetView for Sun Solaris - *** Y A and may only be ordered pre-loaded on 5696-731(1) NetView for AIX V3 IH *** Y A the IBM 6611 Network Processor. 5696-905(1) NetView Entry for AIX V3 IH *** Y A (3) Federal discount: 5697-B10(4) IBM Nways Campus Mgr Suite for HP-UX V2 - *** N A 5697-B11(4) IBM Nways Campus Manager LAN for HP-UX V2 - *** N A 5648-016 = *** 5697-B12(4) IBM NWAYS Campus Manager ATM for HP-UX V2 - *** N A 5697-B18(4) IBM Nways Campus Manager ReMon for HP-UX V2 - *** N A (4) Permission to copy is not granted for 5697-B20(4) IBM Nways Campus Mgr ReMon Advanced for HP-UX V2 - *** N A the following Licensed Programs: 5697-B67(4) Nways RouteSwitch Network Mgr V2 - *** N A 5697-B68(4) Nways RouteTracker Mgr V2 - *** N A 5697-B67 5697-B69(4,6) 8273 RouteSwitch Software Program V2 - *** N A 5697-B68 5697-B70(4,6) 8274 RouteSwitch Software Program V2 - *** N A 5697-B69 5697-C10(4) Route Director Manager Win 95/NT V3 - *** N Y 5697-B70 5697-C11(4) RouteMonitor Manager Win 95/NT V3 - *** N Y 5697-C10 5697-C13(4) 8273 Advanced Routing Software V3 - *** N Y 5697-C11 5697-C14(4) 8274 Advanced Routing Software V3 - *** N Y 5697-C13 5697-C14 5765-215 NetView DM Agent for HP-UX - *** Y A 5697-B10 5765-233 SNA Manager/6000 - *** Y A 5697-B11 5765-234 SysMon for SUN Solaris - *** Y A 5697-B12 5765-235 SysMon for HP-UX IH *** Y A 5697-B18 5765-236 SysMon for Unix for NCR - *** Y A 5697-B20 5765-251 LAN Network Manager for AIX - *** Y A 5765-264 LAN NetView Mgmt Utilities/6000 - *** Y A (5) Available for marketing without the 5765-306 NetView DMA for SunOS - *** Y A standard Value-Added Enhancement 5765-307 NetView DMA hr Solaris - *** Y A Requirement: 5696-728 5765-308 NetView DMA for UNIX System V - *** Y A 5765-343(1) IBM AIX Router & Bridge Manager/6000 - *** N A (6) Available for marketing without a 5765-368(6) Nways Multiprotocol Routing Network Services - *** Y A Value-Added Enhancement when preloaded 5765-410(1) Systems Monitor for AIX V2 - *** Y A on Category D Machines. 5765-B86 Nways Multiprotocol Routing Svcs - *** N A 5765-B87 Nways Multiprotocol Access Svcs - *** N A - ----------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION B-6 of 6 IBM AS/400 PRODUCT TABLE Products included in this Product Table are available to IBM Business Partners approved for the IBM AS/400. Category B Products are eligible for the discounts or fees identified in the AS/400 Discount Schedule below. Individual Business Partners' specific discounts are identified in their Profiles. AS/400 Business Partners may also acquire Products from the Associated Products Product Table of this Exhibit in Categories F, G1, G2, G3, H1, H2, J1, J2, K1, K2, K5, N, O, P1, S1, S2, SS and X. Products acquired from these tables, as well as those acquired from the Associated Products tables, aggregate toward the Annual Revenue Performance unless otherwise noted.
- -------------------------------------------------------------------------------------------- REMARKETING DISCOUNT MES HARDWARE I II III DISCOUNT DEMO/DEV DISCOUNT - -------------------------------------------------------------------------------------------- ANNUAL SYSTEM REVENUE PERFORMANCE 9402 9406 9401 ALL PRODUCTS(3) I/O & SW - -------------------------------------------------------------------------------------------- *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** - --------------------------------------------------------------------------------------------
CATEGORY B MACHINES MES orders for Machines included in this Category are available at the Remarketing Discount indicated below and at the same Development Discount as the base machine on which it will be installed, unless otherwise noted. You are authorized to initially install your programs and related IBM Licensed Programs on the AS/400, at your authorized location, subject to the provisions of the IBM Business Partner Agreement, Remarketer Terms, Attachment.
- ----------------------------------------------------------------------------------------------------------------------------------- D I I L I N MACHINE FEE S I A S TYPE DESCRIPTION OPTY FEE T C C T NOTES - ----------------------------------------------------------------------------------------------------------------------------------- 9401 AS/400 Portable One Model P03 *** *** A Y 2 CSU (1) The 9042 Models 236 and 436 are 9402(1,5) System Unit *** *** A Y 2 CSU available at a *** discount for new 9404(6) System Unit *** *** A Y 2 IBI machine orders and a *** discount for 9406(2,7) System Unit *** *** A Y 2 IBI MES orders. The 9402 Models 236 and 5299 Terminal Multiconnector Model 003 *** *** A N 2 CSU 436 are available for marketing 9331 Diskette Unit *** *** A N 2 IBI without the standard Value-Added 2480 AS/400 Wireless LAN Access Points *** *** A N 2 CSU Enhancement requirement. 2482 AS/400 Wireless Portable *** *** A Y 2 CSU Transaction Computer 2483 AS/400 Integrated Laser PTC *** *** A Y 2 CSU (2) Maximum Remarketing discount for 9406 2484 AS/400 Industrial PTC *** *** A Y 2 CSU Model 53S new machine orders = *** 2486 AS/400 Wireless Data Collection PTC *** *** A N 2 CSU 2488 AS/400 Pen-Based Computer *** *** A N 2 CSU 2489(4) Rugged Notebook Computer *** *** A N 2 CSU 3890(11) Document Processor Model XP1 *** *** - N 2 IBI 3897(11) Image Capture System Model 001 *** *** - N 2 IBI - ----------------------------------------------------------------------------------------------------------------------------------- NOTE: (3) Development System Discounts for AS/400 Processors (any models not listed are available at a *** Development Discount). The Development System Discount for a model conversion will be the same as the discount percent associated with the converted-to model. Exception approval is required for eligibility to order 9406 Models 320, 53S, and 530 as development systems. 9401 P03 = Up to ten 9401 P03's may be acquired for Demo/Dev System use each contract period. 9402 4SS, 4SE, 4SG. 4SL, 40E, 40G, 40L = *** 9406 310, 320, 530, 53S = *** 5299 Development System Products available via Special Bid. 9401-150 Available only for Development System installation. Standard AS/400 development discounts and quantities apply. (4) Field installed features are ordered using special ordering vehicle 2489-ZZZ, which receives the same discount as 2489 new machine orders. (5) For 9402 Model 2SS MES orders, the maximum fee opportunity is *** and the fee percentage is ***. (6) For 9404 Model 2SS and 3SS MES orders, the maximum fee opportunity is *** and the fee percentage is ***. (7) For 9406 Model 2SS and 3SS MES orders, the maximum fee opportunity is *** and the fee percentage is ***. (11) Maximum discount = *** - -----------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION C-1 of 7 IBM AS/400 PRODUCT TABLE (CONTINUED) CATEGORY B (CONTINUED) IBM LICENSED PROGRAMS Version to version upgrades are eligible for the same discount as an initial license order for the upgraded-to Program. Complementary Marketing fee percentages are as follows: Central order = *** TBO Order = ***
- ---------------------------------------------------------------------------------------------------------------------------------- H D E I PROGRAM S S NUMBER(9) PROGRAM DESCRIPTION C T NOTES - ---------------------------------------------------------------------------------------------------------------------------------- 5620-WCL Win400 for Clipper - A (8) Permission to copy is not granted for these 5620-WIN(8) Win400 Full Product - A licensed programs. 5622-055 Current OV/400 Workgroup Program - A (9) For Processor Group Information, refer to the 5622-969 ImagePlus Workstation Program V2 - A Exhibit - IBM AS/400 Machines (Z125-4125). 5636-PUB AS/400 CD-ROM Collection Kit - A (10) Designated AS/400 software can be distributed automatically from IBM Software Manufacturing 5648-B06 Network Station Manager for AS/400 V3R2 - A Solutions (SMS) directly to your end users for 5648-B07 Network Station Manager for AS/400 V3R7 - A a fee. Orders can be placed by selecting the "IR/IRA End User Distribution" option in the 5716-AF1 Advanced Function Printing Utilities for OS/400 - A configurator. Charges for the service will 5716-BR1 Backup Recovery and Media Services for OS/400 IC A be calculated and added to the configuration. 5716-CB1 Integrated Language Environment COBOL for OS/400 - A 5716-CF1 Point-of-Sale Communications Utility for OS/400 - A Additionally, all 5763 and 5716 programs ordered 5716-CL1 Application Development ToolSet Client Server for and shipped on the 5755-AS3 and 5755-AS4 System OS/400 IC A Program Orders (SPOs) are eligible for this 5716-CL3 Application Development Toolset Client Server - A automatic distribution by IBM. 5716-CM1 Communications Utilities for OS/400 - A 5716-CP2 CallPath for OS/400 - A 5716-CP3 CallPath for AS/400 V3 - A (11) These Products are available for marketing 5716-CR1 Cryptographic Support for OS/400 - A without a Value-Added Enhancement. 5716-CX2 Integrated Language Environment C for OS/400 - A 5716-CX4 VisualAge C++ for OS/400 IC A 5716-CX5 VisualAge for C++ for AS/400 - A 5716-DB1 Systeml38 Utilities for OS/400 - A 5716-DCT Language Dictionaries for OS/400 - A 5716-DFH CiCS for OS1400 IC A 5716-DP1 DataPropagator Relational Capture and Apply for OS/400 - A 5716-DS1 Business Graphics Utility for OS/400 - A 5716-ES1 SystemView OMEGAMON Services/400 IC A 5716-FNT Advanced Function Printing Fonts for OS/400 - A 5716-FN1 Advanced Function Printing DBCS Fonts for OS/400 - A 5716-FS1 OSI File Services for OS/400 - A 5716-JS1 Job Scheduler for OS/400 - A 5716-MG1 SystemView Managed System Services for OS/400 - A 5716-MQ1 MQSeries for OS/400 IC A 5716-MS1 OSI Message Services for OS/400 - A 5716-MW1 ManageWare for OS/400 - A 5716-OS1 OSI Communication Subsystem for OS/400 - A 5716-PD1 Application Program Driver for OS/400 - A 5716-PT1 Performance Tools for OS/400 - A 5716-PW1 Application Development ToolSet for OS/400 IC A 5716-QU1 Query for OS/400 IC A 5716-RD1(11) Report/Data Archive and Retrieval System - A 5716-RG1 Integrated Language Environment RPG for OS/400 - A 5716-SM1 SystemView System Manager for OS/400 IC A 5716-SS1 Operating System/400 V3R6 IC A 5716-ST1 DB2 Query Manager and SQL Development Kit for OS/400 IC A 5716-SV1 ADSTAR Distributed Storage Manager for OS/400 IC A 5716-UB1 Ultimedia Business Conferencing for OS/400 IC A 5716-US1 Client Access Ultimedia Tools for OS/400 IC A 5716-VG1 VisualGen Host Services for OS/400 - A 5716-WP1 OfficeVision for Os/400 IC A 5716-XA1 Client Access IC A 5716-XZ1 LAN Server for OS/400 IC A - ----------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION C-2 of 7 IBM AS/400 PRODUCT TABLE (CONTINUED) CATEGORY B (CONTINUED) IBM LICENSED PROGRAMS
- ---------------------------------------------------------------------------------------------------------------------------------- H D E I PROGRAM S S NUMBER(9) PROGRAM DESCRIPTION C T NOTES - ---------------------------------------------------------------------------------------------------------------------------------- 5733-A01(8,10) Medical Records Plus/400 V3 - A (8) Permission to copy is not granted for these 5733-IM1 IBM Intelligent Miner for AS1400 V1 - A licensed programs 5733-080 IBM Application Dictionary/400 IC A 5733-167(10) IBM Distributed Computing Environment Base Services/400 - A (9) For Processor Group Information, refer to the 5733-218(10,11) IBM Report/Data Archive & Retrieval System for OS/400 - Exhibit - IBM AS/400 Machines (Z125-4125). 5733-228(10) IBM Image Plus Workfolder Appl Facility V3 for OS/400 - A (10) Designated AS/400 software can be 5763-AF1 Advanced Function Printing Utilities/400 IC A distributed automatically from IBM Software 5763-BA1 AS/400 Basic IC A Manufacturing Solutions (SMS) directly to 5763-BR1 Backup Recovery and Media Services/400 IC A your end users for a fee. Orders can be 5763-CB1 Integrated Language Environment COBOL/400 IC A placed by selecting the "IR/IRA End User 5763-CD1 CoOperative Development Environment/400 IC A Distribution" option in the configurator. 5763-CF1 Point-of-Sale Communications Utility/400 IC A Charges for the service will be calculated 5763-CL1 Application Development ToolSet Client Server/400 IC A and added to the configuration. 5763-CL3 Application Development ToolSet Client Server for Additionally, all 5763 and 5716 programs AS/400 V3 - A ordered and shipped on the 5755-AS3 and 5763-CM1 Communications Utilities/400 IC A 5755-AS4 System Program Orders (SPOs) are 5763-CP2 CallPath/400 V2 IC A eligible for this automatic distribution 5763-CP3 CallPath for OS/400 V3 - A by IBM. 5763-CR1 Cryptographic Support/400 IC A 5763-CX2 Integrated Language Environment C/400 IC A (11) These Products are available for marketing 5763-DB1 AS/400 System/38 Utilities IC A without a Value-Added Enhancement. 5763-DCT Language Dictionaries/400 IC A 5763-DFH CICS/400 IC A 5763-DM1 SystemView Information Warehouse DataHub Support/400 - A 5763-DP1 DataPropagator Relational Capture and Apply/400 IC A 5763-DS1 AS/400 Business Graphics Utility IC A 5763-ES1 SystemView OMEGAMOM Services/400 IC A 5763-FNT Advanced Function Printing Fonts/400 IC A 5763-FN1 Advanced Function Printing DBCS Fonts/400 IC A 5763-FS1 OSI File Services/400 IC A 5763-JS1 Job Scheduler for OS/400 V3 IC A 5763-MG1 System Managed System Services/400 - A 5763-MQ1 Message Queue Manager/400 IC A 5763-MQ2 MQSeries for OS/400 IC A 5763-MS1 OSI Message Services/400 - A 5763-MW1 SystemView ManageWare/400 IC A 5763-OS1 OSI Communications Subsystem/400 IC A 5763-PD1 Application Program Driver/400 IC A 5763-PL1 AS/400 PL/I IC A 5763-PS1 AS/400 Pascal IC A 5763-PT1 Performance Tools/400 IC A 5763-PW1 Application Development ToolSet/400 IC A 5763-QU1 Query/400 IC A 5763-RD1(11) Report/Data Archive and Retrieval System (R/DARS) - A 5763-RG1 Integrated Language Environment RPG/400 IC A 5763-SM1 SystemView System Manager/400 IC A - -----------------------------------------------------------------------------------------------------------------------------------
C-3 of 7 IBM AS/400 PRODUCT TABLE (CONTINUED) CATEGORY B (CONTINUED) IBM LICENSED PROGRAMS
- ---------------------------------------------------------------------------------------------------------------------------------- H D E I PROGRAM S S NUMBER PROGRAM DESCRIPTION C T NOTES - --------------------------------------------------------------------------------------------------------------------------------- 5763-SS1 Operating System/400 V3 IC A (8) Permission to copy is not granted for 5763-ST1 DB2/400 Query Manager and SQL Development Kit IC A Please licensed programs 5763-SV1 ADSTAR Distributed Storage Manager/400 IC A 5763-UB1 Ultimedia Business Conferencing/400 IC A (9) For Processor Group Information, refer to the 5763-UM1 Ultimedia Mail/400 IC A Exhibit - IBM AS/400 Machines (Z125-4125). 5763-US1 Client Access/400 Ultimedia Tools IC A 5763-VG1 VisualGen Host Services for OS1400 - A (10) Designated AS1400 software can be 5763-VR1 AS1400 VRPG Client/2 IC A distributed automatically from IBM Software 5763-WP1 Office Vision/400 IC A Manufacturing Solutions (SMS) directly to 5763-XA1 Client Access/400 Family IC A your end users for a fee. Orders can be 5763-XZ1 LAN Server/400 IC A placed by selecting the "IR/IRA End User 5798-AF2(10) AFP PrintSuite for OS1400 V2 - A Distribution" option in the configurator. 5798-AF3(10) AFP PrintSuite for AS1400 V3 - A Charges for the service will be calculated 5798-JS2(10) Job Scheduler for OS/400 - A and added to the configuration. 5798-RYF IBM Window Tool/400 - A 5798-RZJ(10) JustMail/400 V3 IC A Additionally, all 5763 and 5716 programs ordered and shipped on the 5755-AS3 and 5798-RZK(10) Neural Network Utility/400 IC A 5755-AS4 System Program Orders (SPOs) are 5798-RZT(10) Facsimile Support/400 IC A eligible for this automatic distribution by 5798-RZW(10) KnowledgeTool Runtime/400 IC A IBM. 5798-RZX(10) KnowledgeTool DevelopmenV400 IC A 5798-TAA(10) TCP/IP File Server SupporU400 IC A 5798-TAQ(10) JustMail for OS/400 - A 5798-TBA(10) Neural Network Utility for OS1400 - A 5798-TBC PagerPac for OS1400 IC A 5798-TBD RadioPac for OS1400 IC A 5798-TBE(10) UNIX Connection Program for OS1400 IC A 5798-TBF(10) Distributed Computing Environment Base Services IC A for OS1400 5798-TBG(10) Netview FTP for OS1400 - A 5798-TBK Early Planning Package - A 5798-TBL(10) SOMobjects Developer Toolkit for AS1400 IC A 5798-TBU CISC to RISC Upgrade Kit - A 5798-TAT(10) KnowledgeTool Runtime for OS1400 - A 5798-TAW(10) KnowledgeTool Development ToolKit for OS/400 - A 5798-TAY(10) Facsimile Support for OS1400 IC A 5798-TAZ(10) TCPIIP File Server Support for OS1400 IC A 5799-DHP SuperC Compare Utility/400 - A 5799-DNP System C/400 PRPQ - A 5799-FR1 V3 Fortran/400 Run-Time Support - A 5799-JS3 Job Scheduler for OS1400 PRPQ V2 - A 5799-PAC AS/400 Performance Analyzer - A 5799-XBW Optical Library DataServer Support/400 - A 5799-XCR Preinstall Planning Manuals - - 5799-XDH IBM Security ToolKit for OS/400 V2 R3 - A 5799-XDJ IBM Security ToolKit for OS/400 V3 R1 - A 5799-XDK IBM Security ToolKit for OS/400 V3 R6 - A 5799-XDL V3 Preinstall Planning Manuals - A IBM SYSTEM 36/38 LICENSED PROGRAMS 5668-883 S/36 Financial Transaction Processing System - - 5710-CAT S/36 Computer Assisted Training 1.2 - - 5714-MG1(10) S/38 Migration Aid - - 5727-BR1 S/36 Business Report Applic. Devel. System - - 5727-MG1(10) S/36 Migration Aid IC - 5796-PZK S/36 RM/COBOL Compiler & Runtime - - - ---------------------------------------------------------------------------------------------------------------------------------
