Distributor Agreement - Executone Information Systems Inc. and Claricom Inc. d/b/a Executone Business Solutions
EXECUTONE INFORMATION SYSTEMS, INC.
AMENDED AND RESTATED DISTRIBUTOR AGREEMENT
AGREEMENT effective as of April 1, 1998, between EXECUTONE INFORMATION SYSTEMS,
INC., a Virginia corporation ("Company") and Claricom, Inc., d/b/a/ Executone
Business Solutions, a Delaware corporation ("Distributor").
WHEREAS, the parties hereto are currently party to a Distributor Agreement dated
as of May 31, 1996, amended as of December 19, 1996 (as amended, the "Prior
Agreement"), pursuant to which Company (as defined in Section 25 below) has
appointed Distributor as an Authorized Distributor in certain territories for
Authorized Products and Authorized Software;
WHEREAS, the execution and delivery of the Prior Agreement was a condition to
Distributor's Purchase and the Company's sale of the Company's DSO Business as
defined in the Purchase Agreement pursuant to an Asset Purchase Agreement by and
among the Company, EXECUTONE Network Services, Inc., Claricom Holdings, Inc.
(formerly known as Tone Holdings, Inc.) and the Distributor dated April 9, 1996,
as amended (the "Purchase Agreement");
WHEREAS, the parties to the Prior Agreement wish to amend and restate the Prior
Agreement as provided herein;
WHEREAS, Company wants to appoint Distributor as an Authorized Distributor of
the products described in Exhibit B (the "Authorized Products"), including spare
parts therefor, and as a licensee of any Software imbedded therein or otherwise
an integral part thereof described in Exhibit B (the "Authorized Software"),
within the area described in Exhibit A to this Agreement ("Distributor's Area");
and
WHEREAS, Distributor wants to be appointed, to promote the sale and service of
the Authorized Products, and to sublicense the use of the Authorized Software in
conjunction with the sale of the Authorized Products;
NOW, THEREFORE, in consideration of the mutual promises in this Agreement and
other good and valuable consideration, the parties agree as follows:
1. AUTHORIZED DISTRIBUTOR. Except as provided in the Cross-Territorial Policy
attached hereto as Exhibit D, which is hereby incorporated by reference in this
Agreement, Distributor is granted the non-exclusive rights, as indicated in
Exhibit B, and, in accordance with the terms of this Agreement Distributor
agrees, to sell, service and maintain the Authorized Products and to sublicense
the Authorized Software throughout Distributor's Area. Authorized Products and
Authorized Software are the products and software in the Product Group described
in the Exhibit B executed by the Distributor and for which a Quota has been
agreed to by execution of a related Exhibit J. Distributor is not authorized
hereunder to market, sell, license, sublicense or service National Accounts or
Federal Accounts except as provided in Exhibit E ("National Accounts Policy" or
"NAP") and Exhibit F ("Federal Accounts Policy" or "FAP"), respectively, each of
which shall be effective only if separately executed by Distributor and Company.
Distributor is not authorized hereunder to market, sell, license, sublicense or
service the Authorized Products or Authorized Software to Call Center Customers
or Health Care Accounts, except as provided in Exhibit G ("CCM Accounts Policy"
or "CAP") or Exhibit H ("Health Care Accounts Policy" or "HCAP"), each of which
shall be effective only if separately executed by Distributor and the Company;
provided, however, that Distributor is authorized to offer, sell, install and
service Authorized Telephony Products and offer, license, install and service
Authorized Telephony Software to Health Care Accounts who are not Health Care
National Accounts or acute care hospitals in those portions of Distributor's
Area in which there is no exclusive authorized Health Care Product Group
distributor. The portions of Distributor's Area in which there is an exclusive
Health Care Product Group distributor are marked on Exhibit A hereto.
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2. COMPANY SUPPORT OF DISTRIBUTOR NETWORK. In order to support Company's
nationwide network of authorized distributors, Company shall:
(a) refer to Distributor a portion of the leads for Authorized Products and
Authorized Software in each county in Distributor's Area of which
Company becomes aware, in the same proportion as Distributor bears to
the number of all authorized distributors of Authorized Products and
Authorized Software for such county in Distributor's Area;
(b) make available promotional programs and materials from time to time at
Company's discretion subject to Company's normal charges for such
programs and materials;
(c) sell, at special prices or terms, an assortment of the Authorized
Products to be used by Distributor to demonstrate those products to
customers and to train personnel;
(d) make available courses and materials for training Distributor's
personnel at Company's normal charges;
(e) make available technical and service support, including installation and
technical manuals, subject to Company's normal charges for such support,
except that technical support shall be provided free of charge to
technicians and other Distributor representatives who are employed by
Distributor (while Distributor is an authorized distributor) on products
or software for which the requesting Distributor representative is
currently Company-certified;
(f) market the Authorized Products directly to National Accounts,
Cross-Territorial Accounts and Company Accounts (as defined below) in
accordance with the Cross-Territorial Policy and the applicable Company
Account Policy, all of which Company expressly reserves the right to
amend (except as provided therein) from time to time when Company in its
reasonable discretion determines such amendment to be desirable.
"Company Accounts" shall mean those customer groups, i.e., National
Accounts, Federal Accounts, CCM Accounts and/or Health Care Accounts,
for which Distributor has executed the applicable Company Account Policy
(Exhibit E, F, G and/or H, respectively);
(g) act in good faith and in a fair, equitable, and ethical manner both to
Distributor and end-users with respect to all matters covered by this
Agreement;
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(h) utilize its best efforts to provide to Distributor Authorized Products
that are competitive in the marketplace in function, features and price.
Distributor and Company recognize that, from time to time, Company will
develop and introduce new products bearing the Authorized Trademarks,
and that by providing these products the Company enhances the ability of
Distributor to achieve its Quotas. Company shall make such new
Authorized Products available to Distributor for Distributor's Area on
the same non-exclusive basis as applies to the Authorized Trademark
brands hereunder and thereafter such new Authorized Products shall be
Authorized Products as defined in this Agreement;
(i) use its best efforts to have Distributor elected to Company's
Independent Distributor Advisory Board;
(j) as soon as available after the end of each fiscal year, deliver to
Distributor financial statements consisting of balance sheet, income
statement and, at Distributor's request, a statement of sources and uses
of funds for such year prepared in accordance with generally accepted
accounting principles and reviewed by a certified public accountant; and
(k) not disparage the Distributor or the Distributor's employees in any
sales brochures, presentations or materials produced by Company or in
any advertisements approved by Company and take reasonable corrective
action in the event Company determines that any employee of Company has
engaged or is engaging in such disparagement.
3. TRADEMARK LICENSE AND USE. In order to promote and protect the Company's
trademark rights, the parties agree that:
(a) AUTHORIZED USES. Company grants to Distributor a nonexclusive,
non-transferable (except as provided herein) license to use the
trademarks described in Exhibit C (the "Authorized Trademarks"):
(i) only in connection with the sale and service, and promotion of
sale and service, of the Authorized Products and Authorized
Software;
(ii) only in the Distributor's Area;
(iii) only during the term of this Agreement or to service products
installed prior to the termination of this Agreement;
(iv) only in the manner described in this Section and Exhibit C; and
(v) as provided in the Purchase Agreement (excluding Sections 8.6 and
8.11(c) of the Purchase Agreement).
(b) PROHIBITED USES. Distributor is not granted any license or right to use
the mark or name EXECUTONE INFORMATION SYSTEMS, EISI, OR EIS, or any
comparable derivative thereof. Except as expressly authorized in Exhibit
C (the "Authorized Name"), Distributor shall not use the Authorized
Trademarks as part of Distributor's trade or corporate name, nor shall
Distributor otherwise trade under the Authorized Trademarks or any
derivative thereof.
(c) NONTRANSFERABILITY. Distributor shall not assign or sublicense its
rights to use any of the Authorized Trademarks or Authorized Name to any
other person or entity, except as otherwise permitted by this Agreement.
(d) DISTRIBUTOR'S COVENANTS. Distributor hereby agrees that Distributor:
(i) shall use the Authorized Trademarks only as expressly authorized
and only in conjunction with the R or TM symbol as appropriate;
(ii) shall not, either in or outside of Distributor's Area, use the
Authorized Trademarks in any disparaging way or in any way that
might confuse other products with the Authorized Products in a
manner which would jeopardize the Company's interests in the
Authorized Trademarks; and
(iii) shall not challenge or contest in any way the validity of the
Authorized Trademarks, their registration or their ownership by
the Company.