C-4 of 7
IBM AS/400 PRODUCT TABLE (CONTINUED) CATEGORY B (CONTINUED) IBM LICENSED PROGRAMS - --------------------------------------------------------------------------------------------------------------------------------- H D E I PROGRAM S S NUMBER PROGRAM DESCRIPTION C T NOTES - --------------------------------------------------------------------------------------------------------------------------------- IBM SYSTEM 36/38 LICENSED PROGRAMS (CONTINUED) (8) Permission to copy is not granted for these licensed programs 5798-RPH S/36 Fixed Asset Acctg. and Control System - - 5798-RPT S/36 Strategic Profit Model II - - (9) For Processor Group Information, refer to the 5798-RPX S/36 Retrievall36 - - Exhibit - IBM AS/400 Machines (Z125-4125). 5798-RRW S/36 Electronic Spreadsheet - - (10) Designated AS/400 software can be distributed 5799-BKP S/38 File Support Utilities for PC & XT - - automatically from IBM Software Manufacturing 5799-BTZ S/38 IBM Systeml38 Transfer Facility - - Solutions (SMS) directly to your end users for a 5799-CGJ S/36 IPDS Graphics/Text Merge PRPQ - - fee. Orders can be placed by selecting the 5799-CGK S/36 IPDS Advanced Functions PRPQ - - "RR/IRA End User Distribution" option in the 5799-EYY S/36 Consolidated Software Package - - configurator. Charges for the service will be 5799-PAZ S/36 Response Time Measurement Facility PRPQ - - calculated and added to the configuration. 5799-WYL S/36 APPC Multiple LU Support PRPQ - - Additionally, all 5763 and 5716 programs AS/400 ADVANCED 36 LICENSED PROGRAMMER ordered and shipped on the 5755-AS3 and 5755-AS4 System Program Orders (SPOs) are 5716-ASM Assembler and Macro Processor - A eligible for this automatic distribution by IBM. 5716-BAS BASIC - A 5716-BGU Business Graphics Utility - A 5716-CBL COBOL - A 5716-DCN DW/36 Language Dictionaries - A 5716-DEM 3278 Device Emulation - A 5716-DSU Development Support Utilities - A 5716-DWT DisplayWrite/36 - A 5716-FOR FORTRAN - A 5716-PK1 BasePac - A 5716-QRY Query/36 - A 5716-RPG RPG II - A 5716-SSP System Support Program - A 5716-UTL Utilities - A 5716-PCS Personal Computer Support/36 - A 5716-PSV Personal Services/36 - A 5727-ASM Assembler and Macro Processor - A 5727-BAS BASIC - A 5727-BGU Business Graphics Utilities (BGU) - A 5727-CBL COBOL Compiler and Library - A 5727-DCT DisplayWrite/36 Language Dictionary - A 5727-DEM 3278 Device Emulation - A 5727-DSU Development Support Utility - A 5727-DWT DisplayWrite/36 - A 5727-FOR FORTRAN IV - A 5727-LAN LAN Communications - A 5727-PCS PC Support/36 - A 5727-PK1 BasePac/36 (includes SSP, UTL, RPG, QRY, and PCS) - A 5727-PK2 OfficePac/36 (includes DWT, DCT, and PSV) - A 5727-PSV Personal Services/36 - A 5727-QRY Query/36 - A 5727-RPG RPG II - A 5727-SSP System Support Program (SSP) - A 5727-UTL Utilities - A - ---------------------------------------------------------------------------------------------------------------------------------
C-5 of 7 IBM AS/400 PRODUCT TABLE (CONTINUED) CATEGORY B (CONTINUED) IBM LICENSED PROGRAMS
- --------------------------------------------------------------------------------------------------------------- H D E I PROGRAM S S NUMBER PROGRAM DESCRIPTION C T NOTES - --------------------------------------------------------------------------------------------------------------- AS/400 ADVANCED 36 LICENSED PROGRAMS (CONTINUED) 5799-FQQ Response Time Measurement Facility - A 5799-FQR Distributed System Node Executive (DSNX/ND) - A 5799-FQP IPDS Advanced Function Printing - A 5799-QFP Response Time Measurement Facility PRPQ - A 5799-QFQ DSNX-ND (Distributed System Node Executive) PRPQ - A 5799-QFR X.25 Synchronous Autodial PRPQ - A 5799-QHK IPDS Advanced Function Printing PRPQ - A CLIENT SERIES SOFTWARE 5733-CSB SNA*ps 5250 GC - A 5733-CSC SNA*ps Gateway - A 5733-CS5 SNA*ps Emulator - A - ---------------------------------------------------------------------------------------------------------------
C-6 of 7 IBM AS/400 PRODUCT TABLE (CONTINUED) CATEGORY B1 IBM LICENSED PROGRAMS The following IBM Licensed Programs are available to AS/400 Business partners at the discounts specified below. These Programs are aggregated toward the AS/400 Annual System Revenue Performance. Complementary Marketing fee percentages are as follows: Central Order = *** TBO Order = ***
- ------------------------------------------------------------------------------------------------------------------------------------ H D E I PROGRAM S RMKT S NUMBER(1) PROGRAM DESCRIPTION C DISC T NOTES - ------------------------------------------------------------------------------------------------------------------------------------ 5620-ABL(2) Real Vision Imaging Software - *** A (1) For Processor Group 5621-211 IWPM/DOS for Windows - *** - Information, refer to the 5622-055 IBM Current - OfficeVision/400 Workgroup IC *** - Exhibit - IBM AS/400 Machines 5639-A36 AS/400 Availability and Recovery Management - *** - (Z125-4125). 5639-A37 AS/400 Work Management and Basic Tuning - *** - 5639-A38 AS/400 Security Planning and Implementation - *** - (2) One development copy of 5639-A48 AS/400 Training Library - *** - 5620-ABL is available directly 5696-006(5) AS/400 Intro to Data Communications - *** A from Real Vision, Inc. The *** 5696-024 AS/400 System Using the System/36 Environment - *** A development discount through 5696-025 AS/400 System for the Experienced System/38 Implementer - *** A IBM does not apply. Permission 5696-026 AS/400 Control Language Programming Workshop - *** A to copy is not granted for this 5696-027 AS/400 Interactive Program Design - *** A program. This program is not 5696-029 RPG/400 Interactive Programming Workshop - *** A available for trial offerings 5696-030 AS/400 Relational Data Base Design and Coding - *** A and is not warranted by IBM. 5696-034 COBOL 400 Interactive Programming Workshop - *** A 5696-431(5) IBM Personalized Learning Series - OfficeVision/400 Implementation - *** - (3) Permission to copy is not 5733-056(5) Manage/400 Course for AS/400 - *** A granted for these programs. 5733-072(5) IBM Medical RecordsPlus/400 V2 - *** - 5733-129 Discover Education OfficeVision/400 Support - *** - (4) This product is a 5733-130 Discover Education OfficeVision/400 Support Additional Topics - *** - no-charge PRPQ and is NOT 5733-131 Discover Education AS/400 Implementation Series - *** - available for a discount. 5733-132 Discover Education OfficeVision/400 Support Series - *** - Permission to copy is not 5733-133 Discover Education AS/400 Education Library - *** - granted for this program. 5733-141(5) IBM Discover Education RPG/400 Programming IC *** - 5733-143 Getting Started with PC Support/400 - *** - (5) Designated AS/400 software 5733-144 IBM Discover Education PC Support/400 - *** - can be distributed 5733-174 Discover Education Using Query/400 - *** - automatically from IBM Software 5733-175 Discover Education AS/400 Basic CL Programming - *** - Manufacturing Solutions (SMS) 5733-176(5) Discover Education AS/400 Basic Education Series IC *** - directly to your end users for 5733-177(5) Discover Education AS/400 Implementation Series IC *** - a fee. Orders can be placed by 5733-178(5) Discover Education OfficeVision/400 Support Series IC *** - selecting the "IR/IRA End User 5733-179(5) Discover Education AS/400 Education Library IC *** - Distribution" option in the 5733-180(5) Discover Education AS/400 Facilities and Implementation IC *** - configurator. Charges for the 5733-181(5) Discover Education AS/400 Application Design and Dev Tools IC *** - service wilt be calculated and 5733-182(5) Discover Education OfficeVision/400 Support IC *** - added to the configuration. 5733-183(5) Discover Education OfficeVision/400 Support -- Addl Topics IC *** - 5733-184(5) Discover Education Using Query/400 IC *** - Additionally, all 5763 and 5716 5733-185(5) Discover Education AS/400 Basic CL Programming IC *** - programs ordered and shipped on 5733-188(5) Discover Education AS/400 Implementation for Entry Systems IC *** - the 5755-AS3 and 5755-AS4 5733-204(5) Personalized Learning Series Structured Query Language/400 Prog Wrkshp - *** - System Program Orders (SPOs) 5733-295(5) Personalized Learning Series OS/400 Structure, Tailoring, & Basic Tuning - *** - are eligible for this automatic 5733-206(5) Personalized Learning Series AS/400 Sys Admin and Control - *** - distribution by IBM. 5733-207(5) Personalized Learning Series AS1400 Sys Operator Workshop - *** - 5733-208(5) Personalized Learning Series AS/400 Adv Sys Operator Workshop - *** - 5733-210(5) Discover/Education AS/400 Overview IC *** - 5733-219(5) Discover Education AS/400 Implementation and Ops Series - *** - 5733-220(5) Discover Education COBOL/400 and SQL/400 Programming Series - *** - 5733-221(5) Discover Education RPG/400 and SQL/400 Programming Series - *** - 5733-222(5) Discover Education AS/400 Library - *** - 5798-RYX IBM Application Program Driver/400 V2R2 - *** - 5799-XBK(4) Optical Library Data Server Support/400 - *** - 5799-XAY(4) C/400 Library PRPQ - *** - - ------------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION C-7 of 7 IBM NETWORK INTEGRATION PRODUCT TABLE Products included in this Product Table are available to IBM Business Partners approved for IBM Network Integration Products. These Products are eligible for the discounts or fees identified in the Network Integration Discount Schedules below. Network Integration Business Partners may also acquire Products from the Associated Products Product Table of this Exhibit in Categories D1, G2, K, K1, K2, M, N, O, P1, S6, SS, and Y. CATEGORY D MACHINES Category D Products are available for marketing without a Value-Added Enhancement. MES orders for Machines included in this Category are eligible for the same discounts as the base Products. You may return Category D Products with an Inventory Adjustment Category of 4 that IBM has withdrawn from marketing provided: 1. such withdrawn Products have been purchased within six months of the notice of the Product's withdrawal, and 2. you place an order in a dollar amount equivalent to the credit issued for the returned Products. You may not return Products ordered after the notice of that Product's withdrawal.
- ----------------------------------------------------------------------------------------------------------------------------- D I DEMO/ I L I N MACHINE FEE RMKT DEV FED S I A S TYPE DESCRIPTION OPTY FEE DISC DISC DISC T C C T NOTES - ----------------------------------------------------------------------------------------------------------------------------- 2210 NWAYS Multiprotocol Router *** *** *** *** *** A N 4 CSU (1) Model upgrades are IBI 2216 NWAYS Multiaccess Connector *** *** *** *** *** A N 4 CSU (2) The 8285 Model 00P 2217 NWAYS Multiprotocol Concentrator *** *** *** *** *** N 4 CSU receives a *** remarketing and 2218 NWAYS Frame Relay Access Device (FRAD) development - Models 1$$, 3$$ *** *** *** *** *** A N 4 CSU discount. - Models 02E, 02T, 02X *** *** *** *** *** A N 4 CSU 6611 Network Processor - Model 12$ *** *** *** *** *** A N 4 CSU - Model 14$, 17$ *** *** *** *** *** A N 4 CSU 8210 Nways Multiprotocol Switched Services *** *** *** *** *** A N 4 CSU (MSS) Server 8034 HFC Receiver Shelf *** *** *** *** *** Y 4 CSU 8235 Model 140 DIALs Switch *** *** *** *** *** A N 4 CSU 8250 Multiprotocol Intelligent HUB *** *** *** *** *** A N 4 CSU 8251 Campus LAN Switch RPQ 8Q1615 *** *** *** *** *** N 4 CSU 8260(1) Multiprotocol Intelligent Switching Hub *** *** *** *** *** A N 4 CSU 8273 Ethernet Route Switch *** *** *** *** *** A N 4 CSU 8274 Nways LAN Route Switch *** *** *** *** *** A N 4 CSU 8281 ATM LAN Bridge *** *** *** *** *** A N 4 CSU 8285(2) NWAYS ATM Workgroup Switch *** *** *** *** *** A N 4 CSU 8300 Wide Access Note *** *** *** *** *** - N 4 CSU 9741 High Speed Inverse Multiplexor *** *** *** *** *** A N 4 CSU - -----------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION E-1 of 2 IBM NETWORK INTEGRATION PRODUCT TABLE (CONTINUED) IBM LICENSED PROGRAMS Complementary marketing fee percentages are as follows: Central Order = *** TBO Order = *** *** CATEGORY D1
- ------------------------------------------------------------------------------------------------------------------------------------ H D E I PROGRAM S RMKT N S NUMBER PROGRAM DESCRIPTION C DISC A T NOTES - ------------------------------------------------------------------------------------------------------------------------------------ 5648-016(1,2,3,6) Multiprotocol Network Program - *** N A (1) Version to Version upgrades are eligible for the same discount as an initial license order NETWORK MANAGEMENT FAMILY for the upgraded-to program. 5621-107 AIX NetView Service Point IH *** Y A (2) Not available for copy/redistribution and 5696-728(5) NetView for Sun Solaris - *** Y A may only be ordered pre-loaded on the IBM 5696-731(1) NetView for AiX V3 IH *** Y A 6611 Network Processor. 5696-905(1) NetView Entry for AIX V3 IH *** Y A (3) The federal discount for these Products is: 5697-B10(4) IBM Nways Campus Mgr Suite for HP-UX V2 - *** N A 5697-B11(4) Nways Campus Mgr LAN for HP-UX V2 - *** N A 5648=016 = *** 5697-B12(4) Nways Campus Mgr ATM for HP-UX V2 - *** N A 5697-B18(4) Nways Campus Mgr ReMon for HP-UX V2 - *** N A (4) Permission to copy is NOT granted for the 5697-B20(4) Nways Campus Manager ReMon following Licensed Programs: Advanced for HP-UX V2 - *** N A 5697-B67(4) Nways RouteSwitch Network Mgr V2 - *** N A 5697-B67 5697-B68(4) Nways RouteTracker Mgr V2 - *** N A 5697-B68 5697-B69(4,6) 8273 RouteSwitch Software Program V2 - *** N A 5697-B69 5697-B70(4,6) 8274 RouteSwitch Software Program V2 - *** N A 5697-B70 5697-C10(4) RouteDirector Manager Win 95/NT V3 - *** N Y 5697-C10 5697-C11(4) RouteMonitor Manager Win95/NT V3 - *** N Y 5697-C11 5697-C13(4) 8273 Advanced Routing Software V3 - *** N Y 5697-C13 5697-C14(4) 8274 Advanced Routing Software V3 - *** N Y 5697-C14 5697-B10 5765-215 NetView DM Agent for HP-UX - *** Y A 5697-B11 5765-233 SNA Manager/6000 - *** Y A 5697-B12 5765-234 SysMon for SUN Solaris - *** Y A 5697-B18 5765-235 SysMon for HP-UX IH *** Y A 5697-B20 5765-236 SysMon for Unix for NCR - *** Y A 5765-251 LAN Network Manager for AIX - *** Y A (5) Available for marketing without the standard 5765-264 LAN NetView Mgmt Utilities/6000 - *** Y A Value-Added Enhancement requirement: 5765-306 NetView DMA for SunOS - *** Y A 5765-307 NetView DMA for Solaris - *** Y A 5696-728 5765-308 NetView DMA for UNIX System V - *** Y A 5765-343(1) IBM AIX Router & Bridge Manager/6000 - *** N A (6) Available for marketing without a 5765-368(6) Nways Multiprotocol Routing Network Services - *** Y A Value-Added Enhancement when preloaded on 5765-410(1) Systems Monitor for AIX V2 - *** Y A Category D Machines. 5765-B86 Nways Multiprotocol Routing Svcs V1 - *** N A 5765-B87 Nways Multiprotocol Access Svcs - *** N A - ------------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION E-2 of 2 IBM ASSOCIATED PRODUCTS PRODUCT TABLE IBM Associated Products are available to IBM Business Partners as indicated in the Eligible Product Tables in this Exhibit. Revenue for these Products aggregates toward the associated Annual System Revenue Performance unless otherwise indicated. DISPLAYS
- ---------------------------------------------------------------------------------------------------------------------------- D I DEMO/ I L I N FEE RMKT DEV S I A S CATEGORY ELIGIBLE PRODUCTS OPTY FEE DISC DISC T C C T NOTES - ---------------------------------------------------------------------------------------------------------------------------- G1 7526(1) Data Collection *** *** *** *** A N 2 CSU (1) MES Orders for the 7526 Terminal are not eligible for a discount. Revenue for these Products does not aggregate toward RS/6000 or AS/400 Annual System Revenue Performance. G2 3172(1) Display Station *** *** *** *** A Y 2 IBI Revenue for these Products does Controller not aggregate toward RS/6000 - Model 003 Annual System Revenue Performance. 3174(1,2) Display Station Controller (1) MES orders for the 3172 - Models 12R *** *** *** *** - Y 2 CSU and 3174 are eligible for the - All other models *** *** *** *** - Y 2 CSU same discount as the base machine. (2) 3174 Models 11R, 21H & 21L are IBI. The 3174 Model 95R is available via the Dealer Exhibit. - ----------------------------------------------------------------------------------------------------------------------------
STORAGE MEDIA
- ----------------------------------------------------------------------------------------------------------------------------------- D I DEMO/ I L I N FEE RMKT DEV N S I A S CATEGORY ELIGIBLE PRODUCTS OPTY FEE DISC DISC A T C C T NOTES - ----------------------------------------------------------------------------------------------------------------------------------- H1 9336-025(1) Disk Unit Storage Unit *** *** *** *** N - N 2 IBI (1) MES orders for the 9336-025 are eligible for the same discount as the base machine. - ----------------------------------------------------------------------------------------------------------------------------------- H2 3490(1) Mag Tape N - N 2 IBI (1) These 3490 models are not eligible for an MES discount. - Models A1$, A2$ *** *** *** *** - Models B2$, B4$ *** *** *** *** - -----------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION G-1 of 6 IBM ASSOCIATED PRODUCTS PRODUCT TABLE (CONTINUED) MISCELLANEOUS PRODUCTS *** MES orders for Machines in this table are not eligible for a discount unless otherwise indicated.