(e) PRODUCT ALTERATIONS. Distributor may affix to the back of any Authorized
Product or packaging or documentation of a copy of Authorized Software a
legend in the following form:
For Sales and Service
(Name of Distributor)
(Address of Distributor)
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(Local Telephone Number of Distributor)
(Installation Date)
For 24-Hour Emergency Service Call:
(Telephone Number)
However, Distributor shall not remove, change, obscure, or add to the
labels, markings, names or trademarks that Company has affixed to any
Authorized Product or Authorized Software.
4. DISTRIBUTOR'S SALES RESPONSIBILITIES. In order to develop the market for the
Authorized Products and Authorized Software in Distributor's Area, Distributor
shall:
(a) maintain accurate records with respect to sales of the Authorized
Products and sublicenses of the Authorized Software (which records are
acknowledged to be the proprietary business information of Distributor);
(b) maintain a sufficient inventory of the Authorized Products and
Authorized Software to meet the demand in Distributor's Area for
accounts being installed, sold or serviced by Distributor;
(c) timely install the Authorized Products and Authorized Software in a
workmanlike and professional manner in accordance with instructions and
specifications for accounts being installed, sold or serviced by
Distributor;
(d) properly train customers' personnel in the operation and use of the
Authorized Products and Authorized Software, as reasonably requested by
customers for accounts being installed, sold or serviced by Distributor;
(e) maintain a trained sales force to sell Authorized Products and license
Authorized Software within Distributor's Area;
(f) not disparage the Company or the Company's employees, the Authorized
Products or Authorized Software or any Other Company Products in any
sales brochures, presentations or materials produced by Distributor or
in any advertisements approved by Distributor and take reasonable
corrective action in the event Distributor determines that any employee
of Distributor has engaged or is engaging in such disparagement ;
(g) except as specifically provided for in Section 4(i) and (j) herein,
refrain from selling the Authorized Products or sublicensing the
Authorized Software to any entity other than to end-users located in
Distributor's Area;
(h) refrain from selling the Authorized Products and spare parts therefor
and sublicensing Authorized Software outside of Distributor's Area
except as specifically authorized by the Cross-Territorial Policy, which
Company expressly reserves the right to amend (except as provided
therein) from time to time when Company in its reasonable discretion
determines such amendment to be desirable, or as otherwise specifically
authorized in writing;
(i) refrain from selling the Authorized Products or Authorized Software to
former authorized distributors of Authorized Products and Authorized
Software and to secondary market resellers identified to Distributor by
Company. The Company will provide Distributor with a list of authorized
distributors upon Distributor's request. The Company will assist
Distributor in the sale of Distributor's excess inventory of Authorized
Product to other Authorized Distributors by coordinating an exchange
program between Distributors or any other entity which Company
authorizes for the purchase of Distributor's inventory of Authorized
Product;
(j) Company and Distributor recognize exchange between Distributors will be
necessary from time to time for emergency service requirements and
Company agrees that Distributor may sell Authorized Products to and
purchase Authorized Products from other Authorized Distributors for this
purpose. Distributor agrees that such sales and purchases of Authorized
Products will be of an incidental nature for emergency purposes. Company
and Distributor recognize that such incidental sales and purchases
between Distributors are in the best interest of the Company and its
Distributors in order to facilitate quick response to service outages;
however, Distributor and Company specifically agree that it is not the
intent of this
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Section 4(j) for Distributor to become a source of product supply to any
other Distributor and/or for Distributor to purchase the Authorized
Products in bulk from the Company to take advantage of Company's volume
purchase discounts and resell portions of such bulk purchases to any
other Authorized Distributor; and
(k) obtain at Distributor's expense all state, local, and other licenses and
permits necessary for operation of Distributor's business of selling,
servicing and maintaining Authorized Product and Authorized Software,
and furnish Company with Distributor's local sales tax license number.
5. DISTRIBUTOR'S SERVICE RESPONSIBILITIES. In order to service adequately
customers being installed, sold or serviced by Distributor in Distributor's Area
and to ensure consistent nationwide service of the Authorized Products and
Authorized Software for such customers, Distributor shall:
(a) install and service, subject to Distributor's customary charges and
credit criteria, all Authorized Products and Authorized Software, being
installed, sold or serviced by Distributor in Distributor's Area,
subject to the Cross-Territorial Policy; provided, however, that
installation and service for National Accounts and Federal Accounts
shall not be provided except pursuant to the NAP, and/or the FAP,
respectively, executed by Distributor, and) installation and service for
CCM Accounts and Health Care Accounts shall not be provided except
pursuant to the CAP and/or HCAP executed by Distributor, respectively.
(b) install and service, upon the request of Company, and subject to the
applicable Company Accounts Policy, Other Company Products for any group
of Company Accounts for which Distributor has executed the applicable
Company Account Policy (Exhibit E, F, G and/or H, respectively). "Other
Company Products" are defined as any products or software marketed, sold
or licensed by the Company that are not Authorized Products or
Authorized Software as defined herein and are products or software
approved as "Other Company Products" hereunder by the Independent
Distributors' Advisory (IDA) Board.
(c) except to the extent that faster response times are reasonably required
by Company for Cross-Territorial Accounts or Company Accounts, respond:
(i) within 4 hours to all Emergency Service Requests, defined as all
requests to remedy problems that are not isolated failures of a
minority of station instruments and/or a minority of trunks
and/or system components not required for normal processing of
voice and/or data communications; and
(ii) within 48 hours to 95% of all non-Emergency Service Requests;
and
(iii) within ten (10) business days to 100% of customers' requests for
routine adds, moves or changes of equipment, subject to
availability of product from Company.
It is the intent of this Section that Distributor utilize its best efforts
to achieve these goals on a consistent basis. Occasional failures and/or
delays will not be a Material Breach of this Agreement.
(d) make available emergency service 24 hours a day, 365 days a year for all
of its customers in Distributor's Area, all Cross-Territorial Accounts
and all Company Accounts, as applicable, being sold, installed or
serviced by Distributor, subject to the NAP, FAP, CAP and/or HCAP as
agreed to in writing by the Distributor;
(e) as requested by Company, make available installation and service for
Authorized Products and Authorized Software to Cross-Territorial
Accounts in Distributor's Area subject to the Cross-Territorial Policy
and to Company Accounts, as applicable, in Distributor's Area, subject
to the NAP, FAP, CAP, and/or HCAP as agreed to in writing by the
Distributor, as applicable;
(f) maintain trained personnel, spare parts, and equipment sufficient to
service all Authorized Products and Authorized Software being sold,
installed or serviced by Distributor in Distributor's Area and all Other
Company Products for any group of Company Accounts for which (but only
for which) Distributor has executed the applicable Company Account
Policy (Exhibit E, F, G and/or H, respectively); and
(g) maintain complete records of all service requests and service calls
(which records are acknowledged to be the proprietary business
information of Distributor), including: the name of the customer; the
date(s) and time(s) of the request, response, and correction of the
problem; the nature of the problem; any parts used; any charges; and
whether the service was performed under warranty.
6. DISTRIBUTOR'S FINANCIAL AND REPORTING RESPONSIBILITIES.
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(a) FINANCIAL CONDITION. Distributor shall maintain a financial condition
adequate to perform its obligations hereunder.
(b) REPORTING RESPONSIBILITIES. Distributor shall submit to Company:
(i) as soon as available after the end of each fiscal year, financial
statements consisting of balance sheet and income statement
showing Distributor's financial condition, and at Company's
request, a statement of sources and uses of funds, for such year
prepared in accordance with generally accepted accounting
principles and reviewed by a certified public accountant;
(ii) at Company's request, a list of all persons and entities having
an ownership interest in Distributor, and the nature and
percentage of each such ownership interest;
(iii) within thirty (30) days of the end of each quarter Distributor
will complete and send to Company a summary report of retail
sales of Authorized Products and service activity performed by
Distributor within Distributor's Area. The information required
may be modified from time to time as reasonably required by
changes in the market or within the industry. The information
provided by Distributor will be analyzed by Company and
consolidated on a national and regional basis and reported back
to Distributor;
(iv) upon request of the Company within 15 days after the end of each
month, to the extent required by any license or VAR agreement
between the Company and any third party software licensor of
software contained in or sold with Authorized Products or
Authorized Software, including Oracle Corporation, the names and
addresses of sublicensees of such software sublicensed by
Distributor within the preceding month, the date of purchase and
installation, the specific Authorized Product and Authorized
Software installed, including the make or model designation and
the software release number of the software programs licensed,
and the maximum number of users per system; provided, however,
that this subparagraph shall not apply to licenses of Authorized
Software licensed directly by the Company to Distributor's
customers and provided further that the Distributor shall have no
obligations under this paragraph unless the Company provides
evidence of such third party requirement if requested by
Distributor. Company agrees to provide third party software
license forms when such software is ordered and/or before the
software is downloaded for execution by Distributor's customers,
to compile the information required to be reported, and to
maintain the confidentiality of and not to use such information
in any manner whatsoever, except to the extent it is required to
provide such information to the third party software licensor,
without the prior written consent of the Distributor;
(v) [CONFIDENTIAL TREATMENT REQUESTED]; and
(vi) as requested by the Company, but not more than once per quarter,
a report of the size of Distributor's sales force for Authorized
Products and Authorized Software by Office (for the purposes of
this Agreement "Office" is defined as Distributor's main office
locations, excluding any satellite locations).
7. PURCHASE, PAYMENT, SALES AND SHIPMENTS.
(a) PURCHASE AND PAYMENT BY DISTRIBUTOR.
(i) FORECASTS. In order to assist Company in scheduling the
production and delivery of the Authorized Products, Distributor
will deliver and update during the term of this Agreement a
rolling six-month forecast of its purchases. Distributor's
initial forecast is attached hereto as Exhibit I. On or before
the first day of each calendar month, Distributor shall deliver
an updated forecast in the form attached hereto as Exhibit I.
Each such forecast shall cover the succeeding six calendar
months. Such forecasts are nonbinding and for advisory or
planning purposes only.
(ii) QUOTA DETERMINATION. Quota is defined as the minimum dollar
volume of Authorized Product and Authorized Software that
Distributor must purchase or license from Company during each
calendar year of this Agreement in order to enjoy certain
benefits described in 7(b) that are contingent on Quota
attainment. The Quota shall be stated in terms of actual
purchases of Authorized Products and Authorized Software. Subject
to Section 7 (b) (i), the Quotas as of the date of this Agreement
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are stated in Exhibit J hereto. Quotas for additional areas or
territories, for Expansion Areas, for product groups other than
the Telephony Product Group, and for New Telephony Products as
defined in Exhibit B, shall be mutually agreed upon in writing by
Company and Distributor with reference to (i) the actual
potential new install customers within Distributor's Area, as
shown by the ABI database of opportunities representing between
20 and 250 desktops, and adjusted, pursuant to formulas agreed to
by the IDA Board, to take account of Distributor's existing
customer base, reasonable shrinkage factor and close ratios,
average system price and system life, and (ii) the estimated
equipment value of MAC and service business in Distributor's
Area.
(iii) QUOTA MEASUREMENT. The Quota for any calendar quarter (a
"Quarter") shall be one-fourth of the annual Quota for the
calendar year in which the Quarter falls, unless otherwise
specified herein. For any additional years of this Agreement, the
Quotas shall be determined by reference to the formula set forth
in subsection (ii) and as otherwise mutually agreed in writing
between Company and Distributor. For purposes of Quota
performance measurement, Company will calculate the Distributor's
purchases based upon the aggregate actual dollar amount of
Distributor's purchases of Authorized Products and Authorized
Software. Provided Distributor is not on credit hold, purchases
for this purpose will include orders for Authorized Product and
Authorized Software that have not yet been shipped due to the
Company being backordered on such Authorized Product, but
purchases shall not include any orders that are delayed due to
Distributor's credit hold. Following the end of each Quarter,
Company will provide Distributor with a report of Distributor's
Quota performance.
(iv) PURCHASE ORDERS. Orders for the purchase of the Authorized
Products and Authorized Software shall be made by Distributor by
purchase orders, specifying the quantity and description of
Authorized Products and Authorized Software desired. Any term or
condition of such purchase orders that is inconsistent with any
term or condition of this Agreement shall be of no force and
effect whatsoever, and any additional term or condition of such
purchase order shall be construed so as to be consistent with the
intent of this Agreement.
(v) PAYMENT. Subject to subsection 7(b), payment by Distributor to
Company for each order of Authorized Products and Authorized
Software shall be made in cash, or by check or wire transfer.
Subject to Company's rights under Section 7(b)(ii), payment by
Distributor shall be made within the longer of (i) sixty days of
the invoice date or (ii) the longest payment terms provided to
any of the Company's other distributors of any Authorized
Products or Authorized Software that purchases an amount equal to
or less than Distributor of such products for an equivalent
period of time, on the same terms and conditions provided to such
other authorized distributors (the "Standard Payment Period").
The Standard Payment Period shall be in effect until the earlier
of May 31, 1999 and such time as 60-day payment terms are no
longer required by Distributor's banks. Upon termination of the
Standard Payment Period, payment by Distributor shall be made
within the longer of (a) thirty days of invoice date or (b) the
longest Company-approved payment terms provided to any other
distributor of Authorized Product and Authorized Software whose
purchases are equal to or less than Distributor's purchases in
any given period for the balance of the term of this Agreement.
The invoice amount shall reflect the provisions of Section
7(b)(i) and any other pricing discounts, including promotional
pricing, which may be agreed to by Company and Distributor from
time to time. Distributor shall pay each invoice in full subject
to appropriate credits and offsets. Distributor must notify
Company in writing within 30 days of the date of the invoice or
the date of receipt of product ordered, whichever is later, of
any disputed invoice amount along with an explanation of the
reason for the dispute.
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(b) SALES AND SHIPMENTS BY COMPANY.
(i) PRICES AND TERMS.
(A) Subject to Section 7 (b) (i) (B), and Section 7 (b) (i) (C),
Company will sell all Authorized Products and Authorized Software
at prices and on terms determined by Company from time to time, as
reflected in the Company's Authorized Product Price Book. All
prices are exclusive of all taxes including federal, state, and
local sales, use, value-added or similar taxes. Distributor will
pay all such taxes, excluding taxes on Company's income, unless
Distributor has given Company a valid exemption resale certificate
prior to shipment. Subject to paragraph 7 (b) (i) (B) and 7 (b) (i)
(C) hereof, Company expressly reserves the right to change prices
with not less than forty-five days notice to Distributor; provided,
however, that Company (a) will honor pricing for a proposal
delivered prior to the price change notice for 90 days from the
date of the proposal, (b) will honor pricing for any customer
contract, if the contract was signed within the period following
the date of proposal specified in (a) above or prior to the date of
the price change notice, and if the product is shipped to
Distributor within ninety (90) days from the date of the applicable
contract.
(B) During the calendar year 1998, the following shall apply:
At all times during the period or periods in which Distributor is
not in Material Breach of this Agreement, and if the dollar amount
of Distributor's aggregate actual purchases of Authorized Products
and Authorized Software, measured as of (and including) the last
day of each Quarter, equals or exceeds, (1) with respect to the
second Quarter of 1998, [CONFIDENTIAL TREATMENT REQUESTED], or (2)
with respect to the second and third Quarters of 1998 together,
[CONFIDENTIAL TREATMENT REQUESTED], then during the succeeding
Quarter, the Company agrees to sell to Distributor at a discount of
[CONFIDENTIAL TREATMENT REQUESTED] off list prices reflected in the
Company's Authorized Product Price Book except for products in
discount categories S, N,. P, C, D and Z, and on the most favorable
terms and conditions, excluding discount levels, made available to
any other authorized distributor for a territory located in the
United States for the same products, excluding sales to the Federal
Government, in each case on the same terms and conditions provided
to such other authorized distributor applicable to such more
favorable terms and conditions which terms and conditions shall be
reasonably related to such other more favorable terms and
conditions provided to such other distributor. If the dollar amount
of Distributor's aggregate actual purchases of Authorized Products
and Authorized Software, measured as of (and including) the last
day in a particular Quarter, equals or exceeds, (1) with respect to
the second Quarter of 1998, [CONFIDENTIAL TREATMENT REQUESTED], or
(2) with respect to the second and third Quarters of 1998 together,
[CONFIDENTIAL TREATMENT REQUESTED], then during the succeeding
Quarter the applicable discount will be [CONFIDENTIAL TREATMENT
REQUESTED] off list prices reflected in the Company's Authorized
Product Price Book, except for products in discount categories S,
N,. P, C, D and Z, and sales will be on the most favorable terms
and conditions, excluding discount levels, made available to any
other authorized distributor (for a territory located in the United
States for the same products, excluding sales to the Federal
Government) that purchased an amount equal to or less than
Distributor during the applicable measurement period, in each case
on the same terms and conditions provided to such other authorized
distributor applicable to such more favorable terms and conditions
which terms and conditions shall be reasonably related to such
other more favorable terms and conditions. If the dollar amount of
Distributor's aggregate actual purchases of Authorized Products and
Authorized Software, measured as of (and including) the last day in
a particular Quarter, is less than, (1) with respect to the second
Quarter of 1998, [CONFIDENTIAL TREATMENT REQUESTED] or (2) with
respect to the second and third Quarters of 1998 together,
[CONFIDENTIAL TREATMENT REQUESTED], then during the succeeding
Quarter the applicable discount will be [CONFIDENTIAL TREATMENT
REQUESTED] off list prices reflected in the Company's Authorized
Product Price Book, except for products in discount categories S,
N,. P, C, D and Z, and sales will be on the most favorable terms
and conditions, excluding discount levels, made available to any
other authorized distributor (for a territory located in the United
States for the same products, excluding sales to the Federal
Government) that purchased an amount equal to or less than
Distributor during the applicable measurement period, in each case
on the same terms and conditions provided to such other authorized
distributor applicable to such more favorable terms and conditions
which terms and conditions shall be reasonably related to such
other more favorable terms and conditions. Distributor's failure to
qualify for the best or any other discount level or other more
favorable terms as of the end of any Quarter shall in no way
prejudice or affect the Distributor's ability to qualify for
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such best or any other discount level or other more favorable terms
as of the end of any other Quarter. For all purposes herein, the
Distributor shall be deemed pre-qualified for the [CONFIDENTIAL
TREATMENT REQUESTED] discount as provided above and other more
favorable terms and conditions during the second Quarter of 1998.