- ------------------------------------------------------------------------------------------------------------------------------------ D I DEMO/ I L I N MACHINE FEE FED RMKT DEV N S I A S CATEGORY TYPE ELIGIBLE PRODUCTS OPTY FEE DISC DISC DISC A T C C T NOTES - ------------------------------------------------------------------------------------------------------------------------------------ K 4610(1,2) SureMark Point of Sale Printer *** *** *** *** *** N A N 2 CSU (1) Available for marketing 4612(2) SurePoint Mobile Computer *** *** *** *** *** N A N 2 CSU without the standard Value-Added Enhance ment Requirement. (2) Revenue for this Product aggregates toward ASRP only for Point of Sale remarketers. - ------------------------------------------------------------------------------------------------------------------------------------ K1 9309 Rack Enclosure *** *** *** *** *** N N 2 IBI Expansion Unit - ------------------------------------------------------------------------------------------------------------------------------------ K2 3299 Multiplexer *** *** *** *** *** N N 2 CSU (1) 6299 MES orders are 6299(1) HUB for Midrange Systems *** *** *** *** *** N N 2 CSU eligible for a *** remarketing discount and a *** development discount. - ------------------------------------------------------------------------------------------------------------------------------------ K4 9291(1) Single VoiceServer *** *** *** *** *** Y A 2 IBI (1) MES orders for 9295(1) Multiple VoiceServer *** *** *** *** *** Y A 2 IBI machines in this table are eligible for the same discount as the Base Machine unless otherwise indicated. - ------------------------------------------------------------------------------------------------------------------------------------
IBM UNINTERRUPTIBLE POWER SYSTEMS (UPS) MES orders for Machines in this table are not eligible for a discount unless otherwise indicated.
- ----------------------------------------------------------------------------------------------------------------------------------- D I DEMO/ I L I N MACHINE FEE RMKT DEV S I A S CATEGORY TYPE DESCRIPTION OPTY FEE DISC DISC T C C T NOTES - ----------------------------------------------------------------------------------------------------------------------------------- K5 9910(1) Uninterruptible A N 1 - Revenue for this Product does not aggregate Power Systems toward Annual System Revenue Performance. (1) This product is not eligible for Price Models: *** *** *** *** Decrease and Discount Increase Protection. - B$$(2) *** *** *** *** - E$$(2) *** *** *** *** (2) Except for models specifically listed at - U$$(2) *** *** *** *** a different discount. - B30, B50, B89, U33 *** *** *** *** - EP5, EP8, E80 *** *** *** *** - EX3 - -----------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION G-2 of 6 IBM ASSOCIATED PRODUCTS PRODUCT TABLE (CONTINUED) CATEGORY M IBM RS/6000 LICENSED PROGRAMS Complementary Marketing fee percentages are as follows: Central Order = *** TBO Order = ***
- ------------------------------------------------------------------------------------------------------------------------------------ C H D E E I PROGRAM R S RMKT N S NUMBER PROGRAM DESCRIPTION T C DISC A T NOTES - ------------------------------------------------------------------------------------------------------------------------------------ 5696-108 IBM AIX Infocrafter/6000 N IG *** Y A (1) Version to version are 5696-238 Encina Peer to Peer Executive for AIX/6000 N IJ *** Y A upgrades eligible for the 5696-347 Encina Peer to Peer Gateway for AIX/6000 N IJ *** Y A same discount as an initial 5697-078 ADSTAR Distributed Storage Mgr for AIX N - *** N - license order for the 5697-ADE(2) TME 10 Application Development Environment Y - *** N - upgraded-to program. 5697-AEF(2) TME 10 Application Extension Facility Y - *** N - 5697-ASA(2) TME 10 Module for R3 Y - *** N - (2) Permission to copy is not 5697-BKP TME 10 ADSM N - *** N A granted for these programs. 5697-EAA(2) TME 10 Enterprise Console additional event adapters Y - *** N - 5697-EAS(2) TME 10 Enterprise Console Y - *** N - (3) Available for marketing 5697-EIF(2) TME 10 Event Integration Facility Y - *** N - without the standard Value- 5697-EMN TME 10 Distributed Monitoring Y - *** N A Added Enhancement 5697-FRA(2) TME 10 Framework Y - *** N - requirement: 5697-INV(2) TME 10 Inventory Y - *** N - 5697-JSC TME 10 Job Scheduling N - *** N A 5765-337 5765-342 5697-NET(2) TME 10 Net. Commander Y - *** N - 5765-338 5765-347 5697-NOT(2) TME 10 Module for Domino/Notes Y - *** N - 5765-339 5765-348 5697-NVW TME 10 NetView Y - *** N A 5765-340 5765-606 5697-PAD(2) TME 10 Tivoli/Plus for ADSM Y - *** N - 5765-341 5765-607 5697-PBO(2) TME 10 Tivoli/Plus for BoKS Y - *** N - 5697-PCY(2) Tivoli/Puls for Challenger Y - *** N - 5697-PLE(2) TME 10 Tivoli/Plus for NetWorker Y - *** N - 5697-PME(2) TME 10 Tivoli/Plus for SeOS Y - *** N - 5697-PMN TME 10 Performance Management N - *** N A 5697-PP3(2) TME 10 Tivoli/Plus for ServiceCenter Y - *** N - 5697-PPL(2) Tivoli/Plus for AutoSys Y - *** N - 5697-PRE(2) TME 10 Tivoli/Plus for AR System Y - *** N - 5697-PRT(2) TME 10 Print Management Y - *** N - 5697-PUN(2) TME 10 Tivoli/Plus for Maestro Y - *** N - 5697-RCL(2) TME 10 Remote Control Y - *** N - 5697-RPT(2) TME 10 Reporter Y - *** N - 5697-SEC(2) TME 10 Security Management Y - *** N - 5697-SWD(2) TME 10 Software-Distribution Y - *** N - 5697-UAD(2) TME 10 User Administration Y - *** N - 5765-191 IBM ProductManager for AIX/Prod Change Mgr N IJ *** N A 5765-192 IBM ProductManager for AIX/Prod Structure Mgr N IJ *** N A 5765-193 IBM ProductManager for AIX/Appl Svcs Mgr N IJ *** N A 5765-263 IBM ProductManager for AIX Doc Control Mgr N - *** N A 5765-316 Legato NetWorker for RS/6000 N - *** N A 5765-337(3) IBM ProductManager for Solaris 2.X Oper Sys Prod Change Mgr N - *** N A 5765-338(3) IBM ProductManager for Solaris 2.X Oper Sys Prod Structure Mgr N - *** N A 5765-339(3) IBM ProductManager for Solaris 2.X Oper Sys Appl Svcs Mgr N - *** N A 5765-340(3) IBM Product Mgr for HP-UX Oper Sys Prod Change Mgr N - *** N A 5765-341(3) IBM Product Mgr for HP-UX Oper Sys Appl Svcs Mgr N - *** N A 5765-342(3) IBM Product Mgr for HP-UX Oper Sys Prod Structure Mgr N - *** N A 5765-347(3) IBM ProductManager for Solaris 2.X Oper Sys Doc Control Mgr N - *** N A 5765-348(3) IBM Product Mgr for HP-UX Oper Sys Doc Control Mgr N - *** N A 5765-381 IBM Job Scheduler for AIX N - *** Y - 5765-440 IBM AIX ProductManager for Oracle7 Appl Svcs Mgr N - *** N A 5765-441 IBM AIX ProductManager for Oracle7 Prod Structure Mgr N - *** N A 5765-442 IBM AIX ProductManager for Oracle7 Prod Change Mgr N - *** N A 5765-443 IBM AIX ProductManager for Oracle7 Doc Control Mgr N - *** N A 5765-527(1) SystemView for AIX N IH *** Y A 5765-532 Getting Started with DCE for Appl Developers N IJ *** Y A 5765-533(1) DCE Security Services N IJ *** Y A - ------------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION G-3 of 6 IBM ASSOCIATED PRODUCTS PRODUCT TABLE (CONTINUED) CATEGORY M (CONTINUED) IBM RS/6000 LICENSED PROGRAMS
- ------------------------------------------------------------------------------------------------------------------------------------ C H D E E I PROGRAM R S RMKT N S NUMBER PROGRAM DESCRIPTION T C DISC A T NOTES - ------------------------------------------------------------------------------------------------------------------------------------ 5765-534(1) DCE Cell Directory Services N IJ *** Y A (1) Version to version upgrades are eligible for the same discount as an 5765-537(1) DCE Enhanced Distributed File Systems N IJ *** Y A initial license order for the upgraded-to program. 5765-538 DCE User Data Masking Encryption Facility N IJ *** Y A (2) Permission to copy is not granted for these programs. 5765-540(1) DCE NFS to DFS Authenticating Gateway N IJ *** Y A 5765-605(2) IBM Product Mgr for AIX Operating System N - *** N A (3) Available for marketing without the standard Value-Added Enhancement requirement: 5765-606(2,3) IBM Product Mgr for HP-UX Operating System N - *** N A 5765-337 5765-342 5765-338 5765-347 5765-607(2,3) IBM Product Mgr for Sun Polaris 2.X Operating N - *** N A 5765-339 5765-348 System 5765-340 5765-606 5765-633(2) N - *** N A 5765-341 5765-607 IBM CICS for SINIX 5765-639 N - *** N IBM Directory and Security Server for AIX 5799-FBC N - *** N NSL UniTree AIX/6000 - ------------------------------------------------------------------------------------------------------------------------------------
CATEGORY N IBM AS/400 LICENSED PROGRAMS
- ------------------------------------------------------------------------------------------------------------------------------- D I PROGRAM RMKT S NUMBER PROGRAM DESCRIPTION DISC T NOTES - ------------------------------------------------------------------------------------------------------------------------------- 5696-032(1) AS/400 Networking *** - (1) Group to Group Upgrade Charges for these 5697-C20 IBM BYPASS2000 *** A Programs are NOT eligible for a Discount. 5730-082(1) NetView File Transfer Program *** - 5733-196(3,4) V1 NetView FTP V3 *** - (3) Aggregation toward Annual System Revenue Performance does not apply. - -------------------------------------------------------------------------------------------------------------------------------
NOTE: (4) Designated AS/400 software can be distributed automatically from IBM Software Manufacturing Solutions (SMS) directly to your end users for a fee. Orders can be placed by selecting the "IR/IRA End User Distribution" option in the configurator. Charges for the service will be calculated and added to the configuration. Additionally, all 5763 and 5716 programs ordered and shipped on the 5755- AS3 and 5755-AS4 System Program Orders (SPOs) are eligible for this automatic distribution by IBM. - -------------------------------------------------------------------------------- *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION G-4 of 6 IBM ASSOCIATED PRODUCTS PRODUCT TABLE (CONTINUED) CATEGORY O IBM NETWORK INTEGRATION LICENSED PROGRAMS Complementary Marketing fee percentages are as follows: Central Order = *** TBO Order = ***
- -------------------------------------------------------------------------------------------------------------------------------- D I PROGRAM RMKT S NUMBER PROGRAM DESCRIPTION DISC T NOTES - -------------------------------------------------------------------------------------------------------------------------------- 5621-425(1) IBM 3172 Interconnect Controller Program *** A (1) Version to version upgrades are eligible for the 5696-865 IBM 3172 SNA Communications Program *** A same discount as an initial license order for the 5697-196 IBM 3172 IP Channel Communications Program V1 *** - upgraded-to program. 5697-259 IBM 3172 HPR Channel Connectivity Program *** - - --------------------------------------------------------------------------------------------------------------------------------
CATEGORY R IBM DATA COLLECTION LICENSED PROGRAMS Complementary Marketing fee percentages are as follows: Central Order=*** TBO Order=***
- ------------------------------------------------------------------------------------------------------------------------------------ PROGRAM RMKT NUMBER PROGRAM DESCRIPTION DISC NOTES - ------------------------------------------------------------------------------------------------------------------------------------ 5756-144(1,2) Data Collection Control/2 *** Revenue for these Programs does not aggregate toward RS/6000 or AS/400 Annual System Revenue Performance. 5756-145(2) Data Collection for Distributed *** Automation Edition (1) Version to version upgrades are eligible for the same 5756-146(2) *** discount as an initial license order for the upgraded-to 7527 Extended Terminal Services program. 5799-PZH(2) *** (2) Permission to copy is NOT granted for these Programs. AIX Data Collector/6000 (Buildtime) 5799-PYX(2) *** AIX Data Collector/6000 (Runtime) - ------------------------------------------------------------------------------------------------------------------------------------
CATEGORY X IBM LICENSED PROGRAMS AVAILABLE TO BOTH RS/6000 AND AS/400 SOLUTION PROVIDERS Complementary Marketing fee percentages are as follows: Central Order=*** TBO Order=***
- ---------------------------------------------------------------------------------------------------------------------------------- D I PROGRAM PROGRAM RMKT N S NUMBER DESCRIPTION DISC A T NOTES - ---------------------------------------------------------------------------------------------------------------------------------- 5621-159 SwitchServer/2 *** N A (1) Version to version upgrades are eligible for 5798-RZB(1,2) Connection program/400 *** Y - the same discount as an initial license order for the upgraded-to program. - ---------------------------------------------------------------------------------------------------------------------------------- NOTE: (2) Designated AS/400 software can be distributed automatically from IBM Software Manufacturing Solutions (SMS) directly to your end users for a fee. Orders can be placed by selecting the "IR/IRA End User Distribution" option in the configurator. Charges for the service will be calculated and added to the configuration. Additionally, all 5763 and 5716 programs ordered and shipped on the 5755- AS3 and 5755-AS4 System Program Orders (SPOs) are eligible for this automatic distribution by IBM. - --------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION G-5 of 6 IBM ASSOCIATED PRODUCTS PRODUCT TABLE (CONTINUED) CATEGORY Y IBM LICENSED PROGRAMS AVAILABLE TO IBM SOLUTION PROVIDERS APPROVED FOR CATEGORIES A, D, AND E. Complementary Marketing fee percentages are as follows: Central Order = *** TBO Order = ***
- ---------------------------------------------------------------------------- D I PROGRAM RMKT S NUMBER PROGRAM DESCRIPTION DISC T NOTES - ---------------------------------------------------------------------------- 5648-129 IBM Client Input Output/Sockets *** - ----------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION G-6 of 6 IBM STORAGE PRODUCTS TABLE These products are available to IBM Business Partners approved for IBM Storage Products. When approved for Category S2 or S3 as a Storage Remarketer in the Business Partner Profile, you are also approved for Products in Categories S1, S5, and SS. When Products included in a Category will attach to multiple system types, only those models which will attach to your approved processor type are available to you. When approved for these Storage Products, you are also approved for associated RS/6000 and AS/400 features required to attach these Storage Products to RS/6000 or AS/400 processors at the discount associated with those processor features in their respective tables. Revenue for these Products aggregates toward Annual System Revenue Performance (ASRP) unless otherwise indicated. Storage Products are eligible for export between the United States and Canada only when they are exported in conjunction with the installation of an RS/6000 system. MES Orders for machines in this Product Table are eligible for the same discount as the base machine unless otherwise indicated. CATEGORY S1.
- ----------------------------------------------------------------------------------------------- C D I DEMO/ V E I L I N MACHINE FEE RMKT DEV N A R S I A S TYPE DESCRIPTION OPTY FEE DISC DISC A E T T C C T - ----------------------------------------------------------------------------------------------- 3490(3,4) Mag Tape - Models C$$, E01, E11 *** *** *** *** Y N N A N 3 IBI Mag Tape - Models F$$ *** *** *** *** Y N N A N 3 IBI 3570 Magstar MP Magnetic Tape Subsystem *** *** *** *** N N N A Y 3 CSU 3995(3,5) Optical Library *** *** *** *** Y N N A Y 2 IBI 7027 High Capacity Storage Drawer *** *** *** *** N N N A N 3 IBI 7131 SCSI Multi-Storage Tower *** *** *** *** Y N N A N 3 CSU 7137(1) Disk Array Subsystem *** *** *** *** Y N N A Y 3 IBI 7202 RS/6000 Expansion Rack *** *** *** *** N N N A N 3 IBI 7203 Portable Disk Drive *** *** *** *** Y N N A N 3 CSU 7204 External Disk Drive *** *** *** *** Y N N A N 3 CSU 7206 External 4mm Tape Drive *** *** *** *** Y N N A N 3 CSU 7207 1/411 Cartridge Tape Drive *** *** *** *** Y N N A N 3 CSU 7208(2) 8mm Tape Drive *** *** *** *** Y N N A N 3 CSU 7209 Optical Disk Drive *** *** *** *** N N N A N 3 CSU 7210 CD-ROM Drive *** *** *** *** Y N N A Y 3 CSU 7331 8mm Tape Library *** *** *** *** Y N N A N 3 CSU 7332 4mm DDS-2 Tape Autoloader *** *** *** *** N N N A N 3 CSU 7336 4mm Tape Library *** *** *** *** N N N A Y 3 CSU 9337 Disk Array Subsystem *** *** *** *** N N N A Y 3 IBI 9348 Magnetic Tape Unit *** *** *** *** N N N A N 3 IBI 9427 8mm Tape Cartridge Library *** *** *** *** N N N A N 3 IBI - ----------------------------------------------------------------------------------------------- NOTE: (1) 7137 Models 413, 414 and 415 are CSU. (2) 7208 Models 012 and 234 are IBI. (3) Federal Discounts: 3490 = *** 3996 = *** (4) 3490 Models F00 and F01 are CSU. (5) 3995 C4$ Models do not contain Licensed Internal Code. - -----------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION L-1 of 3 IBM STORAGE PRODUCTS TABLE (CONTINUED) CATEGORY S2
- ------------------------------------------------------------------------------------------------------------------------ C D I DEMO/ V E I L I N MACHINE FEE RMKT DEV N A R S I A S TYPE DESCRIPTION OPTY FEE DISC DISC A E T T C C T - ------------------------------------------------------------------------------------------------------------------------ 3494(1,2) Tape Library Dataserver *** *** *** *** Y Y N A Y 2 IBI 3590(2,3,5) High Performance Tape Subsystem *** *** *** *** Y Y N A Y 2 IBI 3599(4) Magstar Data Cartridge *** *** *** *** N Y N - N 1 CSU - ------------------------------------------------------------------------------------------------------------------------ NOTE: (1) The 3494 Model B16 is not available for remarketing. (2) Federal Discount 3494 = *** 3590 = *** (3) The 3590 Model C12 is not eligible for Distributor Schedule A discounting. (4) MES orders are not eligible for a discount. (5) A$$ and B$$ models of the 3590 are available for marketing without a Value-Added Enhancement. - ------------------------------------------------------------------------------------------------------------------------
CATEGORY S3
- ------------------------------------------------------------------------------------------------------------------------ C D I DEMO/ V E I L I N MACHINE FEE RMKT DEV N A R S I A S TYPE DESCRIPTION OPTY FEE DISC DISC A E T T C C T - ------------------------------------------------------------------------------------------------------------------------ 7133(1) SSA Disk Subsystem *** *** *** *** Y N N A Y 3 IBI 7135 RAIDiant Array *** *** *** *** Y N N A Y 3 IBI 7190 SCSI Host to SSA Loop Attachment *** *** *** *** N Y N A N 3 CSU - ------------------------------------------------------------------------------------------------------------------------ NOTE: (1) 7133 Models 010 and 500 contain IBM Licensed Internal Code. - ------------------------------------------------------------------------------------------------------------------------
CATEGORY S5
- ------------------------------------------------------------------------------------------------------------------------ C D I DEMO/ V E I L I N MACHINE DESCRIPTION FEE RMKT DEV N A R S I A S TYPE OPTY FEE DISC DISC A E T T C C T - ------------------------------------------------------------------------------------------------------------------------ 7015(1) System Rack Model R00 *** *** *** *** Y N N A N 2 CSU - ------------------------------------------------------------------------------------------------------------------------ NOTE: (1) The 7015 Model R00 is available for marketing without a Value-Added Enhancement when sold as an expansion rack to Support additional external IBM Storage Products on RS/6000 processors. - ------------------------------------------------------------------------------------------------------------------------
CATEGORY S6 Unique approvals are required to market Products in this category.