(C) On and as of the first day of the first Quarter of 1999, the
following shall apply:
At all times during the period or periods in which Distributor is
not in Material Breach of this Agreement, and if the dollar amount
of Distributor's aggregate actual purchases of Authorized Products
and Authorized Software measured as of (and including) the last day
of each Quarter, equals or exceeds (1) with respect to the second,
third and fourth Quarters of 1998 together, [CONFIDENTIAL TREATMENT
REQUESTED], or (2) thereafter, with respect to the immediately
preceding four Quarters, 100% of the Distributor's Quota for such
rolling four-quarter period, then during the succeeding Quarter the
Company agrees to sell to Distributor at the most favorable terms
and conditions, including without limitation the greater of a
[CONFIDENTIAL TREATMENT REQUESTED] discount and the most favorable
prices, discount levels and promotional pricing, made available to
any other authorized distributor for a territory located in the
United States for the same products, excluding sales to the Federal
Government, in each case on the same terms and conditions provided
to such other authorized distributor applicable to such more
favorable terms and conditions which terms and conditions shall be
reasonably related to such other more favorable terms and
conditions. If the dollar amount of Distributor's aggregate actual
purchases of Authorized Products and Authorized Software, measured
as of (and including) the last day of each Quarter, (1) with
respect to the second, third and fourth Quarters of 1998 together,
equals or exceeds [CONFIDENTIAL TREATMENT REQUESTED], or (2)
thereafter, with respect to the immediately preceding four
Quarters, is less than 100% of the Distributor's Quota for such
rolling four-quarter period but is equal to or greater than
[CONFIDENTIAL TREATMENT REQUESTED], then during the succeeding
Quarter the applicable discount will be the greater of
[CONFIDENTIAL TREATMENT REQUESTED] the best discount (including
promotional pricing) made available to any other authorized
distributor for a territory located in the United States for the
same products, excluding sales to the Federal Government, in each
case on the same terms and conditions provided to such other
authorized distributor applicable to such more favorable terms and
conditions, and sales will be on the most favorable terms and
conditions, excluding discount levels, made available to any other
authorized distributor (for a territory located in the United
States for the same products, excluding sales to the Federal
Government) that purchased an amount equal to or less than
Distributor during such rolling four quarter period, in each case
on the same terms and conditions provided to such other authorized
distributor applicable to such more favorable terms and conditions
which terms and conditions shall be reasonably related to such
other more favorable terms and conditions. If the dollar amount of
Distributor's aggregate actual purchases of Authorized Products and
Authorized Software measured as of (and including) the last day of
each Quarter, (1) with respect to the second, third and fourth
Quarters of 1998 together is equal to or exceeds is less than
[CONFIDENTIAL TREATMENT REQUESTED], or (2) thereafter, in a
particular rolling four-quarter period, is less than [CONFIDENTIAL
TREATMENT REQUESTED], then during the succeeding Quarter the
applicable discount will be the greater of [CONFIDENTIAL TREATMENT
REQUESTED] the best discount (including promotional pricing) made
available to any other authorized distributor, for a territory
located in the United States for the same products, excluding sales
to the Federal Government, in each case on the same terms and
conditions provided to such other authorized distributor applicable
to such more favorable terms and conditions, and sales will be on
the most favorable terms and conditions, excluding discount levels,
made available to any other authorized distributor (for a territory
located in the United States for the same products, excluding sales
to the Federal Government) that purchased an amount equal to or
less than Distributor during such rolling four quarter period, in
each case on the same terms and conditions provided to such other
authorized distributor applicable to such more favorable terms and
conditions which terms and conditions shall be reasonably related
to such other more favorable terms and conditions. The
Distributor's failure to qualify for the best or any other discount
level or other more favorable terms as of the end of any Quarter
shall in no way prejudice or affect the Distributor's ability to
qualify for such best or other discount level or other more
favorable terms as of the end of any other Quarter.
(D) In the event that Distributor's purchases during any Quarter,
measured as provided in this Section 7(b)(i), do not qualify it for
the best discount level, Company shall give Distributor notice
within ten days of the end of the Quarter of the amount by which
Distributor's purchases during the
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Quarter are less than the amount required to qualify Distributor
for the higher discount level or levels, and Distributor shall have
until 30 days following receipt of written notice from Company to
order (for immediate shipment) sufficient additional Authorized
Product or Authorized Software to qualify for any higher level
(which additional purchases shall be applied solely to the Quarter
preceding such purchases). As soon as Distributor has made such
additional purchases, it shall immediately qualify for the higher
discount level and if applicable to such discount level, also
immediately be entitled to other more favorable terms and
conditions as set forth in this Agreement, and any orders filled by
Company after cure (but no orders necessary to effect the cure)
shall be shipped and invoiced at the higher discount level.
Notwithstanding the foregoing, in the event Company fails to
provide the written notice required above, Distributor's purchases
for the preceding Quarter shall be deemed to be at Quota during
that Quarter.
(E) Distributor acknowledges and agrees that the Company may offer
special new distributor programs, terms and conditions, and
incentives (collectively, the "Incentives") and that Distributor
shall not be entitled to such Incentives pursuant to subsection
7(b)(i) except as otherwise provided in subsection 7(b)(i)(E)(iv)
and (v) hereof; provided that (i) such Incentives are available
only for a limited period of time; (ii) such Incentives are
available only to new distributors or to existing distributors with
respect to a new territory; (iii) such Incentives do not include
pricing, discounts and promotional pricing for Authorized Product
and Authorized Software; (iv) to the extent such Incentives, in the
aggregate, do not exceed [CONFIDENTIAL TREATMENT REQUESTED] (the
"Training Incentive Limit"); and (v) all such Incentives shall be
offered to Distributor on the same terms with respect to a new
territory. For the purposes of this Section 7(b)(i)(E)(iv),
measurement of the Training Incentive Limit shall include the cost
to Distributor should Distributor elect to purchase the same
technical training directly from Company (excluding travel and
lodging costs). In the event Company elects to provide technical
training in excess of the applicable Training Incentive Limit to a
new distributor, Distributor shall be entitled to receive technical
training with a cost to Distributor equal to the difference between
the cost of technical training actually provided and the applicable
Training Incentive Limit, at such times and for such Offices as
Distributor deems appropriate. In the event (A) [CONFIDENTIAL
TREATMENT REQUESTED] or (C) commencing April 1, 1999, and measured
each Quarter thereafter, Distributor has failed to purchase
[CONFIDENTIAL TREATMENT REQUESTED] of Authorized Products and
Authorized Software during the immediately preceding four Quarters,
then Distributor shall not be entitled to any Incentives as a
result of Incentives given by the Company under Sections 7(b)(i),
7(b)(i)(E)(iv), or 7(b)(i)(E)(v), in the case of (A) or (B)
[CONFIDENTIAL TREATMENT REQUESTED] and in the case of (C)for all
portions of Distributor's Area during the succeeding Quarter. For
the purposes of this Section 7(b)(i)(E) only, territory shall not
be limited to a single county in any state but shall mean the
market area that includes multiple counties served by an Office.
(F) Company agrees to promptly notify Distributor in writing (an
"MFN Notice") if the Company has entered into an agreement with any
other authorized distributor of any Authorized Products or
Authorized Software that contains terms and provisions which are
more favorable to such other authorized distributor than those
contained herein (such notice to contain a summary of each more
favorable term and condition). This Agreement shall be deemed to be
automatically amended to reflect any more favorable term or
provision on the same terms and conditions provided to such other
authorized distributor, which terms and conditions shall be
reasonably related to such other more favorable terms and
conditions provided to such other authorized distributor, upon
notice of acceptance by Distributor to the Company within 30 days
of receipt of the MFN Notice.