- ------------------------------------------------------------------------------------------------------------------------ C D I DEMO/ V E I L I N MACHINE FEE RMKT DEV N A R S I A S TYPE DESCRIPTION OPTY FEE DISC DISC A E T T C C T - ------------------------------------------------------------------------------------------------------------------------ 3466 Network Storage Manager *** *** *** *** N N Y A Y 4 IBI 5765-B92 Network Storage Manager Software Package V1 *** *** *** *** N N N A - - ------------------------------------------------------------------------------------------------------------------------ NOTE: (1) Complementary Marketing fee percentages are as follows: Central Order = *** TBO Order = *** - ------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 1-2 of 3 IBM STORAGE PRODUCTS TABLE (CONTINUED) CATEGORY SS Storage Remarketers authorized for Storage Product Categories S2, 83, or 84 are eligible to sell Licensed Programs listed in this section. Complementary Marketing fee percentages are as follows: Central Order = *** TBO order = *** Remarketers are no longer required to obtain a development license for ADSM for AIX (5765-564). Remarketers are not required to copy and distribute this licensed program to their end users.
- -------------------------------------------------------------------------------------------------------------------------------- H D E I V PROGRAM S RMKT N S A NUMBER PROGRAM DESCRIPTION C DISC A T E NOTES - -------------------------------------------------------------------------------------------------------------------------------- 5716-SV2(1,2) ADSTAR Distributed Storage Manager for AS/400 V3 IC *** N - Y 5763-SV2(1,2,3) ADSTAR Distributed Storage Manager for AS/400 V2 IC *** N A N 5799-QZG IBM Backup Restore Interface for ORACLE for SAP R3 V2 P94053 - *** N A Y - -------------------------------------------------------------------------------------------------------------------------------- NOTE: (1) Designated AS/400 software can be distributed automatically from IBM Software manufacturing Solutions (SMS) directly to your end users for a fee. Orders can be placed by selecting the "IR/IRA End User Distribution" option in the configurator. Charges for the service will be calculated and added to the configuration. Additionally, all 5763 and 5716 programs ordered and shipped on the 5755- AS3 and 5755-AS4 System Program Orders (SPOs) are eligible for this automatic distribution by IBM. (2) Version to version upgrades are eligible for the same discount as an initial license order for the upgraded-to program. (3) Available for marketing without a Value-Added Enhancement. - --------------------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 1-3 of 3 PRINTING SYSTEMS PRODUCT TABLE These Products are available to IBM Business Partners approved to market IBM Printing Systems Products. These Products are eligible upon certification by Category for the discounts identified in the Printing Systems Discount Schedule below. When certified for these Printing Systems Products, you also have access to associated Licensed Programs listed in the Product Table when those Licensed Programs are required to attach these Printing Systems Products to a processor. Unless otherwise approved by IBM for a different discount, the discounts stated apply. MES orders for Machines in this schedule are eligible for the same discount as the base Machine unless otherwise indicated. Unless otherwise noted, Inventory Adjustment Category (IAC) 2 applies to all Machines in this schedule. Machines in this schedule obtained for internal use must be retained for at least six months from their Date of Installation. CATEGORY P1 (DEPARTMENTAL) - --------------------------
- --------------------------------------------------------------------------------------------------------------------- REMARKETING DEMONSTRATION MACHINE TYPE DESCRIPTION DISCOUNT DISCOUNT NOTES - --------------------------------------------------------------------------------------------------------------------- 3112-001 Page Printer *** *** (1) New machine orders are no longer accepted. 3116-001 Page Printer *** *** MES orders may be 3116-002 Page Printer *** *** available, subject to 3116-003 Page Printer *** *** Product availability. 3130-01S Base Simplex Printer *** *** (2) New machine orders 3130-02D Duplex Printer *** *** are not accepted for 3130-02S High Capacity Simplex Printer *** *** withdrawn models. 3130-03S Simplex Printer *** *** However MES orders may be available at the 3912(1) Page Printer *** *** indicated discount, subject to Product 3916(1) Page Printer *** *** availability. 3930-02D LIC Page Printer 30PPM Duplex *** *** 3930-02S LIC Page Printer 30PPM Simplex *** *** 3930-03D LIC Page Printer 30PPM Duplex *** *** 3930-03S LIC Page Printer 30PPM Simplex *** *** 4028(1) Laser Printer *** *** 4224(2) Matrix Printer *** *** 4224-1E3 600 CPS Twinax Printer *** *** 4224-1C2 400 CPS W/Exp Storage Color Printer *** *** 4224-301 400 CPS ASCII Printer *** *** 4224-302 400 CPS ASCII Printer *** *** 4224-3C2 400 CPS ASCII Color Printer *** *** 4224-3E3 600 CPS ASCII Printer *** *** 4230-101 375 CPS SCS Twinax Printer *** *** 4230-102 480 CPS IPDS Twinax Printer *** *** 4230-1l1 375 CPS IPDS Twinax Printer *** *** 4230-1S2 480 CPS SCS Twinex Printer *** *** 4230-201 375 CPS SCS Coax Printer *** *** 4230-202 480 CPS IPDS Coax Printer *** *** 4230-2l1 375 CPS IPDS Coax Printer *** *** 4230-2S2 480 CPS SCS Coax Printer *** *** 4230-413 600 CPS IPDS Twinex Printer *** *** 4230-4S3 600 CPS SCS Twinax Printer *** *** 4230-513 600 CPS IPDS Coax Printer *** *** 4230-5S3 600 CPS SCS Coax Printer *** *** 4232-302 600 CPS Serial/Parallel Printer *** *** 4234(1) Dot Band Printer *** *** 4247-001 Serial Matrix Printer *** *** 4247-A00 Serial Matrix ASCII Printer *** *** - ---------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION J-1 of 3 PRINTING SYSTEMS PRODUCT TABLE (CONTINUED) CATEGORY P1 (DEPARTMENTAL) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------- REMARKETING DEMONSTRATION NOTES MACHINE TYPE DESCRIPTION DISCOUNT DISCOUNT - --------------------------------------------------------------------------------------------------------------------- 6252-AP2 1200 LPM ASCII Parallel Printer *** *** (2) New machine orders 6252-AP8 800 LPM ASCII Parallel Printer *** *** are not accepted for 6252-AS2 1200 LPM ASCII Serial/Parallel Printer *** *** withdrawn models. 6252-AS8 800 LPM ASCII Serial/ Parallel Printer *** *** However, MES orders 6252-D08 800 LPM Coax Printer *** *** may be available at the 6252-D12 1200 LPM Coax Printer *** *** indicated discount, 6252-P08 800 LPM Non-IBM Attach Printer *** *** subject to Product 6252-P12 1200 LPM Non-IBM Attach Printer *** *** availability. 6252-T08 800 LPM Twinax Printer *** *** 6252-T12 1200 LPM Twinax Printer *** *** 6262(2) Line Printer *** *** 6262-022 2200 LPM Channel Printer *** *** 6262-A22 2200 LPM ASCII Printer *** *** 6262-D22 2200 LPM Coax Printer *** *** 6262-P22 2200 LPM Non-IBM Attach Printer *** *** 6262-T22 2200 LPM Twinax Printer *** *** 6400-04P 475 LPM Line Matrix Pedestal Printer *** *** 6400-004 475 LPM Line Matrix Printer *** *** 6400-008 800 LPM Line Matrix Printer *** *** 6400-012 1200 LPM Line Matrix Printer *** *** 6408(2) Line Matrix Printer *** *** 6408-A00 Line Matrix ASCII Printer *** *** 6412(2) Line Matrix Printer *** *** 6412-A00 Line Matrix ASCII Printer *** *** 6412-CT0 Line Matrix Coax/Twinax Printer *** *** - ---------------------------------------------------------------------------------------------------------------------
CATEGORY P2 (NETWORK)
- --------------------------------------------------------------------------------------------------------------------- REMARKETING DEMONSTRATION NOTES MACHINE TYPE DESCRIPTION DISCOUNT DISCOUNT - --------------------------------------------------------------------------------------------------------------------- 4303-001 Network Printer (LV) *** *** 4303-002 Network Printer (HV) *** *** 4312-001 Network Printer (LV) *** *** 4312-002 Network Printer (HV) *** *** 4312-003 Network Printer (LV) *** *** 4317-001 Network Printer (LV) *** *** 4317-002 Network Printer (HV) *** *** 4324-001 Network Printer (LV) *** *** 4324-002 Network Printer (HV) *** *** 4324-003 Network Printer (LV) *** *** 4324-004 Network Printer (HV) *** *** - ---------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION J-2 of 3 PRINTING SYSTEMS PRODUCT TABLE (CONTINUED) CATEGORY P3 (PRODUCTION) - ------------------------
- --------------------------------------------------------------------------------------------------------------------- REMARKETING DEMONSTRATION NOTES MACHINE TYPE DESCRIPTION DISCOUNT DISCOUNT - --------------------------------------------------------------------------------------------------------------------- 3935-001 LIC Advanced Function Printer *** *** 3160-001 Advanced Function Printer *** *** 3160-002 InfoPrint 60 *** *** - ---------------------------------------------------------------------------------------------------------------------
CATEGORY P4 (SOFTWARE) - ----------------------
- --------------------------------------------------------------------------------------------------------------------- REMARKETING DEMONSTRATION NOTES MACHINE TYPE DESCRIPTION DISCOUNT DISCOUNT - --------------------------------------------------------------------------------------------------------------------- 5622-551 PSF/2 *** *** (1) One demonstration 5622-416 AFP Workbench *** *** product per each IBM authorized Printer 5648-113 Font Collection *** *** Remarketer Firm certified to sell software. 5686-141 PSF/VM *** *** 5686-040 PSF/VSE OTC Only *** *** 5686-190 PPFA/370 MLC Via Special Bid *** *** 5688-191 OGL/370 *** *** 5695-040 PSF/MVS *** *** 5716-SS1 PSF/400/OS/400 *** *** 5716-AF1 AFP Utilities/400 *** *** 5763-FNT IBM AFP Fonts/400 *** *** 5763-SS1 PSF/400/OS/400 *** *** 5763-AF1 AFP Utilities/400 *** *** 5765-505 PSF/6000 *** *** 5765-594 AFP Toolbox for Multiple Operating Systems *** *** 5798-AF2 AFP Print Suite (V3R2) *** *** 5798-AF3 AFP Print Suit (V3R7) *** *** 5801-AAR APS Connect *** *** - ---------------------------------------------------------------------------------------------------------------------
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION J-3 of 3 PRODUCTS AVAILABLE UNDER COMPLEMENTARY MARKETING TERMS The following Products are available to IBM Business Partners through the Business Partner Exhibit for marketing under the terms of the Complementary Marketing Terms Attachment. These Products are not available to, remarketing via the Business Partner Exhibit.
BASE MAXIMUM FEE AMOUNT FEE PERCENT OPPORTUNITY OPTICAL MULTIPLEXOR 9729 *** *** *** INDUSTRIAL COMPUTERS 7588-001 *** *** *** MULTIMEDIA SYSTEMS 8690 Kiosk *** *** *** Internally-listed RPQ. Call 1-800-4AKIOSK (1-800-425- 4675) for information and approval to order. IBM PERSONAL COMPUTER COMPANY TERMINALS 3151, 3164, 3472, 3476, 3481, 3482, 3483 *** *** *** 3486, 3487, 3488, 3489 SYSTEM/390 MACHINES IBM 9021 Processors *** *** *** IBM 9121 Processors *** *** *** IBM 9033 ESCON Director *** *** *** IBM 9037 Sysplex Timer *** *** *** OTHER IBM MACHINES not included in the above categories *** *** *** or listed elsewhere in the Business Partner Exhibit.
PRODUCT OFFERING TBO ORDER CENTRAL ORDER FEE PERCENT FEE PERCENT IBM Licensed Programs not listed in the business Partner *** *** Exhibit. IBM Credit Corporation Financing (1)(3) *** *** IBM Credit Corporation Used Machines (2)(3) *** *** Products ordered through IBM Direct: - IBM System/390 Entry Server Offering *** *** - IBM System/390 Open Server Offering *** ***
(1) IBM Credit fee is paid based on the total amount financed for all new financing and financing of used equipment from IBM Credit inventory. Excluded from the fee payment will be rollovers, base lease extensions (BLEXs), end of lease renewals, and other refinancing, as well as end of lease sales. The fee for used equipment leases will be based on Monthly Lease Accounts Receivable (MLAR) or the sum of the lease payments over the projected life of the lease. It is the responsibility of IBM Business Partners to introduce IBM's financing offerings, qualify customer interest in financing, and provide leads to IBM Credit Financial Marketing Advisors (FMAs). (2) IBM Credit fee is paid based upon the invoiced amount, the Monthly Lease Accounts Receivable (MLAR), or the sum of the lease payments over the projected life of the lease, whichever is applicable, of the used IBM machines (which must include an IBM AS/400 System Unit, RS/6000 system or IBM 9336/9337 DASD) from IBM Credit inventory. (3) Business Partners approved under complementary marketing terms must submit a Fee Payment Request Form to be eligible for payment except when the Product covered is new and it is under IBM Credit financing. N/A = Not applicable *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION K-1 of 1 IBM PRODUCT SUPPORT SERVICES OFFERINGS TABLE Product Support Services offerings that Business Partners may be authorized to sell for a fee or discount are listed below. Other service offerings, such as those from IBM Network Services, ISSC, Education and Training, and so on, if offered to Business Partners, are listed under their respective service offering tables to the Business Partner Exhibit A fee percent is applied to the service's one-time or recurring charge that IBM invoices the end user. For a recurring charge, we apply the percent to 12 times the monthly charge. Business Partners must submit a Fee Payment Request Form, or appropriate maintenance services marketing (MSM) documentation, to be eligible for fee payment. Product Support Services are listed in the following format: SERVICES
1. Product Services B. Systems Mgmt - Data Center A. Hardware Product Services 3. IT Environment & Infrastructure Services . Maintenance B. Software Services A. Site & Operational Services . AS/400 Services . RS/6000 Services . Customized Operational Services . Network Services . Uninterruptible Power Systems (UPS) . Personal Systems Services . S/390 Services 4. Business & Technology Solutions . Multi-Platform Services . Store Systems Services 5. Backup and Recovery 2. System Management Services A. Business Recovery Services A. Systems Mgmt - Desktop & Distributed 6. Other Services A. Custom Services Contracts - --------------------------------------------------------------------------------------------------------------
1. PRODUCT SERVICES A. HARDWARE PRODUCT SERVICES MAINTENANCE SERVICES
LEAD PASS CLOSED CONTRACT REMARKETING FEE FEE (1) DISCOUNT DIST(3) 9254-X01 MMMC *** *** *** A 9254-X02 CSO *** *** *** A 9254-X03 MRSO *** *** *** A 9254-X04 ESSR(2) *** *** *** -- 9254-X05 CSOR(2) *** *** *** -- 9254-X06 Multivendor MA *** *** *** -- Services
Hardware Product Services Legend CSO - Corporate Service Option CSOR - Corporate Service Option for Remarketers ESSR - Entry Systems Service for Remarketers MA - Maintenance MMMC - Minimum Monthly Maintenance Charge MRSO - Mid-Range System Option *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION L-1 of 7 B. SOFTWARE SERVICES AS/400 SERVICES Category 1 -- (Software Services - Lead Fee Eligible Only)
Lead Pass Closed Contract Remarketing DIST(3) Fee Fee Discount *** *** *** --
9251-A01 OS/400 Integration for Novell Netware Installation 9251-A02 AS/400 PTF Installation for Integration of Novell Networks 9252-A03 AS/400 System Transition Project Management Feature Codes 4017-4021 9256-A04 IBM Business Critical for AS/400 Category 2 -- (Software Services - Lead/Closed/Discount Eligible)
Lead Pass Closed Contract Remarketing DIST(3) Fee Fee Discount *** *** *** --
9250-A01 SmoothStart for AS/400 Feature Code 1000 9250-A02 SmoothStart for AS/400 Advanced 36 Feature Code 1001 9250-A04 SmoothStart for Internet Connection for AS/400 - WEB Feature Code 1010 SmoothStart for Internet Connection for AS/400 - POP Feature Code 1011 SmoothStart for Internet Connection for AS/400 - FTP Feature Code 1012 9250-A05 SmoothStart for AS/400 Operating System 9250-A06 SmoothStart for Real Vision Imaging Software 9250-A10 SmoothStart Service for ImagePlus Workfolder Application Facility (WAF) for AS/400 9250-A11 SmoothStart Service for Report/Data Archive and Retrieval System (R/DARS) for AS/400 9251-A05 Integration Service for R/DARS for AS/400 with ImagePlus for WAF/400 9251-A09 AS/400 Gopher Internet Installation Services 9252-A01 AS/400 System Transition Upgrade Assistant Feature Codes 4001-4005 9252-A02 AS/400 System Transition Services Feature Codes 4008-4013 9252-A04 AS/400 SysMig 9252-A05 AS/400 GigMig 9253-A01 PM/400 -- Annual Feature Codes 1001-1006 9253-A02 AS/400 Communication Performance Tool 9254-A01 AS/400 Alert 9255-A01 Planning for Internet Connection for AS/400 9255-A02 AS/400 VitalSign Premium 9255-A03 AS/400 Consult Line 9256-A01 AS/400 Support Line Premium 9256-A02 AS/400 Support Line Standard 9256-A03 IBM Customer Technical Advocate for AS/400 9257-A01 AS/400 BRMS Installation 9258-A01 AS/400 Security Review
Category 3 (Software Services - Lead/Closed/Fee Eligible Only)
Lead Pass Closed Contract Remarketing DIST(3) Fee Fee Discount *** *** *** --
9254-A02 AS/400 SSA *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION L-2 of 7 RS/6000 SERVICES Category 1 -- (Software Services - Lead Fee Eligible Only)
Lead Pass Closed Contract Remarketing DIST(3) Fee Fee Discount *** *** *** --
9250-R02 SmoothStart for SystemView for AIX 9250-R03 SmoothStart for AIX Connections 9250-R04 SmoothStart for Communications Server for AIX 9251-R01 IBM ProjectWatch Service for RS/6000 SP 9252-R02 IBM Migration Service for RS/6000 SP 9256-R06 IBM Business Critical for AIX
Category 2 -- (Software Services - Lead/Closed/Discount Eligible)
Lead Pass Closed Contract Remarketing DIST(3) Fee Fee Discount *** *** *** --
9250-R06 SmoothStart for Database Server for AIX 9250-R08 SmoothStart for Internet Connection Server for AIX 9250-R10 SmoothStart for VisualInfo for AIX 9250-R13 SmoothStart for HACMP 9250-R14 SmoothStart Service for RS/6000 SP 9250-R15 SmoothStart Service for OnDemand for AIX 9250-R16 SmoothStart Service for Digital Library for AIX 9252-R01 AIX Upgrade and Migration Services Feature Code 60013.1.5 > 3.2.5 Migration Only Feature Code 60023.2.X > 3.2.5 Migration Only Feature Code 60033.2 > 4.X Standalone Upgrade Feature Code 60043.2 > 4.X Networked Upgrade Feature Code 60053.2 > 4.X Upgrade and Migration Feature Code 60063.2 > 4.X Migration Only 9253-R01 Performance Analyzer for AIX Systems 9253-R02 AIX Performance HealthCheck 9253-R03 PM/6000--Annual Feature Codes 1010, 1011, and 1012 9253-R04 ImagePlus Capacity Planning and Tuning for VisualInfo for AIX 9254-R01 AIX Alert 9255-R01 AIX Consult Line 9256-R01 AIX Support Line Premium - RISC System/6000 9256-R02 AIX Support Line Standard - RISC System/6000 9256-R05 IBM Customer Technical Advocate for AIX 9256-R07 AIX Technical Library 9257-R01 AIX Backup and Recovery Service (SysBack)
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION L-3 of 7 NETWORK SERVICES Lead Pass Closed Contract Remarketing DIST(3) Fee Fee Discount Category 1 *** *** *** -- (Software Services - Lead Fee Eligible Only) 9250-N01 SmoothStart for 8235-140 DIALS Switch Category 2 *** *** *** -- (Software Services - Lead/Closed/Discount Eligible) 9255-N01 Network Consult Line 9256-N01 Network Support Line PERSONAL SYSTEMS SERVICES Lead Pass Closed Contract Remarketing DIST(3) Fee Fee Discount Category 1 *** *** *** -- (Software Services - Lead Fee Eligible Only) 9256-P02 IBM Business Critical for PS Category 2 *** *** *** -- (Software Services - Lead/Closed/Discount Eligible) 9250-P02 Migration Service for VisualInfo for OS/2 to VisualInfo for AIX 9250-P03 SmoothStart Service for Digital Library for OS/2 9250-P05 SmoothStart Service for VisualInfo for OS/2 Category 3 *** *** *** -- (Software Services - Lead/Closed/Fee Eligible) 9250-P01 SmoothStart for OS/2 Warp Server 9250-P02 SmoothStart for Database Server for OS/2 9250-P04 SmoothStart for Internet Connection Server for OS/2 9252-P01 Migration for VisualInfo for AIX OS/2 V1 to V2 9255-P01 PS Consult Line 9256-P01 IBM Customer Technical Advocate for PS 9256-P03 PS Support Line Standard 9256-P04 PS Support Line Premium S/390 SERVICES Lead Pass Closed Contract Remarketing Fee Fee Discount DIST(3) Category 2 *** *** *** -- (Software Services - Lead/Closed/Discount Eligible) 9250-E02 SmoothStart Service for VisualInfo for MVS/ESA 9253-E01 Performance Analysis and Tuning Service for ImagePlus for MVS/ESA Category 3 *** *** *** -- (Software Services - Lead/Closed Eligible) 9250-E01 SmoothStart for Internet Connection for MVS 9254-E01 S/390 Alert 9255-E01 S/390 Consult Line 9256-E01 S/390 Support Line 9256-E02 S/390 Forum 9254-E03 S/390 Resolve *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION L-4 of 7 MULTI-PLATFORM SERVICES