(G) Company and Distributor agree that notwithstanding anything to
the contrary in the Purchase Agreement or the Prior Distributor
Agreement, Distributor shall not be entitled to any pricing
discounts, promotions or credits for any base change outs,
government system sales, or particular equipment sales or software
downloads except (i) the software credits provided in Section 8.22
of the Purchase Agreement, and (ii) to the extent any such
discounts, promotions or credits are provided to any other
authorized distributor of Authorized Products and Authorized
Software in the United States, excluding sales to the Federal
Government, and then only on the same terms and conditions
applicable to such other authorized distributor with respect to
such discounts, promotions or credits which terms and conditions
shall be reasonably related to such discounts, promotions or
credits.
(ii) CHANGE IN CREDIT TERMS. If, in the Company's reasonable opinion,
Distributor's financial
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condition or payment record indicates the Distributor's inability to
pay amounts due or to become due hereunder,, the Company reserves the
right to change credit terms at any time. If, but only so long as
Distributor is materially delinquent, Distributor becomes materially
delinquent in the payment of any material sum due to Company (other
than amounts being disputed in good faith by Distributor), Company may
suspend performance under this Agreement and may require Distributor to
make payment in advance of any subsequent shipments of Authorized
Products or Authorized Software. By exercising the foregoing right,
Company is in no way waiving any of its other rights and remedies at
law or under this Agreement.
(iii) SECURITY INTEREST. Distributor hereby grants and Company reserves
a purchase money security interest in each Authorized Product in
respect of which the Company has not been paid pursuant to a purchase
order or any lesser amount mutually agreed upon by Company and
Distributor, and any proceeds thereof, for the amount of the purchase
price. At Company's request, Distributor will sign any documents
required to perfect such security interest. Full payment of the
purchase price of the Authorized Product will release the security
interest on that Product and Company will sign documents reasonably
required to evidence or effect release.
(iv) PRICE LISTS. Company has provided Distributor true and correct
copies of the list prices, discounts and transfer pricing by part
number in effect on June 1, 1996. Company agrees to provide to
Distributor, within five days of Distributor's request, a report of the
list prices and transfer prices by part number.
(v) SHIPMENT. Except as otherwise provided herein, Company will ship to
the locations designated in Distributor's purchase order in accordance
with Company's published shipping schedules in effect at the time of
shipment. Company will provide Authorized Products and Authorized
Software to Distributor in an amount at least equal to the
Distributor's forecasts provided to the Company pursuant to Section
7(a)(i). At all times during the period or periods in which Distributor
is not in Material Breach as defined herein, the Company shall provide
Distributor priority in shipment of each order received by Company from
Distributor over all other orders received by Company after receipt of
such order from Distributor, provided Distributor is willing to accept
incomplete orders at Company's request and gives Company at least one
day's advance notice of each $1 million of orders placed during the
last month of a Quarter. Company shall not be liable for any failures
to ship or delays in shipping caused by circumstances described in
Section 18. Company shall use its best efforts to maintain sufficient
inventory in stock to meet Distributor's purchase orders and needs.
Risk of loss shall pass to Distributor F.O.B. Company dock, but Company
will assist Distributor in tracking shipments and processing claims
related to lost or damaged goods. Title to each shipment of Authorized
Products shall pass to Distributor upon receipt by Company of payment
for such shipment as provided in Section 7(a)(v) herein with the
exception of Authorized Software, title to which shall remain vested in
Company at all times as provided by the Software License contained in
Section 14. Company may, in its sole discretion, honor Distributor's
requests to drop ship to installation locations within Distributor's
Area and to expedite shipments, but Company reserves the right to pass
on to Distributor any additional costs incurred as a result of such
requests. Company reserves the right to refuse shipment of Authorized
Products or Authorized Software if Distributor has failed to make
timely payment for prior shipments as required by Section 7(a)(v). In
the event that Company elects to exercise its right not to ship
Authorized Products or Authorized Software by reason of Distributor's
failure to make timely payments for prior shipments or other breaches,
or otherwise places Distributor on credit hold, it shall immediately
notify Distributor as soon as such election is made.
(c) EXPORTS TO AND FROM DISTRIBUTOR'S AREA.
(i) If the location of Distributor's Area so requires, Company shall
at its expense prepare, obtain, and transmit to the parties
concerned such documents as are normally required to export the
Authorized Products and Authorized Software. If such Authorized
Products or Authorized Software should be subject to license or
other authorization for export or reexport, Company shall at its
expense apply for such export or reexport authorization with the
authorities concerned. Distributor undertakes to procure the
information and to supply Company with the duly signed forms
required to obtain such authorization.
(ii) Distributor shall not export or reexport Authorized Products or
Authorized Software without such valid export or
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reexport authorization as may be required, or otherwise violate
any export or reexport restriction imposed by authorities in the
country of origin of such Authorized Products or Authorized
Software or by other authorities concerned.
(iii) Company shall, where applicable, issue Certificates of Origin for
Authorized Products and Authorized Software shipped under this
Agreement, duly verified by the authorities concerned.
8. LIMITED WARRANTY AND RESTRICTION ON ALTERATION.
(a) LIMITED WARRANTY. Company warrants that all Authorized Products sold to
Distributor pursuant to this Agreement will perform in accordance with
Company's written specifications therefor and will be free from defects
in material and workmanship for the period from the date of shipment
F.O.B. Company specified in Exhibit B (the "Warranty Period"), provided
that such Authorized Products are installed in compliance with Company's
written installation specifications, to the extent applicable, and given
normal service and maintenance by Distributor during the Warranty
Period. Company warrants that all Authorized Software licensed or
sublicensed by Distributor pursuant to this Agreement will be free from
any defect that causes a material nonconformity between its performance
as described in the Related Documentation accompanying the Authorized
Software, as specified in Exhibit B, and actual performance during the
Warranty Period for the Authorized Product in which the Authorized
Software is imbedded or otherwise an integral part. Company's obligation
under this warranty shall be limited to repair or replace, at Company's
option, any part(s) of Authorized Products or Authorized Software that
may prove defective under normal and proper use and service for the
Warranty Period. For such repairs and replacements, Distributor shall
pay the cost for shipment to Company's plant; Company shall pay the cost
for shipment from Company's plant. Company agrees to use its best
efforts to ship any repaired or replacement Authorized Product and
Authorized Software within thirty (30) days of the date Company shall
have received the defective Authorized Product or Authorized Software.
This warranty shall not apply to lamps, fuses, batteries or other such
items normally consumed in operation which have a normal life shorter
than the Warranty Period.
(b) DISCLAIMERS. THE WARRANTIES CONTAINED IN THIS SECTION AND IN SECTION 14
ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
THESE WARRANTIES SHALL BE VOID AS TO AUTHORIZED PRODUCT OR AUTHORIZED
SOFTWARE DAMAGED OR RENDERED UNSERVICEABLE OR NONFUNCTIONAL BY
NEGLIGENCE OF NONCOMPANY UNAUTHORIZED PERSONNEL, MISUSE, THEFT,
VANDALISM, FIRE, LIGHTNING, POWER SURGES, WATER OR OTHER PERIL, OR ACTS
OF GOD, BY FAILURE OF DISTRIBUTOR TO COMPLY WITH PUBLISHED TECHNICAL
REQUIREMENTS OR BY SERVICES OR PRODUCTS OF OTHER VENDORS, INCLUDING
WITHOUT LIMITATION THE CENTRAL OFFICE LINES OF ANY CENTRAL EXCHANGE
TELEPHONE COMPANY. REPAIR, RELOCATION OR ALTERATION OF THE PRODUCT BY
PERSONS NOT AUTHORIZED BY COMPANY VOIDS THE WARRANTY. LIABILITY OF
COMPANY HEREUNDER IS EXPRESSLY LIMITED TO THE REPAIR OR REPLACEMENT
DESCRIBED ABOVE AND THE REMEDIES PROVIDED IN SECTION 14, AND IN NO EVENT
SHALL COMPANY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, SUCH AS LOST SALES, LOST PROFITS OR INJURY TO
PROPERTY, OR ANY OTHER ECONOMIC DAMAGES RELATING TO THE PERFORMANCE OR
FUNCTIONALITY OF THE AUTHORIZED PRODUCTS OR AUTHORIZED SOFTWARE, WHETHER
THEY ARE ALLEGED TO ARISE IN CONTRACT OR TORT OR OTHERWISE. NO EXPRESS
OR IMPLIED WARRANTY IS MADE AGAINST INTRUSIONS INTO THE AUTHORIZED
PRODUCTS OR AUTHORIZED SOFTWARE BY FRAUDULENT CALLERS OR AGAINST ANY
TOLL FRAUD. COMPANY MAKES NO WARRANTIES AS TO THE LAWFULNESS OF USING
ANY FEATURE OF THE AUTHORIZED PRODUCTS OR AUTHORIZED SOFTWARE TO
MONITOR, RECORD OR FORWARD ANY ORAL, WIRE OR ELECTRONIC COMMUNICATION.