Lead Pass Closed Contract Remarketing Fee Fee Discount DIST(3) Category 1 *** *** *** -- (Software Services - Lead Fee Eligible Only) 9250-M01 SmoothStart for CICS/Transaction Server 9250-M02 SmoothStart for MQSeries 9251-S01 IBM ADSM Services and Training 9253-M01 Capacity Planning Services 9253-M02 Performance Management Services 9253-M03 Testing Services Category 2 *** *** *** -- (Software Services - Lead/Closed/Discount Eligible) 9250-M04 SmoothStart Service for FlowMark Category 3 *** *** *** -- (Software Services - Lead/Closed/Fee Eligible) 9254-E02 Advanced Digital Delivery 9250-M03 SmoothStart for Lotus Notes 9255-M01 Image Technology Services STORE SYSTEMS SERVICES Lead Pass Closed Contract Remarketing Fee Fee Discount DIST(3) Category 4 (Closed Contract Fee Eligible) *** *** *** -- 5639-C52 POS Support Line Premium
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION L-5 of 7 2. SYSTEMS MANAGEMENT SERVICES A. SYSTEMS MGMT - DESKTOP & DISTRIBUTED B. SYSTEMS MGMT - DATA CENTER Currently, there are no announced services in this category 3. IT ENVIRONMENT & INFRASTRUCTURE SERVICES A. SITE & OPERATIONAL SERVICES
Lead Pass Closed Contract Remarketing Fee Fee Discount DIST(3) CUSTOMIZED OPERATIONAL SERVICES (4) Connectivity Services --------------------- *** *** *** -- 9251-M01 - Equipment Modification *** *** *** -- 9251-M02 - Installation *** *** *** -- 9251-M03 - Cabling *** *** *** -- 9251-M04 - Installation Management *** *** *** -- 9251-M05 - Relocation *** *** *** -- 9251-M06 - Site Readiness *** *** *** -- 9255-M02 - Consult/Design Uninterruptible Power Systems (UPS) 9257-X01 - LT 3KVA *** *** *** A 9257-X02 - 3 to 14.9KVA *** *** *** A 9257-X03 - GT 14.9KVA *** *** *** --
4. BUSINESS & TECHNOLOGY SOLUTIONS Currently, there are no announced services in this category. 5. BACKUP AND RECOVERY A. BUSINESS RECOVERY SERVICES
Lead Pass Closed Contract Remarketing Fee Fee Discount DIST(3) HOTSITE RECOVERY SERVICES BUSINESS RESUMPTION SERVICES END-USER SPACE 9257-X04 - New *** *** *** A 9257-X05 - Renewal *** *** *** A 9257-X06 - Anniversary *** *** *** A CONSULTING SERVICES BUSINESS CAPACITY SERVICES 9257-X07 - One Time Charges *** *** *** --
6. OTHER SERVICES A. CUSTOM SERVICES CONTRACTS
Lead Pass Closed Contract Remarketing Fee Fee Discount DIST(3) 9251-X01 - Best Est. Hourly *** *** *** -- 9251-X02 - Fixed Price *** *** *** --
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION L-6 of 7 NOTES: (1) Fees may be earned for Maintenance Service on IBM machines marketed to end users when installed with the Business Partner's Value-Added Enhancement, regardless of Auto-MA and other agreements or administrative processes under which IBM might place the machines under services coverage. When a machine is installed with the Business Partner's Value-Added Enhancement, the Business Partner may earn fees on other IBM machines not installed by the Business Partner, provided Auto-MA and other agreements or administrative processes are not in place for services coverage. A Business Partner does not have to install its Value-Added Enhancement to earn fees on non-IBM machines. Business Partners are not eligible for fee payment for: . Service when the same Service associated with the same machine was terminated by the end user within the prior six months. . Service revenue increases resulting from upgrades to a machine already under the Service when the serial number does not change. . Service revenue increases on machines already under the Service when migrating to the Extended Maintenance Option (EMO), extending an existing EMO, or renewing an EMO at termination. . Service for Equipment within IBM, IBM wholly owned subsidiaries, or IBM join ventures. (2) Eligible machines are listed in the Exhibit for Corporate Service Option for Remarketers (Z125-5437) and the Remarketer Exhibit for Entry Systems Service (Z125-4254), as applicable. Table of Quarterly Payments for CSOR and ESSR, based upon the amount of adjusted charges invoiced during the quarter:
Payment Adjusted Percent Charges Invoices *** *** *** *** *** ***
Table of Semiannual Payments for Cluster Credit Under ESSR: Minimum Quantity of Qualifying Machines: 100
Quantity of Cluster Credit Qualifying Machines Percent *** *** *** *** *** ***
(3) When identified with an "A" in this column, the service is available to Distributors at the discount or fee specified in the Distributor Schedule A. When identified with a "--" in this column, the service is available to Distributors at the discount or fee specified in this exhibit. (4) Excluded from fee payment are charges for IBM or non-IBM hardware and software, and moving company charges. KEY SP = Solution Provider R = Reseller SI = Systems Integrator Dist = Distributor *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION L-7 of 7 IBM GLOBAL NETWORK COMPLEMENTARY MARKETER TABLE THESE TERMS ARE IN ADDITION TO THE COMPLEMENTARY MARKETING TERMS ATTACHMENT. Compensation Plan - ----------------- 1) FEE COMPENSATION We specify fees as either a percentage fee or a fixed fee. If we specify a revenue percentage used to determine the fee for each Service, we apply it to the Service's one-time or recurring charge as invoiced to the Customer, unless specified otherwise. For a recurring charge, we apply the percentage to 1) 12 times the monthly charge or 2) the sum of the initial charge and the annual charge. 2) FEE QUALIFICATIONS To qualify to receive a fee, the Business Partner must perform the following activities: . Perform demand generation . Determine the customer requirements . Configure the services solution . Complete any service installation prerequisite and order entry requirements . Have the customer sign the Advantis Customer Agreement if the customer is a new Advantis customer, and any other required contractual document . Provide the customer with the applicable service exhibit . Complete the Fee Request Form using IBMLink (TM) AEFORMS FEEREQ . Forward the agreement, if required, and the Fee Request Form to Advantis . Assist Advantis, as needed, to further define the customer's installation requirements 3) CONDITIONS WHERE THERE IS NO COMPENSATION Complementary Marketers are not eligible for compensation when performing as an IBM or Advantis subcontractor for a Customer and the subcontractor's tasks duplicate any of the Marketing Activities for the Customer. Compensation for the following items will not be included in this plan unless we specify otherwise: . Placement of Services and Products for which we receive no revenue . Offerings installed at one Customer location, for the purposes of testing or demonstration, that the Customer intends to move to another location within a short period of time ("temporary installations") . Services acquired by IBM or Advantis employees . The amount on our invoice for products and services provided by any party other than IBM or Advantis . Taxes, separately itemized or invoiced M-1 of 2 Services Fee Table - ------------------ The following table lists the IBM Global Network Services and associated fixed fee or percentage fee which is applied to the Service charge (as invoiced to the Customer).
PRODUCT FIXED FEE IDENTIFICATION OR NUMBER FEE PERCENT 1. GENERAL OFFERINGS: Advantis New Account 5767-ZZZ *** 2. MANAGED DATA NETWORK SERVICES Network Services - Dial Services Dial Services for TCP/IP *** Dial Services for Multiprotocol LAN 5767-044 *** Communications Network Services - Leased Line Connections Internetworking and Multiprotocol Solutions 5767-043 *** SNA Interconnection (SNI) 5767-042 *** Leased Line Internet Access Service Internet Direct 56Kbps 5767-045 *** 128Kbps or 256Kbps 5767-046 *** 512 Kbps or T1 5767-047 *** 3. MANAGED MESSAGING SERVICES: Non-Advantis Customized EDI/E-Mail Interfaces PC Base EDI Interface 5767-036 *** PC Base E-Mail Interface 5785-DSO *** AS/400 (R) System EDI Interface 5767-037 *** IBM Mail Exchange E-Mail System/VM, MVS (R), VSE 5767-054 *** Shared OfficeVision/VM (TM) 5767-057 *** E-Mail System AS/400 5767-056 *** Remote PC E-Mail System 5767-058 *** WinMail 5767-059 *** for 1-10 user IDs *** for 11-25 user IDs *** for 26-50 user IDs *** for 51 + user IDs 4. MANAGED COLLABORATIVE SERVICES: InterConnect for Lotus Notes 5767-048 *** per seat per month for first year *** per seat per month for second year No fee thereafter 5. MANAGED INTERNET/INTRANET SERVICES: SHOWBBS 5767-SHW *** Software Mail 5767-MRT *** 6. LICENSED PROGRAMS: Advantis Passport family of programs 5767-039 *** for 1-500 user IDs *** for 501 + user IDS Expedite Base/DOS, OS/2, SCO UNIX, SCO XENIX 5767-034 *** Expedite/36 5767-033 *** Expedite 400, Expedite Base 400 5767-041 *** Expedite/DIRECT 5767-035 *** Expedite Base/MVS, Base/VM 5767-012 *** Expedite/CICS (TM) 5767-EXP *** DataInterchange/MVS 5685-036 *** DataInterchange/MVS-CICS 5695-076 *** IBM Mail Lan Gateway/2 5696-343 ***
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION M-2 of 2 IBM BUSINESS PARTNER AGREEMENT [IBM LOGO] GENERAL TERMS - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Section Title Page 1. Definitions............................................................ 2 2. Agreement Structure and Contract Duration.............................. 3 3. Our Relationship....................................................... 4 4. Status Change.......................................................... 5 5. Confidential Information............................................... 5 6. Marketing Funds and Promotional Offerings.............................. 6 7. Production Status...................................................... 6 8. Patents and Copyrights................................................. 6 9. Liability.............................................................. 7 10. Trademarks.............................................................. 7 11. Changes to the Agreement Terms.......................................... 8 12. Internal Use Products................................................... 8 13. Demonstration, Development and Evaluation Products...................... 8 14. Electronic Communications............................................... 9 15. Geographic Scope........................................................ 9 16. Governing Law........................................................... 9
Page 1 of 9 IBM BUSINESS PARTNER AGREEMENT [IBM LOGO] GENERAL TERMS - -------------------------------------------------------------------------------- 1. DEFINITIONS BUSINESS PARTNER is a business entity which is approved by us to market Products and Services under this Agreement. CUSTOMER is either an End User or a Remarketer. We specify in your Profile if we approve you to market to End Users or Remarketers, or both. END USER is anyone, who is not part of the Enterprise of which you are a part, who uses Services or acquires Products for its own use and not for resale. ENTERPRISE is any legal entity (such as a corporation) and the subsidiaries it owns by more than 50 percent. An Enterprise also includes other entities as IBM and the Enterprise agree in writing. LICENSED INTERNAL Code is called "Code". Certain Machines we specify (called "Specific Machines") use Code. International Business Machines Corporation or one of its subsidiaries owns copyrights in Code or has the right to license Code. IBM or a third party owns all copies of Code, including all copies made from them. MACHINE is a machine, its features, conversions, upgrades, elements, accessories, or any combination of them. The term "Machine" includes an IBM Machine and any non-IBM Machine (including other equipment) that we approve you to market. PRODUCT is a Machine or Program, that we approve you to market, as we specify in your Profile. PROGRAM is an IBM Program or a non-IBM Program provided by us, under its applicable license terms, that we approve you to market. RELATED COMPANY is any corporation, company or other business entity: 1. more than 50 percent of whose voting shares are owned or controlled indirectly, by either of us, or 2. which owns or controls, directly or indirectly, more than 50 percent of the voting shares of either of us, or 3. more than 50 percent of whose voting shares are under common ownership or control directly or indirectly with the voting shares of either of us. However, any such corporation, company or other business entity is considered to be a Related Company only so long as such ownership or control exists. "Voting shares" are outstanding shares or securities representing the right to vote for the election of directors or other managing authority. REMARKETER is a business entity which acquires Products and Services, as applicable, for the purpose of marketing. SERVICE is performance of a task, provision of advice and counsel, assistance. or use of a resource (such as a network and associated enhanced communication and support) that we approve you to market. Page 2 of 9 2. AGREEMENT STRUCTURE AND CONTRACT DURATION PROFILES We specify the details of our relationship (for example, the type of Business Partner you are) in a document called a "Profile." Each of us agrees to the terms of the Profile. the General Terms, the applicable Attachments referred to in the Profile, and the Exhibit (collectively called the "Agreement") by signing the Profile. GENERAL TERMS The General Terms apply to all of our Business Partners. ATTACHMENTS We describe, in a document entitled an "Attachment", additional terms that apply. Attachments may include, for example, terms that apply to the method of Product distribution (Remarketer Terms Attachment or Complementary Marketing Terms Attachment) and terms that apply to the type of Business Partner you are, for example, the terms that apply to a Distributor relationship as described in the Distributor Attachment. We specify in your Profile the Attachments that apply. EXHIBITS We describe in an Exhibit, specific information about Products and Services. for example, the Products and Services you may market, and warranty information about the Products. TRANSACTION DOCUMENTS We will provide to you the appropriate "transaction documents." The following are examples of transaction documents. with examples of the information and responsibilities they may contain: 1. invoices (item, quantity, price, payment terms and amount due); and 2. order acknowledgements (confirmation of Products and quantities ordered). CONFLICTING TERMS If there is a conflict among the terms in the various documents, the terms of: 1. a transaction document prevail over those of all the documents; 2. an Exhibit prevail over the terms of the Profile, Attachments and the General Terms; 3. a Profile prevail over the terms of an Attachment and the General Terms; and 4. an Attachment prevail over the terms of the General Terms. If there is an order of precedence within a type of document, such order will be stated in the document (for example. the terms of the Distributor Attachment prevail over the terms of the Remarketer Terms Attachment, and will be so stated in the Distributor Attachment). OUR ACCEPTANCE OF YOUR ORDER Products and Services become subject to this Agreement when we accept your order by: 1. sending you a transaction document; or 2. providing the Products or Services. Page 3 of 9 ACCEPTANCE OF TERMS IN A TRANSACTION DOCUMENT You accept the terms in a transaction document by doing any of the following: 1. signing it (those requiring a signature must be signed); 2. accepting the Product or Services; 3. providing the Product or Services to your Customer; or 4. making any payment for the Product or Services. CONTRACT DURATION We specify the contract start date and the duration in your Profile. Unless we specify otherwise in writing, the Agreement will be renewed automatically for subsequent two year periods. Each of us is responsible to provide the the other with three months written notice if this Agreement will not be renewed. 3. OUR RELATIONSHIP RESPONSIBILITIES Each of us agrees that: 1. you are an independent contractor, and this Agreement is non-exclusive. Neither of us is a legal representative or legal agent of the other. Neither of us is legally a partner of the other (for example, neither of us is responsible for debts incurred by the other), and neither of us is an employee or franchise of the other, nor does this Agreement create a joint venture between us; 2. each of us is responsible for our own expenses regarding fulfillment of our responsibilities and obligations under the terms of this Agreement; 3. neither of us will disclose the terms of this Agreement, unless both of us agree in writing to do so, or unless required by law; 4. neither of us will assume or create any obligations on behalf of the other or make any representations or warranties about the other, other than those authorized;. 5. any terms of this Agreement, which by their nature extend beyond the date this Agreement ends, remain in effect until fulfilled and apply to respective successors and assignees; 6. we may withdraw a Product or Service from marketing at any time; 7. we will allow the other a reasonable opportunity to comply before it claims the other has not met its obligations, unless we specify otherwise in the Agreement; 8. neither of us will bring a legal action against the other more than two years after the cause of action arose, unless otherwise provided by local law without the possibility of contractual waiver; 9. failure by either of us to insist on strict performance or to exercise a right when entitled does not prevent either of us from doing so at a later time, either in relation to that default or any subsequent one; 10. neither of us is responsible for failure to fulfill obligations due to causes beyond the reasonable control of either of us: 11. IBM reserves the right to assign, in whole or in part, this Agreement and any orders hereunder, to any other IBM Related Company; 12. IBM does not guarantee the results of any of its marketing plans; and 13. each of us will comply with all applicable laws and regulations (such as those governing consumer transactions). Page 4 of 9 OTHER RESPONSIBILITIES You agree: 1. to be responsible for customer satisfaction for all your activities, and to participate in customer satisfaction programs as we determine; 2. that your rights under this Agreement are not property rights and, therefore, you can not transfer them to anyone else or encumber them in any way. For example, you can not sell your approval to market our Products or Services or your rights to use our Trademarks; 3. to maintain the criteria we specified when we approved you; 4. to achieve and maintain the certification requirements for the Products and Services you are approved to market, as we specify in your Profile; 5. not to assign or otherwise transfer this Agreement, your rights under it, or any of its approvals, or delegate any duties, unless expressly permitted to do so under this Agreement. Otherwise, any attempt to do so is void; 6. to conduct business activities with us (including placing orders) which we specify in the operations guide, using our automated electronic system if available. You agree to pay all your expenses associated with it such as your equipment and communication costs; 7. that when we provide you with access to our information systems, it is only in support of your marketing activities. Programs we provide to you for your use with our information systems, which are in support of your marketing activities, are subject to the terms of their applicable license agreements, except you may not transfer them; 8. to promptly provide us with IBM documents we may require from you or the End User (for example, our license agreement signed by the End User) when applicable; and 9. to comply with the highest ethical principles in performing under the Agreement. You will not offer or make payments or gifts (monetary or otherwise) to anyone for the purpose of wrongfully influencing decisions in favor of IBM, directly or indirectly. IBM may terminate this Agreement immediately in case of 1) a breach of this clause or 2) when IBM reasonably believes such a breach has occurred. OUR REVIEW OF YOUR COMPLIANCE WITH THIS AGREEMENT We may periodically review your compliance with this Agreement. You agree to provide us with relevant records on request. We may reproduce and retain copies of these records. We, or an independent auditor, may conduct a review of compliance with this Agreement on your premises during your normal business hours. If, during our review of your compliance with this Agreement, we find you have materially breached the terms of this relationship, in addition to our rights under law and the terms of this Agreement, for transactions that are the subject of the breach, you agree to refund the amount equal to the discount (or fee, if applicable) we gave you for the Products or Services or we may offset any amounts due to you from us. 4. STATUS CHANGE You agree to give us prompt written notice (unless precluded by law or regulation) of any change or anticipated change in your financial condition, business structure, or operating environment (for example, a material change in equity ownership or management or any substantive change to information supplied in your application). Upon notification of such change, (or in the event of failure to give notice of such change) IBM may, at its sole discretion, immediately terminate this Agreement. 