(c) RESTRICTION ON ALTERATION. Company shall not be liable for any warranty
offered by Distributor that differs from the warranty quoted above.
Company does not warrant any Authorized Products or Authorized Software
that have been modified without Company's prior written consent, and
Distributor shall not make or cause or permit to be made, any
alterations or modifications of any Authorized Products or Authorized
Software without the prior written consent of Company. Distributor
agrees to hold harmless and indemnify Company against claims of any kind
related to any unauthorized alterations or modifications of Authorized
Products or Authorized Software made or authorized in writing by
Distributor, or related to warranties by Distributor that differ from
the warranty quoted above.
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(d) SURVIVAL. This Section 8 shall survive termination or expiration of this
Agreement.
9. POST-WARRANTY PERIOD REPAIRS. After the Warranty Period has expired,
Distributor agrees to purchase all of its required repair and replacement
service for Authorized Products and Authorized Software from Company or
Company's authorized subcontractors, , but only so long as the Company's prices
are competitive and Company agrees to provide to Distributor all of
Distributor's required repair and replacement service for Authorized Products
and Authorized Software at Distributor's expense, subject to the provisions
relating to shipping charges below, in accordance with the charges therefor
specified in Company's Authorized Product Price Book. Company agrees that all of
its charges to Distributor for repair and replacement services shall be
competitive and at all times shall be no higher than the prices charged by
Company to any other authorized distributor of any Authorized Products or
Authorized Software in the United States. The Company's repair and replacement
prices shall be deemed to be "competitive" if they are no more than 10% higher
than any published or offered prices for the same repairs or replacements by
another company engaged in the business of making such repairs or replacements.
Distributor shall have no obligation to purchase such services from Company if
it provides Company with documentary evidence that the Company's prices therefor
are not "competitive". For such repairs and replacements, Distributor shall pay
the cost of shipment to Company's plant; Company shall pay the cost for shipment
from Company's plant. Distributor shall adhere to the return procedure described
in Company's Authorized Product Price Book and shall adhere to such other return
procedures as Company shall reasonably require from time to time. Distributor
shall not return any defective Authorized Product or Authorized Software unless
Distributor has properly completed the return forms described in Company's
Authorized Product Price Book. Company agrees to use its best efforts to ship
repaired or refurbished Authorized Products or Authorized Software to
Distributor within thirty (30) days of the date Company shall have received the
defective Authorized Products or Authorized Software at its plant. If Company
has not shipped the repaired or refurbished Authorized Product or Authorized
Software within forty (40) days of the date Company shall have received the
defective Authorized Product or Authorized Software at its plant, the repair
charge shall be reduced as specified in Company's Authorized Product Price Book.
Under no circumstances shall Company be liable for any consequential or other
damages resulting from failure to ship repaired or refurbished Authorized
Products or Authorized Software within thirty (30) days other than any direct
damages to Distributor arising from failure of Company to ship repaired or
Authorized Software within sixty (60) days of receipt by Company.
Notwithstanding the foregoing, if Distributor is in Material Breach of any of
its payment obligations to Company, Company reserves the right to require
Distributor to make payment for post-Warranty Period repairs before Company
ships repaired or replacement Authorized Products or Authorized Software. By
exercising the foregoing right, Company is in no way waiving any of its other
rights and remedies at law or under this Agreement.
10. COMPANY'S RESERVATION OF RIGHTS. Company reserves the right at any time to:
(a) discontinue, modify or upgrade existing Authorized Products and
Authorized Software; provided, however, that Company shall notify
Distributor ninety (90) days in advance of any product discontinuance,
shall directly or indirectly provide factory repairs for such product to
Distributor for a period of seven (7) years from its discontinuance, and
shall directly or indirectly provide spare parts, replacement equipment,
Authorized Software and Related Documentation and all other equipment,
software, diagnostics and manuals required to service and maintain the
Authorized Products, Authorized Software and Related Documentation for
such product to Distributor for a period of five (5) years from its
discontinuance;
(b) nondiscriminatorily sell to Distributor any Authorized Products and
Authorized Software of the Authorized Trademark brands of which
Distributor is an Authorized Distributor, based upon Distributor's
ability to sell, install, or service the same; and
(c) make Distributor's rights under this Agreement subject to the
Cross-Territorial Policy, NAP, CAP, FAP and HCAP, each of which Company
reserves the right to amend as provided therein from time to time
whenever Company in its reasonable discretion determines such amendment
to be advisable.
11. SALES AND SERVICE OUTSIDE DISTRIBUTOR'S AREA. Distributor is an authorized
distributor of Authorized Products and Authorized Software only in Distributor's
Area, except as specifically provided otherwise in this Agreement. In the event
that Distributor sells any Authorized Products or licenses any Authorized
Software for installation outside Distributor's Area, Distributor shall comply
with the Cross-Territorial Policy regarding such sale and the related
installation and service requirements in effect at the time of the sale. Nothing
contained herein shall limit or restrict Distributor's ability to sell other
products and services outside Distributor's Area.
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Effective July 1, 1998 (except in relation to item c(i) hereof which is
effective April 1, 1998), Company agrees that if (a) another authorized
distributor ceases to have exclusive rights to sell and license the Authorized
Products and Authorized Software in any area of the United States not included
in Distributor's Area or has been terminated as a distributor in such area
("Expansion Area"), (b) Distributor is not in Material Breach, and (c)
Distributor is either (i) entitled to the highest discount level under Section
7(b)(i) at the time of such termination, or (ii) Company offers to another
authorized distributor of Authorized Products and Authorized Software who has
not purchased amounts of such Authorized Products and Authorized Software equal
to or exceeding its Quota for the same period during which Distributor's
purchases would be measured under Section 7(b)(i), the nonexclusive rights to
sell and license the Authorized Products and Authorized Software in the
Expansion Area, then the Company shall offer to Distributor the right to
negotiate with Company and Company shall negotiate with Distributor in good
faith for a period of 30 days a Quota for the Authorized Products and Authorized
Software in the Expansion Area in order that Company may expand Distributor's
Area to include the Expansion Area on a non-exclusive basis and if the parties
agree on a Quota, this Agreement shall be amended to include the Expansion Area.
The parties acknowledge and agree that this paragraph of Section 11 shall not
apply to any area listed on Exhibit M hereto if Norstan Communications is being
offered or granted nonexclusive rights in such area. Company agrees that it
shall not require terms and conditions, including additional Quota for the
Expansion Area, less favorable to the Distributor than that offered to third
party distributors in similar areas for similar products.
Notwithstanding anything in this Agreement to the contrary, Distributor shall be
permitted to sell, market, service, maintain and license any products, software
or services, including without limitation, Competing Products (as defined in the
Prior Agreement) or any other products or services of any type whatsoever in any
territory whatsoever including in Distributor's Area, and to any individual or
entity whatsoever.
Provided Distributor has made actual aggregate purchases of Authorized Product
and Authorized Software sufficient to qualify for the pricing and terms provided
under the second sentence of Section 7(b)(i)(B) or the second sentence of
Section 7(b)(i)(C), whichever is applicable, for the relevant period at the time
of measurement, then in the event the Company determines to (i) acquire control
of another of Company's authorized distributors or (ii) otherwise assume the
territory of any other distributor, (any of the foregoing a "Transaction"), the
Company will give written notice to the Distributor of such Transaction and
afford the Distributor a thirty day period in which to negotiate a transaction
with such other distributor pursuant to which Distributor would directly or
indirectly assume control of or assume the territory of such other distributor
before the Company gives its consent or consummates such Transaction itself.
Upon the request of Distributor at any time, Company will promptly set forth in
writing to Distributor the terms, if any, pursuant to which the Company will
approve a potential similar Transaction by Distributor, including the additional
Quota it would require the Distributor to assume in connection with such similar
Transaction.
12. CONSENT OF COMPANY REQUIRED.
(a) Distributor shall not, without the prior express written consent of Company,
which consent shall not be unreasonably withheld:
(i) assign, delegate, sell or transfer this Agreement or any rights or
obligations created by it; with respect to any one or more counties in
Distributor's Area, except (A) in connection with a sale or transfer
of the business of selling to and servicing the customer base in such
county or counties or in connection with the sale of Distributor, (B)
to any lender providing financing to the Distributor as contemplated
by the Purchase Agreement or any refinancing thereof, pursuant to
security arrangements entered into in connection with such financings
or refinancings, or (C) to any transferee of any such lender upon
exercise of any of such lender's remedies pursuant to security
arrangements contemplated in (B) above.
(ii) appoint any subdistributor or dealer for Authorized Products or
Authorized Software in any county in Distributor's Area.
(b) Distributor shall not, unless Company has given its prior written consent,
which may be withheld in Company's sole discretion, offer, agree to or permit
any sale (including any merger or consolidation) of Distributor or of
substantially all of its business or assets to Intertel Corporation or Mitel
Corporation, or any of their successors or direct or indirect majority-owned
subsidiaries, prior to May 31, 1999; provided, however, that the provisions of
this subsection (b) shall automatically terminate upon an initial public
offering of common stock of Distributor.
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13. CONFIDENTIALITY.
(a) NONDISCLOSURE. Without the prior express written consent of Company or
Distributor, as the case may be, Distributor or Company, as the case may
be, shall not disclose to any third party any confidential business
information or trade secrets of the other, including but not limited to:
Company product design information, product technical manuals, product
technical bulletins, or Company or Distributor pricing, customer lists
or other customer information, and financial information. In addition,
each of the Company and Distributor, as the case may be, shall not use
any confidential business information or trade secrets of the other
except as expressly permitted herein. Company and Distributor recognize
the necessity of disseminating selected information included in the
above documents to customers or prospective customers in the sales
process. Company agrees that Distributor may provide this information to
customers and prospective customers in the sales process without
Company's prior express written consent and Distributor and Company
agree to use their best efforts to protect the confidentiality of all
confidential information of the other party (including without
limitation taking such actions as such party would take to protect its
own confidential information).
(b) NO REVERSE ENGINEERING. Distributor shall not engage in cause to be
engaged in, or permit any reverse engineering of Authorized Products or
Authorized Software or Other Company Products. Reverse engineering is
defined as attempting through analysis of component parts and/or
software to define the functionality of the components or software, and
thereby gain the ability to alter or reproduce that functionality.
(c) SOFTWARE. Distributor hereby acknowledges that the Authorized Software
and Related Documentation listed in Exhibit B and software contained in
Other Company Products are proprietary to Company and constitute trade
secrets of Company. All applicable rights to patents, copyrights,
trademarks, and trade secrets are and shall remain in Company.
Distributor agrees to use reasonable diligence to protect the
confidentiality and proprietary rights of Company in the Authorized
Software and Related Documentation, and not to disclose the Authorized
Software or Related Documentation to any third party. Distributor shall
also promote compliance with the terms and conditions of this Agreement
by employees and agrees to place the software sublicense language in
Exhibit K in its sales contracts with its customers. Distributor agrees
to maintain records of these software sublicense agreements and to
represent Company's interest in the protection of its rights to the
Authorized Software to the extent not in conflict with Distributor's
rights or interests. In the event that Company has reason to believe
Distributor's customer has violated the software sublicense agreement,
Distributor will make available to Company these records on a customer
specific basis.
(d) SURVIVAL. Distributor's and Company's obligations under this
confidentiality provision shall survive termination or nonrenewal of
this Agreement.
14. SOFTWARE LICENSE.
(a) LICENSE. The Company owns, or has licensed from the owner, the
Authorized Software and any other proprietary interests in the
Authorized Products and related materials and has the right to license
such Authorized Software and proprietary interests to Distributor and
end-users. Subject to the terms and conditions contained herein, Company
grants Distributor a non-exclusive license to use, in object code form,
all Authorized Software and Related Documentation as contemplated by
this Agreement. This grant shall be limited to use in connection with
the sale and service of the Authorized Products as contemplated by this
Agreement. This license shall continue until the license is terminated
in accordance with this Agreement, or for the useful life of the
Authorized Product in which the Authorized Software is imbedded or of
which the Authorized Software is an integral part, or for the useful
life of the Authorized Software, whichever is longer. Removal of the
Authorized Software from the United States by Distributor, service by
any unauthorized person at the direction of Distributor, use by
Distributor of the Authorized Software on any Authorized Product other
than that for which it was obtained or authorized, or on any
non-Authorized Product, shall constitute a breach of this Section 14 by
Distributor. Except as provided in the Purchase Agreement or as provided
in Sections 9 and 10, the software license will terminate on expiration
or termination of this Agreement.
(b) MODIFICATION AND COPIES. Distributor may not modify or copy the
Authorized Software or Related Documentation without prior written
consent of Company. Distributor agrees to refrain from taking any
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steps, including without limitation reverse engineering, reverse
assembly or reverse compilation, to derive a source or object code
equivalent of the Authorized Software, or for any other purpose.
(c) INDEMNIFICATION. Company agrees that, if notified promptly and given
sole control of the defense and all related settlement negotiations, it
will indemnify and defend Distributor or its customers who have executed
a software license or sublicense set forth in Exhibit K or L against any
claim based on an allegation the Authorized Software infringes a valid
U.S. patent, copyright or trademark. Company, expressly conditioned upon
the obligations of Distributor under a software sublicense set forth in
Exhibit K, will pay any resulting costs, damages and attorneys' fees
awarded by a court with respect to any such claim against Distributor or
its customers. Company shall have no obligations under this Section in
the case of claims resulting from modifications to the Authorized
Software made by Distributor, end-users, or others, or combinations with
software or equipment provided by others. If any Authorized Software
becomes, or in Company's opinion is likely to become, the subject of
such claim of infringement, Company will, at its expense, either, at its
option, procure rights for Distributor and its customers who have
executed a software license or sublicense to continue using the
Authorized Software, or replace or modify the Authorized Software to
provide noninfringing software that performs substantially similar
functions to the original Authorized Software. Upon failure of the
foregoing provisions of this subsection (c), Company will refund the
purchase price of the Authorized Product or license fee for the
Authorized Software less a reasonable allowance for use. THIS SECTION
STATES THE ENTIRE LIABILITY OF COMPANY FOR INFRINGEMENT BY ANY
AUTHORIZED SOFTWARE PROVIDED HEREUNDER.
(d) COMPANY LICENSING. Notwithstanding anything to the contrary in this
Agreement, Company may require at any time upon reasonable notice to
Distributor that any of the Authorized Software must be remotely
downloaded from the Company directly to the Distributor's customer and
that Distributor's customer must execute a separate software license
with the Company, substantially in the form of Exhibit L hereto,
directly licensing such Authorized Software and updates and revisions
thereof. If the Company exercises such right, it will make timely
downloads, will in no way interfere with Distributor's relationship with
such customers or any sales opportunity, will not use any information
regarding such customers except as expressly set forth herein, and will
treat as and keep all such information confidential.
(e) SURVIVAL. This section shall survive termination of this Agreement.
15. TERMINATION OF AGREEMENT.
(a) This Agreement will expire on December 31, 2001, unless earlier
terminated for Material Breach as defined in Section 15(b).
(b) This Agreement may be terminated by either party for Material Breach no
less than 90 days after mailing written notice of termination to the
other party as provided in subsection (c) below. Material Breach of this
Agreement shall mean:
(i) failure of Distributor to make aggregate actual purchases of
Authorized Products and Authorized Software [CONFIDENTIAL
TREATMENT REQUESTED] in all cases on the same basis as Quota is
measured (the amount, if any, by which any amount stated herein
exceeds Distributor's aggregate actual purchases for the
relevant period being referred to as the "Shortfall Amount");
(ii) material breach of Section 3, 4, 5, 9, 11, 12, 13, and/or 14 of
this Agreement by Distributor;
(iii) material breach of Section 2, 7(b), 8(a) ), 9, 11 (other than
the fourth paragraph), 13(a) or 14 by the Company;
(iv) dissolution, insolvency, bankruptcy of, or appointment by a
court of a permanent or temporary receiver for, Distributor or
Company; or a general assignment of a substantial portion of
Distributor's or Company's assets for the benefit of creditors
other than an assignment of assets as collateral for a loan in
the normal course of business;
(v) material failure to pay Distributor's accounts in accordance
with the terms of sales by Company to Distributor; or
(vi) failure of Company to provide Authorized Products and Authorized
Software that are competitive in the marketplace in functions,
features and price for a period of six consecutive months.
(c) In the event that either party contends the other party is in Material
Breach of any of its obligations to the other party under this
Agreement, the party claiming Material Breach will provide written
notice by certified mail that specifically itemizes each and every
obligation of which the party contends the other party is in Material
Breach. Subject to the next sentence, in the event that the
nonterminating party fails to cure the
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breach within ninety (90) days of receipt of such notice, the
termination shall become effective. In order to cure a breach
described in Section 15(b)(i), Distributor must make purchases of
Authorized Products and Authorized Software, within the 30 days
following receipt of such notice, equal to the applicable Shortfall
Amount, which purchases shall be applied only to the Quarter
immediately preceding such purchases, or such termination shall become
effective.