5. CONFIDENTIAL INFORMATION This section comprises a Supplement to the IBM Agreement for Exchange of Confidential Information. "Confidential Information" means: 1. all information IBM marks or otherwise states to be confidential; 2. any of the following prepared or provided by IBM: Page 5 of 9 a. sales leads, b. information regarding Prospects, c. unannounced information about Products and Services, d. business plans, or e. market intelligence; f. any of the following written information you provide to us on our request and which you mark as confidential: 1) reposing data, 2) financial data, or 3) the business plan. All other information exchanged between us is nonconfidential, unless disclosed under a separate Supplement to the IBM Agreement for Exchange of Confidential Information. 6. MARKETING FUNDS AND PROMOTIONAL OFFERINGS We may provide marketing funds and promotional offerings to you. If we do, you agree to use them according to our guidelines and to maintain records of your activities regarding the use of such funds and offerings for three years. We may withdraw or recover marketing funds and promotional offerings from you if you breach any terms of the Agreement. Upon notification of termination of the Agreement, marketing funds and promotional offerings will no longer be available for use by you, unless we specify otherwise in writing. 7. PRODUCTION STATUS Each IBM Machine is manufactured from new parts, or new and used parts. In some cases, the IBM Machine may not be new and may have been previously installed. You agree to inform your Customer of these terms in writing (for example, in your proposal or brochure). 8. PATENTS AND COPYRIGHTS For the purpose of this section only, the term Product includes Licensed Internal Code (if applicable). If a third party claims that a Product we provide under this Agreement infringes that party's patents or copyrights, we will defend you against that claim at our expense and pay all costs, damages, and attorneys' fees that a court finally awards, provided that you: 1. promptly notify us in writing of the claim; and 2. allow us to control, and cooperate with us in, the defense and any related settlement negotiations. If you maintain an inventory, and such a claim is made or appears likely to be made about a Product in your inventory, you agree to permit us either to enable you to continue to market and use the Product, or to modify or replace it. If we determine that none of these alternatives is reasonably available, you agree to return the Product to us on our written request. We will then give you a credit, as we determine, which will be either 1) the price you paid us for the Product (less any price-reduction credit), or 2) the depreciated price. This is our entire obligation to you regarding any claim of infringement. CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE We have no obligation regarding any claim based on any of the following: 1. anything you provide which is incorporated into a Product; 2. your modification of a Product, or a Program's use in other than its specified operating environment; Page 6 of 9 3. the combination, operation, or use of a Product with any Products not provided by us as a system, or the combination, operation, or use of a Product with any product, data, or apparatus that we did not provide; or 4. Infringement by a non-IBM Product alone, as opposed to its combination with Products we provide to you as a system. 9. LIABILITY Circumstances may arise where, because of a default or other liability, one of us is entitled to recover damages from the other. In each such instance, regardless of the basis on which damages can be claimed, the following terms apply as your exclusive remedy and our exclusive liability. OUR LIABILITY We are responsible only for: 1. payments referred to in the "Patents and Copyrights" section above; 2. bodily injury (including death), and damage to real property and tangible personal property caused by our Products; and 3. the amount of any other actual loss or damage, up to the greater of $100.000 or the charges (if recurring, 12 months' charges apply) for the Product that is the subject of the claim. ITEMS FOR WHICH WE ARE NOT LIABLE Under no circumstances (except as required by law) are we liable for any of the following: 1. third-party claims against you for losses or damages (other than those under the first two items above in the subsection entitled 'Our Liability'); 2. loss of, or damage to, your records or data; or 3. special, incidental, or indirect damages, or for any economic consequential damages (including lost profits or savings) even if we are informed of their possibility. YOUR LIABILITY In addition to damages for which you are liable under law and the terms of this Agreement, you will indemnify us for claims made against us by others (particularly regarding statements, representations, or warranties not authorized by us) arising out of your conduct under this Agreement or as a result of your relations with anyone else. 10. TRADEMARKS We will notify you in written guidelines of the IBM Business Partner title and emblem which you are authorized to use. You may not modify the emblem in any way. You may use our Trademarks (which include the title, emblem, IBM trade marks and service marks) only: 1. within the geographic scope of this Agreement; 2. in association with Products and Services we approve you to market; and 3. as described in the written guidelines provided to you. The royalty normally associated with non-exclusive use of the Trademarks will be waived, since the use of this asset is in conjunction with marketing activities for Products and Services. You agree to promptly modify any advertising or promotional materials that do not comply with our guidelines. If you receive any complaints about your use of a Trademark, you agree to promptly notify us. When this Agreement ends, you agree to promptly stop using our Trademarks. If you do not, you agree to pay any expenses and fees we incur in getting you to stop. You agree not to register or use any mark that is confusingly similar to any of our Trademarks. Page 7 of 9 Our Trademarks, and any goodwill resulting from your use of them, belong to us 11. CHANGES TO THE AGREEMENT TERMS We may change the terms of this Agreement by giving you one month's written notice. We may, however, change the following terms without advance notice: 1. those we specify in this Agreement as not requiring advance notice; 2. those of the Exhibit unless otherwise limited by this Agreement; and 3. those relating to safety and security. Otherwise, for any other change to be valid, both of us must agree in writing. Changes are not retroactive. Additional or different terms in an order or other communication from you are void. 12. INTERNAL USE PRODUCTS You may acquire Products you are approved to market for your internal use within your Business Partner operations. Except for personal computer Products, you are required to advise us when you order Products for your internal use. We will specify in your Exhibit the discount or price, as applicable, at which you may acquire the Products for internal use. Except for personal computer Products, such Products do not count toward 1) your minimum annual attainment 2) toward determination of your discount or price, as applicable or 3) for determining your marketing or promotional funds. Any value added enhancement or systems integration services otherwise required by your relationship is not applicable when you acquire Products for internal use. You must retain such Products for a minimum of 12 months, unless we specify otherwise in the Exhibit. 13. DEMONSTRATION, DEVELOPMENT AND EVALUATION PRODUCTS You may acquire Products you are approved to market for demonstration, development and evaluation purposes, unless we specify otherwise in the Exhibit. Such Products must be used primarily in support of your Product marketing activities. We will specify in your Exhibit the Products we make available to you for such purposes, the applicable discount or price, and the maximum quantity of such Products you may acquire and the period they are to be retained. The maximum number of input/output devices you may acquire is the number supported by the system to which they attach. If you acquired the maximum quantity of Machines, you may still acquire a field upgrade, if available. We may decrease the discount we provide for such Products on one month's written notice. You may make these Products available to a Customer for the purpose of demonstration and evaluation. Such Products may be provided to an End User for no more than three months. For a Program, you agree to ensure the Customer has been advised of the requirement to accept the terms of a license agreement before using the Program. Page 8 of 9 14. ELECTRONIC COMMUNICATIONS Each of us may communicate with the other by electronic means, and such communication is acceptable as a signed writing to the extent permissible under applicable law. Both of us agree that for all electronic communications, an identification code (called a 'user ID') contained in an electronic document h legally sufficient to verify the senders identity and the document's authenticity). 15. GEOGRAPHIC SCOPE All the rights and obligations of both of us are valid only In the United States and Puerto Rico. 16. GOVERNING LAW The laws of the State of New York govern this Agreement. The "United Nations Convention on Contracts for the International Sale of Goods" does not apply. Page 9 of 9 IBM BUSINESS PARTNER AGREEMENT DISTRIBUTOR - SCHEDULE A ________________________________________________________________________________ These terms are in addition to those of the Business Partner Exhibits and prevail over them. We may change these terms by giving you written notice. These discount schedules apply to specific Products as identified in the IBM Business Partner Exhibit (Z125-5505). Unless otherwise stated in this Schedule, discount maximums and exceptions identified in the Business Partner Exhibit apply to products acquired under this Schedule. Those RS/6000, AS/400, Point of Sale, Network Integration, and Storage Products identified with an "A" in the DIST column of the Business Partner Exhibit are available to you at the discounts identified in this schedule. 1. RS/6000 AND AS/400 DISCOUNT SCHEDULES A. RS/6000 PRODUCTS ---------------- 1) INCLUDED IN CATEGORY A OF THE BUSINESS PARTNER EXHIBIT. Annual Revenue Discount Base *** *** *** *** *** *** *** *** Field Installed Features and Model Conversions are available at a *** discount. Includes Software and I/O. 2) NOT INCLUDED IN THE BUSINESS PARTNER EXHIBIT. . RS/6000 Machine Type 7020 Model 40P discount is *** (Reseller terms and conditions). . Distributors currently approved for the IBM RS/6000 are authorized to market the IBM 7586 Model 43P Industrial Computer to their Solution Providers. 7586 Model 43P is subject to standard Industrial Computer discounts. Contact an IBM representative for the applicable discounts. The following remarketer information applies for the 7586 Model 43P. -- Inventory Adjustment Category: 2 -- Annual System Revenue Performance applies. -- The product is a customer setup machine. -- The product does not contain licensed internal code. Please refer to IBM announcement letter, 595-104, dated 10/31/95, for complete terms and information on this product. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 1 of 13 . 7573 Model 001 and 7574 Model 001 Industrial Graphics Displays. These Products are eligible for the RS/6000 Products discount grid, listed in this Schedule, that applies to Category A Products of the Business Partner Exhibit. The following Remarketer information applies for these Products: -- Inventory Adjustment Category: 2 -- Annual System Revenue Performance applies -- The Product is a customer setup machine. -- The Product does not contain licensed internal code. B. AS/400 PRODUCTS --------------- 1) INCLUDED IN CATEGORY B OF THE BUSINESS PARTNER EXHIBIT Machine Type Discount 9401-P03 *** 9402 *** (9402 Models 236 and 436 now machine orders are available at a *** discount.) 9406 *** . AS/400 Field Installed Features and Model Conversions for AS/400 Machine Types 9401 -P03/9402/9404/9406: *** . AS/400 Software and I/O Products: *** -- Field Installed Features and Models Conversion for AS/400 I/O Products: *** 2) NOT INCLUDED IN THE BUSINESS PARTNER EXHIBIT. 9401-150 *** The following Business Partner Exhibit terms apply to the 9401 Model 150: . MES orders are eligible for a *** discount. . Licensed Internal Code (LIC) = Yes. . Inventory Adjustment Category (IAC) = 4 . Customer Set-up (CSU) machine . Business Partner Exhibit AS/400 Development/Demonstration terms apply. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 2 of 13 The following IPLA licensed software is available for the AS/400 Advanced Entry 9401 Model 150 at a *** Distributor discount. Permission to copy is not granted for this software.
Program Number Description 5649-AF1 Advanced Function Print Utility for AS/400 5649-A07 IBM Network Station Manager for AS/400 5649-A08 IBM Network Station Browser 5649-A09 IBM Network Station Support for Java 5649-CB1 Integrated Language Environment COBOL for AS/400 5649-CF1 Point-of-Sale Communications Utility for AS/400 5649-CL3 Application Development ToolSet Client/Server for AS/400 5649-CX2 Integrated Language Environment C for AS/400 5649-DCT Language Dictionaries for AS/400 5649-EP1 AS/400 Advanced Entry 9401 Model 150 BasePak Software 5649-NLV Secondary Languages for licensed programs 5649-PD1 Application Program Driver for AS/400 5649-PWA Application Dictionary Services for OS/400 (#2212) 5649-PWB Application Development Manager for OS/400 (#2213) 5649-PW1 Application Development ToolSet for AS/400 5649-RD1 Report/Data Archive and Retrieval System for AS/400 (#2294) 5649-RG1 Integrated Language Environment RPG for AS/400 5649-SB1 PSF/400 20-45 IPM Feature (#2291) 5649-SC1 Enhanced Integration for Novell NetWare (#2246) 5649-SD1 Enhanced Integration for Lotus Notes (#2256) 5649-TBE IBM Connection Program for OS/400 for UNIX (2) Environments 5649-WP1 OfficeVision (R) for AS/400
C. EXCEPTIONS ---------- The following exclusions and maximums apply and prevail over the Discount Schedules above: CATEGORY A ---------- The discount for RS/6000 Machine Type 7248 (all models), as well as Model Conversions for Machine Type 7248, is ***. CATEGORY A1 - Architecture and Engineering Series Programs and ----------- CAD/CAM Programs The following Licensed Programs are available at a *** discount: 5696-054 5696-055 5696-057 5799-AES 5696 060 5696-601 5697-166 CATEGORY B1 ----------- The following Licensed Programs are available at a *** discount: 5696-024 5696-025 5696-026 5696-027 5696-029 5696-030 5696-034 5733-056 *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 3 of 13 The following Licensed Programs are available at a *** discount: 5696-006 The following Licensed Programs are available at a *** discount: 5620-ABL CATEGORY G1 ----------- 7526 discount = *** CATEGORY G2 ----------- 3172-003 discount = *** CATEGORY K4 ----------- All Products discount = *** CATEGORY M ---------- The following Licensed Programs are available at a *** discount: 5696-238 5696-347 5765-532 5765-533 5765-534 5765-537 5765-538 5765-540 The following Licensed Programs are available at a *** discount: 5696-108 5765-316 The following Licensed Programs are available at a *** discount: 5765-191 5765-192 5765-193 5765-263 5765-337 5765-338 5765-339 5765-340 5765-341 5765-342 5765-347 5765-348 5765-440 5765-441 5765-442 5765-443 5765-605 5765-606 5765-607 The following Licensed Programs are available at a *** discount: 5697-BKP 5697-EMN 5697-JSC 5697-NVW 5697-PMN 5697-SWD 5765-527 CATEGORY O ---------- The following Licensed Programs are available at a *** discount: 5621-425 5696-865 *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 4 of 13 CATEGORY X ---------- Products included in this category are available for marketing by both AS/400 and RS/6000 Remarketers. The 5621-159 is available at a *** discount. D. IBM UNINTERRUPTIBLE POWER SUPPLY (UPS) -------------------------------------- 1) Discount Schedule for UPS Products. CATEGORY MACHINE TYPE MODEL ELIGIBLE DISCOUNT K5 9910 B$$* *** E$$* *** U$$* *** B30, B50, EP5 *** EP8, E80, U33 *** MES orders for Machines in this Category are not eligible for a discount. * Except for models specifically listed at a different discount. 2) Discount Schedule for all other UPS Products: KVA CAPACITY DISTRIBUTOR DISCOUNT < 3 KVA *** 3 < 18 KVA *** = > 18 KVA Quoted on request. 2. IBM STORAGE PRODUCTS Products included in categories S1 and S3 of the Business Partner Exhibit may be marketed by Solution Providers and Resellers independent of the standard Value-Added Enhancement requirement. WHEN APPROVED FOR THESE STORAGE PRODUCTS, YOU ARE ALSO APPROVED FOR ASSOCIATED RS/6000 AND AS/400 FEATURES REQUIRED TO ATTACH THESE STORAGE PRODUCTS TO RS/6000 OR AS/400 PROCESSORS AT THE DISCOUNT ASSOCIATED WITH THESE PROCESSOR FEATURES. Category S1 3995 = *** Category S1 All Other Products = *** Category S2(1) All Products = *** Category S3 All Products = *** Category S5 7015 ROO = *** Category S6 All Products = *** Category SS Those products indicated as eligible for a Distributor discount in the Business Partner Exhibit are eligible for a *** discount. MES orders for IBM Storage Products are eligible for the same discount as the base machine, unless otherwise indicated. (1) The 3590 Model C12 is not eligible for Distributor Schedule A discounting and will receive only the standard Business Partner Exhibit discount. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 5 of 13 3. IBM POINT OF SALE PRODUCTS A. Included in Category K of the Business Partner Exhibit: POS TERMINALS ------------- Machine Type Discount 4610 *** 4612-L01 *** 4612-P01 *** 4612-C01 *** 4612-D01 *** B. Included in Category C and C1 of the Business Partner Exhibit: 4693 *** 4694 *** 4695 *** IBM Licensed Programs /(1)/ *** (1) Unless indicated in Category C as not eligible for discount. C. Included in Category C2 of the Business Partner Exhibit: IBM LICENSED PROGRAMS --------------------- Product Number Description Discount 5696-539 IBM Retail Application *** 5799-FPR Advanced Payment Sys. for Chain Drug Sales *** 5799-FRN Advanced Payment Sys. for Stand Beside Env. *** 5799-QPD Advanced Payment Sys. for Supermarket *** 5799-QNR Advanced Payment Sys. for General Sales *** D. Not included in the Business Partner Exhibit: 4614(2) (2) Contact IBM to obtain prices. INVENTORY ADJUSTMENT CATEGORY 1 APPLIES (NO RETURNS). NORTH AMERICAN DISTRIBUTOR ATTACHMENT APPLIES. Requirements for SureOne (4614) . Only orders for full shipping container (336 units) can be placed with IBM. A minimum order quantity of one (1) shipping container is required. . A minimum inventory of one container (336 units) of 4614s must be held by the Distributor. . Withdrawn SureOne Products: Three months after IBM announces withdrawal of a SureOne Product IBM, will accept as returns up to the quantity of the withdrawn *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 6 of 13 product sold by the Distributor during the three-month period immediately preceding the announcement of withdrawal. 4. IBM NETWORK INTEGRATION PRODUCTS Products included in this section have unique certification requirements. Please contact your IBM representative for details. Products included in this section are available at the discounts described below. MES orders for installed features and model conversions are available at the same discount as the base machine type/model it is ordered for installation on. CATEGORY D Eligible Type/Model Discount 8210 *** 8235/140 *** 8250 *** 8260 *** 8273 *** 8274 *** 8281 *** 8285/00B *** 8285/00P *** 6611/120 *** 6611/125 *** 6611/145 *** 6611/175 *** 2210 *** 2216 *** 2218 - 1$$ and 3$$ models *** 2218 - 0$$ models *** 9741/001 *** CATEGORY D1 Licensed Programs included in Category D1 are available at a *** discount with the following exceptions: 5648-016 *** 5697-B67 *** 5697-B68 *** 5697-B69 *** 5697-B70 *** 5697-C10 *** 5697-C11 *** 5697-C13 *** 5697-C14 *** 5765-368 *** *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 7 of 13 5. DISTRIBUTOR DEMONSTRATION SYSTEM Distributors may acquire the following quantities of Demonstration System Products each 12-month period during their contract duration for use in supporting, recruiting, and training their Solution Providers and Resellers. Demonstration Products are made available to the Distributor at the Development System Discounts specified In the Business Partner Exhibit. The retention period for RS/6000 Demonstration Systems acquired by Distributors is now six months from the original date of installation. The 9076 RS/6000 SP will remain at twelve months from the date of installation. All other Demonstration Products must be retained by the Distributor for a minimum of twelve months from the date of installation. Refer to the Distributor Attachment for additional terms.
Product Quantity Available ------- ------------------ RS/6000 Processors *** POWERparallel Processors (9076) *** AS/400 Processors *** - 9401/P03 *** * Network Integration Products *** * Point of Sale Products *** ** Storage Products *** *** RS/6000 and System/390 *** per calendar year at a *** discount Server-on-Board (R/390)
PC SERVER SYSTEM/390 (P/390): ----------------------------- For a P/390 Development or Demonstration System, the PC Server hardware portion is available at a discount through the IBM PC Server Seed Program. The IBM Intel software is available at a *** discount as a member of BESTeam. The S/390 Microprocessor Complex and IBM 96MB MEA are available at a *** discount, and the S/390 software is available at a *** discount. * Distributors may acquire the quantities indicated for each machine type. In addition to approved Network Integration Distributors, Network Integration Products are available to IBM RS/6000, AS/400, and Point of Sale Distributors as complementary products to a development, demonstration, or internal-use system unit purchase. The quantity limitations stated above apply to all Network Integration Products acquired for development, demonstration, or internal use. ** Distributors may acquire up to 10 of the Products they are approved to market in these Categories. *** Distributors may acquire up to five R/390 machines each calendar year for each Solution Provider at a *** discount. Distributors may acquire Development System Products for each of their Solution Providers and Resellers at the same quantities and discounts identified in the Business Partner Exhibit as available for Solution Providers and Resellers each calendar year. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 8 of 13 Distributors may acquire Products from the Associated Categories in those quantities that IBM has indicated is the maximum number of these Products that will attach to their Demonstration System Processor Type. 6. FEDERAL DISCOUNTS Distributors authorized to market the RS/6000 Network Integration Products to Solution Providers may acquire Products for installation in a Federal End User account under the following discount schedules. Project Discounts identified in the Business Partner Exhibit may also be available for Federal End User installations. Distributor specific revenue commitments and discounts are identified in the individual Distributor's Profile. Please contact your IBM representative for details. A. DISTRIBUTOR FEDERAL DISCOUNT SCHEDULE ------------------------------------- 1) RS/6000 PRODUCTS ---------------- Discounts Annual System Revenue Performance* Hardware Software *** *** *** *** *** *** *** *** *** *** *** *** * This discount schedule is based on a single RS/6000 revenue commitment for Products acquired for both federal and commercial installations . a) Unless otherwise stated, Products in Category A on the Business Partner Exhibit (Z125-5505) are eligible for the hardware discounts above for new machine orders. Field installed features and model upgrades for hardware Products are available at a *** discount. b) Some Products listed in the Network Integration Products Federal Discount Schedule below may also be eligible RS/6000 Products. Those Products may be acquired at the discounts listed below by IBM Authorized Distributors approved to market RS/6000 Products to Solution Providers. c) Unless otherwise stated, all other Products are available at the standard Distributor/Business Partner published discounts. Note: Please review Discount Exceptions in item 3 below. 2) NETWORK INTEGRATION PRODUCTS FEDERAL DISCOUNT SCHEDULE ------------------------------------------------------
Machine Type Description Discount Category D 6611 Network Processor - Model 12x *** 8260 Multiprotocol Intelligent Switching Hub *** 9741 High Speed Inverse Multiplexor *** 2210 Nways Multiprotocol Router *** 2217 Nways Multiprotocol Concentrator *** Category D1 5648-016 Multiprotocol Network Program *** Category K1 9309 Rack Enclosure Expansion Unit *** Category K2 3299 Multiplexer Hub ***
*CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 9 of 13 a) Products specifically listed above are eligible for discounts listed above when sold to Federal End Users. b) Unless otherwise stated, additional Network Integration Products are eligible to IBM Business Partners approved to market Network Integration Products are available at standard Distributor/Business Partner published discounts. NOTE: PLEASE REVIEW DISCOUNT EXCEPTIONS IN ITEM 3 BELOW. 3) DISCOUNT EXCEPTIONS ------------------- The following RS/6000 and Network Integration Products are available to eligible IBM Distributors at the discounts stated below. Business Partner Exhibit Category A Products available at a *** discount: 5621-027 5765-083 Business Partner Exhibit IBM Storage Products (Category S2): 3494 = *** 3590 = *** 7. IBM WORKSTATION SOFTWARE PRODUCTS Selected IBM Licensed Programs currently available via the terms and conditions of the IBM International Software Remarketer Agreement are available directly from IBM only to those Distributors approved for RS/6000, Network Integration, or Storage. These Programs are identified in the IBM Business Partner Agreement Remarketer Workstation Software Eligible Program List (Z121-1003). These Programs are available to eligible Distributors at a *** percent higher discount than indicated in the Solution Provider version of the IBM Remarketer Business Partner Agreement Software Eligible Program List (Z121-1003). The Distributor version of the IBM SPA Remarketer Workstation Software Eligible Program List (Z121-1003) already reflects the *** percent higher Distributor discount. For more information, please refer to IBM Announcement Letter 596-065. 8. IBM RS/6000 AND SYSTEM/390 SERVER-ON-BOARD (R/390), AND IBM PC SERVER SYSTEM/390 (P/390) Distributors currently approved for the IBM RS/6000, who meet the additional approval requirements, may be authorized to market IBM RS/6000 and System/390 Server-on-Board (R/390) Products, and IBM PC Server System/390 (P/390) Products. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 10 of 13 A. The following R/390 and P/390 products are available at a single remarketer price. Please contact your IBM marketing representative for pricing information. RPQ 8P1863: 9662-001 S/390 Microprocessor Complex for R/390 RPQ 8P1864: 9662-001 96MB Memory Expansion Adapter RPQ 8P1880: 9662-001 S/390 Microprocessor Complex for P/390 9662-005(1) S/390 Parallel Channel Adapter 9662-128(1) P/390 PCI Card with 128MB Memory 9662-032(1) P/390 PCI Card with 32MB Memory (1) Customer Set-up machines. . Inventory Adjustment Category = 2. . Aggregation toward Minimum Renewal Criteria applies. . These products require installation by IBM. . These products contain Licensed Internal Code. . Development/Demonstration information is in Section 5 of this Schedule. Note: Only those S390 Microprocessor Complexes and IBM 96MB Memory Expansion Adapters not yet integrated into the specified RS/6000 or PC Server are eligible for return. B. When approved for the R/390 or P/390, Distributors and their Solution Providers are also approved for the IBM Licensed Programs included in the Business Partner Exhibit Category E2. The IBM Entry End-User/390 License (ESL) version of a Program is available to Distributors. The ESL version of a Program is available at a ***. discount for remarketing or a *** discount for development/demonstration installation. Where there is no ESL version of a Program available, Distributors may acquire the Program under one of the following applicable pricing options: . The lowest applicable, graduated Basic one-time charge . Any other applicable, use-based one-time charge . The Basic one-time charge These options are available at the highest associated discount as specified in the Business Partner Exhibit. Distributors and Solution Providers may only market the IBM Licensed Programs included in Category E2 when they are also marketing the R/390 o P/390. ESL versions of IBM Licensed Programs may not be redesignated to a processor not included in the IBM Customer Agreement-License, Attachment for IBM Entry End-User/390 License (Z125-5439). This Attachment must be executed prior to providing an end user with a license, or a Distributor or Solution Provider with a development or demonstration license. The end-user, Distributor, or Solution Provider must have signed the IBM Customer Agreement (Z125-4575) or IBM Customer Agreement-License (Z125-4593) prior to acquiring a Licensed Program. 9. IBM PRODUCT SUPPORT SERVICES OFFERINGS TABLE Service offerings that Business Partners may be authorized to sell for a fee or discount are listed in the Business Partner Exhibit. Service offerings in the Business Partner Exhibit for which Distributors may be eligible for a Distributor discount are listing in this section. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 11 of 13 A. PRODUCT SERVICES HARDWARE PRODUCT SERVICES MAINTENANCE SERVICES Closed Contract Fee (1) 9254-X01 MMMC *** 9254-X02 CSO *** 9254-X03 MRSO *** Hardware Product Services Legend MMMC - Minimum Monthly Maintenance Charge CSO - Corporate Service Option MRSO - Mid-Range System Option B. IT ENVIRONMENT & INFRASTRUCTURE SERVICES UNINTERRUPTIBLE POWER SYSTEMS (UPS) Remarketing Discount 9257-X01 LT 3KVA *** 9257-X02 3 to 14.9KVA *** 9257-X03 GT 14.9KVA *** C. BACKUP AND RECOVERY BUSINESS RECOVERY SERVICES HOTSITE RECOVERY SERVICES, BUSINESS RESUMPTION SERVICES, END-USER SPACE Closed Contract Fee 9257-X04 New *** 9257-X05 Renewal *** 9257-X06 Anniversary *** NOTES: (1) Fees may be earned for Maintenance Service on IBM machines marketed to end users when installed with the Business Partner's Value-Added Enhancement, regardless of Auto-MA and other agreements or administrative processes under which IBM might place the machines under services coverage. When a machine is installed with the Business Partner's Value-Added Enhancement, the Business Partner may earn fees on other IBM machines not installed by the Business Partner, provided Auto-MA and other agreements or administrative processes are not in place for services coverage. A Business Partner does not have to install its Value-Added Enhancement to earn fees on non-IBM machines. Business Partners are not eligible for fee payment for: . Service when the same Service associated with the same machine was terminated by the end user within the prior six months. . Service revenue increases resulting from upgrades to a machine already under the Service when the serial number does not change. *CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION 12 of 13 . Service revenue increases on machines already under the Service when migrating to the Extended Maintenance Option (EMO), extending an existing EMO, or renewing an EMO at termination. . Service for Equipment within IBM, IBM wholly owned subsidiaries, or IBM joint ventures. 13 of 13 EX-10.17 5 EMPLOYMENT LETTER - SCOTT MUNRO Exhibit 10.17 Savoir Technology Group, Inc. 254 East Hacienda Avenue Campbell, California 95008 January 22, 1998 Mr. P. Scott Munro Savoir Technology Group, Inc. 254 East Hacienda Avenue Campbell, California 95008 Dear Scott: This letter agreement sets forth the terms and conditions of your employment with Savoir Technology Group, Inc. ("Company"). In consideration of the mutual covenants and promises made in this letter agreement, you and the Company agree as follows: 1. Employment. Commencing as of January 1, 1998 (the "Effective Date"), ---------- you will continue to serve as the Company's President and Chief Executive Officer. You will be given such duties, responsibilities and authority as are appropriate to such position. Throughout the term of your employment, you will devote such business time and energies to the business and affairs of the Company as needed to carry out your duties and responsibilities as President and Chief Executive Officer, subject to the overall supervision and direction of the Board of Directors of the Company. 2. Term. Commencing as of the Effective Date, your employment with the ---- Company will be "at-will." Either you or the Company can terminate your employment at any time and for any reason, with or without cause and with or without notice, in each case subject to the terms and provisions of paragraph 6 below. 3. Salary. For your services to the Company as President and Chief ------ Executive Officer, you will be paid a base salary, payable semi-monthly during each month of employment, at an annualized rate of three hundred twenty-five thousand dollars ($325,000) per year. 4. Bonuses. If you remain employed upon the closing of the Star Merger ------- and achievement of Company revenue of seventy-five million dollars ($75,000,000) in any quarter thereafter, you will receive a one-time special cash bonus of $37,000 in recognition of your performance. If you remain employed upon the elimination of the Company's long term debt following the Star Merger you will also receive a one-time special cash bonus of $37,000. In addition, you will be eligible to receive a Mr. P. Scott Munro January 22, 1998 Page 2 regular annual bonus if the goals of the regular annual bonus program are achieved. The terms of the regular annual bonus plan will be determined by the Compensation Committee of the Board of Directors. For the purposes of such plan, your target bonus will be $125,000, of which $25,000 will be the target bonus for each calendar quarter and will be paid quarterly upon the attainment of certain quarterly performance criteria and $25,000 will be the target bonus for the entire year and will be paid annually upon the attainment of certain annual performance criteria. 5. Employee Benefit Programs. During your employment, you will be ------------------------- entitled to participate in all Company employee benefit plans, executive compensation and perquisite programs (including reimbursement of the initiation and membership fees and dues for a country club of your choice on the Bay Area Peninsula and your car allowance) at the time or thereafter made available to the Company's executives or salaried employees generally, including, without limitation, savings or profit sharing plans, deferred compensation plans, stock option incentive plans, group life insurance, accidental death and dismemberment insurance, hospitalization, surgical, major medical and dental coverage, sick leave (including salary continuation arrangements), long-term disability, vacations, holidays and other employee benefit programs sponsored by the Company. 6. Consequences of Termination of Employment. ----------------------------------------- (a) For Cause. Following the Effective Date, the Company may terminate --------- your employment for "Cause." "Cause" will exist in the event you are convicted of a felony or, in carrying out your duties, you are guilty of gross negligence or gross misconduct resulting, in either case, in material harm to the Company. In the event your employment is terminated for Cause you will be entitled to any unpaid salary and bonus due you pursuant to paragraphs 3 and 4 above through the date of termination and you will be entitled to no other compensation from the Company. (b) Without Cause. Following the Effective Date, the Company may ------------- terminate your employment without Cause. In such event, you will be entitled to continue to receive your base salary, payable on a salary continuation basis, for a period of one (1) year following your termination. (c) Change in Responsibilities Following a Change in Control. Following -------------------------------------------------------- the Effective Date, in the event your responsibilities are substantially reduced, without Cause, within 12 months following a "change in control" of the Company Mr. P. Scott Munro January 22, 1998 Page 3 (as such term is defined in the 1994 Stock Option Plan), your resulting resignation of employment within such 12 months will be treated as a termination of employment by the Company without Cause in accordance with subparagraph (b) above. (d) Voluntary Termination, Death or Disability. In the event you ------------------------------------------ terminate your employment with the Company of your own volition or as a result of death or disability, such termination will have the same consequences as a termination for Cause under subparagraph (a) above. (e) Release of Claims. As a condition to the receipt of the payments ----------------- described in this Section 6 and any other post-termination benefits, e.g., any continued vesting in stock options, you shall be required to execute a release of all claims arising out of your employment or the termination thereof including, but not limited to, any claim of discrimination under state or federal law, but excluding claims for indemnification from the Company under any indemnification agreement with the Company, its certificate of incorporation and by-laws or applicable law or claims for directors and officers' insurance coverage. (f) Conditions to Receipt of Payments and Benefits. In view of your ---------------------------------------------- position and access to confidential information, as a condition to the receipt of payments described in this Section 6 and any other post-termination benefits, e.g., any continued vesting in stock options, you shall not, without the Company's written consent, directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent or stockholder (other than a less than 5% stockholder of a publicly traded company) (i) engage in any activity which is in competition with the business, the products or services of the Company (a list of competitors and competitive products and services, which may be updated, is attached hereto), (ii) solicit any of the Company's employees, consultants or customers, (iii) hire any of the Company's employees or consultants in an unlawful manner or actively encourage employees or consultants to leave the Company, or (iv) otherwise breach your Confidential Information obligations. 7. Assignability; Binding Nature. Commencing on the Effective Date, this ----------------------------- letter agreement will be binding upon you and the Company and your respective successors, heirs, and assigns. This letter agreement may not be assigned by you except that your rights to compensation and benefits hereunder, subject to the limitations of this letter agreement, may be transferred by will or operation of law. No rights or obligations of the Company under this letter agreement may be assigned Mr. P. Scott Munro January 22, 1998 Page 4 or transferred except by operation of law in the event of a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and assumes the Company's obligations under this letter agreement contractually or as a matter of law. The Company's failure to obtain the successor's contractual assumption of this letter agreement prior to the effectiveness of a succession shall be a breach of this agreement and shall entitle you to all the compensation and benefits to which you would have been entitled if you were terminated without Cause, on the date such succession became effective. 8. Governing Law; Arbitration. This letter agreement will be deemed a -------------------------- contract made under, and for all purposes shall be construed in accordance with, the laws of California. Any controversy or claim relating to this letter agreement any breach thereof, and any claims you may have against the Company or any officer, director or employee of the Company or arising from or relating to your employment with the Company, will be settled solely and finally by arbitration in San Jose, California accordance with the rules of the American Arbitration Association ("AAA") then in effect in the State of California, and judgment upon such award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The arbitrator may provide that the cost of the arbitration (including reasonable legal fees) incurred by you or the Company will be borne by the non-prevailing party. 9. Withholding. Anything to the contrary notwithstanding, following the ----------- Effective Date all payments made by the Company hereunder to you or your estate or beneficiaries will be subject to tax withholding pursuant to any applicable laws or regulations. In lieu of withholding, the Company may, in its sole discretion, accept other provision for payment of taxes as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied. 10. Entire Agreement. Except as otherwise specifically provided in this ---------------- letter agreement, this letter agreement contains all the legally binding understandings and agreements between you and the Company pertaining to the subject matter of this letter agreement and supersedes all such agreements, whether oral or in writing, previously entered into between the parties. 11. Miscellaneous. No provision of this letter agreement may be amended ------------- or waived unless such amendment or waiver is Mr. P. Scott Munro January 22, 1998 Page 5 agreed to by you and the Board in writing. No waiver by you or the Company of the breach of any condition or provision of this letter agreement will be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time. In the event any portion of this letter agreement is determined to be invalid or unenforceable for any reason, the remaining portions shall be unaffected thereby and will remain in full force and effect to the fullest extent permitted by law. Please acknowledge your acceptance and understanding of this letter agreement by signing and returning it to me by 5:00 p.m. on January __, 1998. A copy of the signed letter agreement will be sent to you for your records. Sincerely, _______________________________ ACKNOWLEDGED AND AGREED: ____________________________________ P. Scott Munro Dated: January __, 1998 EX-10.18 6 EMPLOYMENT LETTER - JAMES DORST Exhibit 10.18 Savoir Technology Group, Inc. 254 East Hacienda Avenue Campbell, California 95008 January 22, 1998 Mr. James W. Dorst Savoir Technology Group, Inc. 254 East Hacienda Avenue Campbell, California 95008 Dear Jim: This letter agreement sets forth the terms and conditions of your employment with Savoir Technology Group, Inc. ("Company"). In consideration of the mutual covenants and promises made in this letter agreement, you and the Company agree as follows: 1. Employment. Commencing as of January 1, 1998 (the "Effective Date"), ---------- you will continue to serve as the Company's Chief Financial Officer. You will be given such duties, responsibilities and authority as are appropriate to such position. Throughout the term of your employment, you will devote such business time and energies to the business and affairs of the Company as needed to carry out your duties and responsibilities as Chief Financial Officer, subject to the overall supervision and direction of Chief Executive Officer of the Company. 2. Term. Commencing as of the Effective Date, your employment with the ---- Company will be "at-will." Either you or the Company can terminate your employment at any time and for any reason, with or without cause and with or without notice, in each case subject to the terms and provisions of paragraph 6 below. 3. Salary. For your services to the Company as Chief Financial Officer, ------ you will be paid a base salary, payable semi-monthly during each month of employment, at an annualized rate of two hundred thousand dollars ($200,000) per year. 4. Bonuses. If you remain employed upon the closing of the Star Merger ------- and achievement of Company revenue of seventy-five million dollars ($75,000,000) in any quarter thereafter, you will receive a one-time special cash bonus of $15,000 in recognition of your performance. If you remain employed upon the elimination of the Company's long term debt following the Star Merger you will also receive a one-time special cash bonus of $15,000. In addition, you will be eligible to receive a regular annual bonus if the goals of the regular annual bonus Mr. James W. Dorst January 22, 1998 Page 2 program are achieved. The terms of the regular annual bonus plan will be determined by the Compensation Committee of the Board of Directors. For the purposes of such plan, your target bonus will be $60,000, of which $12,000 will be the target bonus for each calendar quarter and will be paid quarterly upon the attainment of certain quarterly performance criteria and $12,000 will be the target bonus for the entire year and will be paid annually upon the attainment of certain annual performance criteria. 5. Employee Benefit Programs. During your employment, you will be ------------------------- entitled to participate in all Company employee benefit plans, executive compensation and perquisite programs at the time or thereafter made available to the Company's executives or salaried employees generally, including, without limitation, savings or profit sharing plans, deferred compensation plans, stock option incentive plans, group life insurance, accidental death and dismemberment insurance, hospitalization, surgical, major medical and dental coverage, sick leave (including salary continuation arrangements), long-term disability, vacations, holidays and other employee benefit programs sponsored by the Company. 6. Consequences of Termination of Employment. ----------------------------------------- (a) For Cause. Following the Effective Date, the Company may terminate --------- your employment for "Cause." "Cause" will exist in the event you are convicted of a felony or, in carrying out your duties, you are guilty of gross negligence or gross misconduct resulting, in either case, in material harm to the Company. In the event your employment is terminated for Cause you will be entitled to any unpaid salary and bonus due you pursuant to paragraphs 3 and 4 above through the date of termination and you will be entitled to no other compensation from the Company. (b) Without Cause. Following the Effective Date, the Company may ------------- terminate your employment without Cause. In such event, you will be entitled to continue to receive your base salary, payable on a salary continuation basis, for a period of nine (9) months following your termination. (c) Change in Responsibilities Following a Change in Control. Following -------------------------------------------------------- the Effective Date, in the event your responsibilities are substantially reduced, without Cause, within 12 months following a "change in control" of the Company (as such term is defined in the 1994 Stock Option Plan), your resulting resignation of employment within such 12 months will be treated as a termination of employment by the Company without Cause in accordance with subparagraph (b) above. Mr. James W. Dorst January 22, 1998 Page 3 (d) Voluntary Termination, Death or Disability. In the event you ------------------------------------------ terminate your employment with the Company of your own volition or as a result of death or disability, such termination will have the same consequences as a termination for Cause under subparagraph (a) above. (e) Release of Claims. As a condition to the receipt of the payments ----------------- described in this Section 6 and any other post-termination benefits, e.g., any continued vesting in stock options, you shall be required to execute a release of all claims arising out of your employment or the termination thereof including, but not limited to, any claim of discrimination under state or federal law, but excluding claims for indemnification from the Company under any indemnification agreement with the Company, its certificate of incorporation and by-laws or applicable law or claims for directors and officers' insurance coverage. (f) Conditions to Receipt of Payments and Benefits. In view of your ---------------------------------------------- position and access to confidential information, as a condition to the receipt of payments described in this Section 6 and any other post-termination benefits, e.g., any continued vesting in stock options, you shall not, without the Company's written consent, directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent or stockholder (other than a less than 5% stockholder of a publicly traded company) (i) engage in any activity which is in competition with the business, the products or services of the Company (a list of competitors and competitive products and services, which may be updated, is attached hereto), (ii) solicit any of the Company's employees, consultants or customers, (iii) hire any of the Company's employees or consultants in an unlawful manner or actively encourage employees or consultants to leave the Company, or (iv) otherwise breach your Confidential Information obligations. 7. Assignability; Binding Nature. Commencing on the Effective Date, this ----------------------------- letter agreement will be binding upon you and the Company and your respective successors, heirs, and assigns. This letter agreement may not be assigned by you except that your rights to compensation and benefits hereunder, subject to the limitations of this letter agreement, may be transferred by will or operation of law. No rights or obligations of the Company under this letter agreement may be assigned or transferred except by operation of law in the event of a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company provided that the assignee or Mr. James W. Dorst January 22, 1998 Page 4 transferee is the successor to all or substantially all of the assets of the Company and assumes the Company's obligations under this letter agreement contractually or as a matter of law. The Company's failure to obtain the successor's contractual assumption of this letter agreement prior to the effectiveness of a succession shall be a breach of this agreement and shall entitle you to all the compensation and benefits to which you would have been entitled if you were terminated without Cause, on the date such succession became effective. 8. Governing Law; Arbitration. This letter agreement will be deemed a -------------------------- contract made under, and for all purposes shall be construed in accordance with, the laws of California. Any controversy or claim relating to this letter agreement any breach thereof, and any claims you may have against the Company or any officer, director or employee of the Company or arising from or relating to your employment with the Company, will be settled solely and finally by arbitration in San Jose, California accordance with the rules of the American Arbitration Association ("AAA") then in effect in the State of California, and judgment upon such award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The arbitrator may provide that the cost of the arbitration (including reasonable legal fees) incurred by you or the Company will be borne by the non-prevailing party. 9. Withholding. Anything to the contrary notwithstanding, following the ----------- Effective Date all payments made by the Company hereunder to you or your estate or beneficiaries will be subject to tax withholding pursuant to any applicable laws or regulations. In lieu of withholding, the Company may, in its sole discretion, accept other provision for payment of taxes as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied. 10. Entire Agreement. Except as otherwise specifically provided in this ---------------- letter agreement, this letter agreement contains all the legally binding understandings and agreements between you and the Company pertaining to the subject matter of this letter agreement and supersedes all such agreements, whether oral or in writing, previously entered into between the parties. 11. Miscellaneous. No provision of this letter agreement may be amended ------------- or waived unless such amendment or waiver is agreed to by you and the Board in writing. No waiver by you or the Company of the breach of any condition or provision of this letter agreement will be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or Mr. James W. Dorst January 22, 1998 Page 5 subsequent time. In the event any portion of this letter agreement is determined to be invalid or unenforceable for any reason, the remaining portions shall be unaffected thereby and will remain in full force and effect to the fullest extent permitted by law. Please acknowledge your acceptance and understanding of this letter agreement by signing and returning it to me by 5:00 p.m. on January __, 1998. A copy of the signed letter agreement will be sent to you for your records. Sincerely, ____________________________________ ACKNOWLEDGED AND AGREED: ________________________________ James W. Dorst Dated: January __, 1998 EX-10.19 7 EMPLOYMENT AGREEMENT - ROBERT O'REILLY Exhibit 10.19 Savoir Technology Group, Inc. 254 East Hacienda Avenue Campbell, California 95008 January 22, 1998 Mr. Robert O'Reilly Savoir Technology Group, Inc. 254 East Hacienda Avenue Campbell, California 95008 Dear Bob: This letter agreement sets forth the terms and conditions of your employment with Savoir Technology Group, Inc. ("Company"). In consideration of the mutual covenants and promises made in this letter agreement, you and the Company agree as follows: 1. Employment. Commencing as of January 1, 1998 (the "Effective Date"), ---------- you will continue to serve as the Company's Senior Vice President. You will be given such duties, responsibilities and authority as are appropriate to such position. Throughout the term of your employment, you will devote such business time and energies to the business and affairs of the Company as needed to carry out your duties and responsibilities as Senior Vice President, subject to the overall supervision and direction of the Chief Executive Officer. 2. Term. Commencing as of the Effective Date, your employment with the ---- Company will be "at-will." Either you or the Company can terminate your employment at any time and for any reason, with or without cause and with or without notice, in each case subject to the terms and provisions of paragraph 6 below. 3. Salary. For your services to the Company as Senior Vice President, you ------ will be paid a base salary, payable semi-monthly during each month of employment, at an annualized rate of one hundred and fifty thousand dollars ($150,000) per year. 4. Bonuses. Upon the closing of the Star Merger and achievement of ------- Company revenue of seventy-five million dollars ($75,000,000) in any quarter thereafter, you will receive a one-time special cash bonus of $12,500 in recognition of your performance. In addition, you will be eligible to receive a regular annual bonus if the goals of the regular annual bonus program are achieved. The terms of the regular annual bonus plan will be determined by the Compensation Committee of the Board of Directors. For the purposes of such plan, your target bonus will be $50,000, of which $10,000 will be the target bonus for each calendar quarter and will be paid quarterly upon the attainment of certain quarterly performance criteria and $10,000 will be the Mr. Robert O'Reilly January 22, 1998 Page 2 target bonus for the entire year and will be paid annually upon the attainment of certain annual performance criteria. 5. Employee Benefit Programs. During your employment, you will be ------------------------- entitled to participate in all Company employee benefit plans, executive compensation and perquisite programs at the time or thereafter made available to the Company's executives or salaried employees generally, including, without limitation, savings or profit sharing plans, deferred compensation plans, stock option incentive plans, group life insurance, accidental death and dismemberment insurance, hospitalization, surgical, major medical and dental coverage, sick leave (including salary continuation arrangements), long-term disability, vacations, holidays and other employee benefit programs sponsored by the Company. 6. Consequences of Termination of Employment. ----------------------------------------- (a) For Cause. Following the Effective Date, the Company may terminate --------- your employment for "Cause." "Cause" will exist in the event you are convicted of a felony or, in carrying out your duties, you are guilty of gross negligence or gross misconduct resulting, in either case, in material harm to the Company. In the event your employment is terminated for Cause you will be entitled to any unpaid salary and bonus due you pursuant to paragraphs 3 and 4 above through the date of termination and you will be entitled to no other compensation from the Company. (b) Without Cause. Following the Effective Date, the Company may terminate ------------- your employment without Cause. In such event, you will be entitled to continue to receive your base salary, payable on a salary continuation basis, for a period of six (6) months following your termination. (c) Change in Responsibilities Following a Change in Control. Following -------------------------------------------------------- the Effective Date, in the event your responsibilities are substantially reduced, without Cause, within 12 months following a "change in control" of the Company (as such term is defined in the 1994 Stock Option Plan), your resulting resignation of employment within such 12 months will be treated as a termination of employment by the Company without Cause in accordance with subparagraph (b) above. (d) Voluntary Termination, Death or Disability. In the event you terminate ------------------------------------------ your employment with the Company of your own volition or as a result of death or disability, such termination will have the same consequences as a termination for Cause under subparagraph (a) above. (e) Release of Claims. As a condition to the receipt of the ----------------- Mr. Robert O'Reilly January 22, 1998 Page 3 payments described in this Section 6 and any other post-termination benefits, e.g., any continued vesting in stock options, you shall be required to execute a release of all claims arising out of your employment or the termination thereof including, but not limited to, any claim of discrimination under state or federal law, but excluding claims for indemnification from the Company under any indemnification agreement with the Company, its certificate of incorporation and by-laws or applicable law or claims for directors and officers' insurance coverage. (f) Conditions to Receipt of Payments and Benefits. In view of your ---------------------------------------------- position and access to confidential information, as a condition to the receipt of payments described in this Section 6 and any other post-termination benefits, e.g., any continued vesting in stock options, you shall not, without the Company's written consent, directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent or stockholder (other than a less than 5% stockholder of a publicly traded company) (i) engage in any activity which is in competition with the business, the products or services of the Company (a list of competitors and competitive products and services, which may be updated, is attached hereto), (ii) solicit any of the Company's employees, consultants or customers, (iii) hire any of the Company's employees or consultants in an unlawful manner or actively encourage employees or consultants to leave the Company, or (iv) otherwise breach your Confidential Information obligations. 7. Assignability; Binding Nature. Commencing on the Effective Date, this ----------------------------- letter agreement will be binding upon you and the Company and your respective successors, heirs, and assigns. This letter agreement may not be assigned by you except that your rights to compensation and benefits hereunder, subject to the limitations of this letter agreement, may be transferred by will or operation of law. No rights or obligations of the Company under this letter agreement may be assigned or transferred except by operation of law in the event of a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and assumes the Company's obligations under this letter agreement contractually or as a matter of law. The Company's failure to obtain the successor's contractual assumption of this letter agreement prior to the effectiveness of a succession shall be a breach of this agreement and shall entitle you to all the compensation and benefits to which you would have been entitled if you were terminated without Cause, on the date such succession Mr. Robert O'Reilly January 22, 1998 Page 4 became effective. 8. Governing Law; Arbitration. This letter agreement will be deemed a -------------------------- contract made under, and for all purposes shall be construed in accordance with, the laws of California. Any controversy or claim relating to this letter agreement any breach thereof, and any claims you may have against the Company or any officer, director or employee of the Company or arising from or relating to your employment with the Company, will be settled solely and finally by arbitration in San Jose, California accordance with the rules of the American Arbitration Association ("AAA") then in effect in the State of California, and judgment upon such award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The arbitrator may provide that the cost of the arbitration (including reasonable legal fees) incurred by you or the Company will be borne by the non-prevailing party. 9. Withholding. Anything to the contrary notwithstanding, following the ----------- Effective Date all payments made by the Company hereunder to you or your estate or beneficiaries will be subject to tax withholding pursuant to any applicable laws or regulations. In lieu of withholding, the Company may, in its sole discretion, accept other provision for payment of taxes as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied. 10. Entire Agreement. Except as otherwise specifically provided in this ---------------- letter agreement, this letter agreement contains all the legally binding understandings and agreements between you and the Company pertaining to the subject matter of this letter agreement and supersedes all such agreements, whether oral or in writing, previously entered into between the parties. 11. Miscellaneous. No provision of this letter agreement may be amended or ------------- waived unless such amendment or waiver is agreed to by you and the Board in writing. No waiver by you or the Company of the breach of any condition or provision of this letter agreement will be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time. In the event any portion of this letter agreement is determined to be invalid or unenforceable for any reason, the remaining portions shall be unaffected thereby and will remain in full force and effect to the fullest extent permitted by law. Mr. Robert O'Reilly January 22, 1998 Page 5 Please acknowledge your acceptance and understanding of this letter agreement by signing and returning it to me by 5:00 p.m. on January __, 1998. A copy of the signed letter agreement will be sent to you for your records. Sincerely, ____________________________________ ACKNOWLEDGED AND AGREED: ______________________________________ Robert O'Reilly Dated: January __, 1998 EX-21.1 8 LIST OF SUBSIDIARES EXHIBIT 21.1 List of Subsidiaries Savoir Technology Group Inc., d.b.a. Western Micro Technology, Inc., a Delaware corporation. Star Management Services, Inc., a Delaware corporation. Sirius Investments, Inc., a Nevada corporation. Business Partner Solutions, Inc., a Texas corporation. EX-23.1 9 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Savoir Technology Group, Inc. on Form S-8 (File Nos. 033-64279, 333-30825 and 333-08989) and Form S-3 (File No. 333-46049) of our reports dated January 30, 1998, except for the matters discussed in Note 14 for which the date is February 17, 1998, on our audits of the consolidated financial statements and financial statement schedule of Savoir Technology Group, Inc. and subsidiaries as of December 31, 1997, and 1996, and for each of the three years in the period ended December 31, 1997, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. San Jose, California March 13, 1998 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 2,919 0 76,664 319 36,841 123,812 4,920 4,556 186,888 117,358 0 0 18,132 27,983 965 186,888 237,884 237,884 205,089 25,969 0 0 3,181 3,645 335 3,310 0 0 0 3,310 .57 .55
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