16. DISTRIBUTOR'S OBLIGATIONS UPON TERMINATION. In the event of termination of
this Agreement, whether by non-renewal or for Material Breach, Distributor
shall:
(a) immediately pay all obligations for Authorized Product and Authorized
Software delivered to Distributor prior to termination when they are due
and payable to Company, subject to appropriate credits and off-sets;
(b) except as provided in the Purchase Agreement, immediately insofar as
reasonably possible discontinue any and all uses of the Authorized
Trademarks and Authorized Name as defined in Exhibit C, if any,
including:
(i) cancel all governmental certificates or licenses reserving or
registering Distributor's use of the Authorized Trademarks or
Authorized Name, if any;
(ii) remove the Authorized Trademarks or Authorized Name, if any,
from its premises, vehicles, sales proposals, stationery,
telephone directory listing, and other advertising and
promotional material;
(iii) change its corporate and trade name to delete any use of the
Authorized Trademarks, Authorized Name, or any name likely to
cause confusion with any Authorized Trademarks;
(c) not adopt the use of any mark or name deceptively similar to any
Authorized Trademarks, other than as provided in the Purchase
Agreement; and
(d) execute any documents or take any other reasonable steps which will help
transfer to Company ownership of all goods repurchased, free and clear
of any liens, encumbrances or security interests.
It is understood and agreed that (i) in the event of a Material Breach of
this Agreement by Distributor solely pursuant to Section 15(b)(i) or a
Material Breach by Company pursuant to Section 15(b)(vi), the other party's
sole remedy is to terminate this Agreement in accordance with the terms and
procedures hereof and that neither party shall have any obligations under
this Agreement (and neither party shall have any claims against the other)
arising from such Material Breach of this Agreement pursuant to Section
15(b)(i) and Section 15(b)(vi) other than provided in this Section 16 above.
17. COMPANY'S OBLIGATIONS AND DISTRIBUTOR'S OPTIONS UPON TERMINATION.
(a) In the event of termination of this Agreement whether by non-renewal or
Material Breach, Company:
(i) may at Company's option cancel all unfilled orders except those
for such Authorized Products and Authorized Software that have
been sold previously by Distributor to customers, as evidenced
by signed customers' orders submitted by Distributor to Company
at least twenty (20) days prior to the effective termination
date;
(ii) if Distributor so elects, may within thirty (30) days after
written notification by Distributor of its existing inventory,
purchase from Distributor at Distributor's cost less a
reasonable allowance for use or damage, if any, plus freight,
either for cash or by set off against debt or trade receivables
owed by Distributor to Company, any or all of the Authorized
Products and Authorized Software. In the event that Distributor
elects to sell its inventory of Authorized Products and
Authorized Software and Company elects to purchase this
inventory, Distributor will allow Company to inspect this
inventory;
(iii) shall continue to directly or indirectly provide to Distributor
factory repairs for a period not to exceed seven (7) years from
the effective date at which the Authorized Products are
discontinued for new system sales, or indefinitely in the case
of Authorized Products not yet discontinued, so that Distributor
can continue to service and maintain its end-user customers.
Orders for factory repairs must be placed with Company at least
30 days in advance of the requested shipment date. The order
must be paid in full prior to shipment. Prices will be at the
then current Distributor Net Price for the Product Group.
Company will continue to honor its warranty obligations;
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(iv) shall continue to directly or indirectly provide to Distributor
at its request necessary spare parts, replacement parts,
replacement copies of Authorized Software and Related
Documentation and all other equipment, software, diagnostics and
manuals required to continue to service and maintain the
Authorized Products, Authorized Software and Related
Documentation, for a period not to exceed five (5) years from
the effective date at which the Authorized Products are
discontinued for new system sales, or indefinitely in the case
of Authorized Products that are not yet discontinued, so that
Distributor can continue to service and maintain its end-user
customers. Purchase orders for spare parts, replacement
equipment and software and documentation must be placed with
Company at least 30 days in advance of the requested shipment
date. The order must be paid in full prior to shipment. Prices
will be at a 60% discount off Company's list price for such
parts; and
(v) immediately pay all obligations to Distributor when they are due
and payable, subject to appropriate credits and set-offs.
(b) Company's obligations upon termination and Distributor's options set
forth in this Section 17 are specifically conditioned upon
Distributor's compliance with its obligations upon termination set
forth in Section 16 above, and with Sections 3, 13, and 14, and all
other provisions of this Agreement that are expressly made applicable
following termination. In the event Distributor breaches any provision
of Sections 3, 13, 14, or 16, or any other applicable provision of this
Agreement after receipt of written notice of nonrenewal or termination
from Company, and Distributor fails or refuses to cure such breach
within the stated cure period (or 30 days from receipt of notice of
such breach if no such cure period is stated), Company may, at its sole
option, provide written notice to Distributor that any and all rights
of Distributor set forth in this Section 17 are thereby forfeited, and
all of Company's obligations under this Section 17 shall immediately
cease as of (1) the date set forth in such notice, or (2) the date by
which such breach must be cured and the same remains uncured, whichever
date is later.
(c) A proper termination or nonrenewal of this Agreement in accordance with
the terms hereof shall not give rise to any liability for compensation,
reimbursement or damages, including but not limited to claims of loss
of clientele, prospective profits or anticipated sales, or for other
consequential, incidental or indirect damages. If either party claims
that a termination or nonrenewal of this Agreement is improper, such
party shall so notify the other party in writing, setting forth the
basis for the party's claim that the termination or non-renewal is
improper, within thirty (30) days of receipt of the notice of
termination, and in such event the other party shall have the option of
rescinding the termination or nonrenewal within the fifteen (15) days
following receipt of such written notification from such party without
any liability to such party for an improper termination or nonrenewal.
If either party fails to so notify the other party of such claim of
improper termination or nonrenewal, then such party agrees that it
shall have waived its rights to challenge the termination thereafter,
and the other party shall have no liability to such party in respect of
such termination or nonrenewal. Except as provided in this Section (c),
nothing shall limit the Company's or Distributor's rights to damages or
other legal or equitable remedies for any breach of this Agreement by
the other. In the event of litigation or other alternative dispute
resolution proceeding arising from any such claim of improper
termination, Company and Distributor agree that the prevailing party
shall be entitled to collect from the non-prevailing party
reimbursement for all of its costs and reasonable attorneys' fees
incurred in defending or bringing such litigation or proceeding.
18. FORCE MAJEURE. Either party may be excused from timely performance hereunder
if and to the extent such performance is delayed or prevented by fire,
flood, earthquake or other Act of God, strike, lock-out or labor dispute not
involving the party, act of war, civil disturbance or any similar event or
occurrence beyond the reasonable control of the party delaying or preventing
its performance. Performance shall be resumed as soon as reasonably possible
after the event or occurrence has been remedied. If performance is delayed
or suspended for more than 90 days, and such delay or nonperformance would
be a Material Breach except for the provisions of this Section, then the
party entitled to the performance shall have the rights set forth in Section
15.
19. COMPLETE AGREEMENT AND NO ORAL MODIFICATION. This Agreement constitutes the
complete agreement between the parties, and supersedes all previous
agreements between the parties other than the Government Systems Agreement
dated as of February 28, 1998, the Settlement, Release and Covenant Not to
Sue Agreement dated effective March 30, 1998, and notes, credit, loan,
shareholder, lease, sublease or security agreements, and guarantees.
Distributor has paid no fee in connection with this Agreement. The headings
of sections of this Agreement are included merely for the convenience of the
parties, and shall not be construed
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as part of the Agreement. This Agreement and any exhibits, schedules or
attachments may be modified only by a written agreement signed by both
parties.
20. CHOICE OF LAW AND FORUM. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York. Except as provided in
Section 26, any dispute arising under this Agreement that cannot be resolved
by agreement shall, whenever diversity or subject matter jurisdiction
exists, be submitted to the United States District Court in the Southern
District of New York, and the parties consent and submit to the personal
jurisdiction of such court. The prevailing party in any litigation,
arbitration, or other proceedings arising out of this Agreement shall be
reimbursed for all reasonable costs and expenses incurred in such
proceedings, including reasonable attorneys' fees.
21. NO WAIVER. A waiver of any breach or default of this Agreement shall not be
deemed to constitute a waiver of any subsequent breach or default.
22. SEVERABILITY. If any of the terms or provisions of this Agreement or the
application thereof to any person or circumstance shall, for any reason or
to any extent, be held or determined to be invalid or unenforceable, the
remainder of this Agreement and the application of such provisions to other
persons or circumstances shall not be affected thereby, but rather shall be
enforced to the greatest extent permitted by law.
23. NOTICE. Any notice required by this Agreement shall be made in writing,
signed by a duly authorized agent of the party giving the notice, and
delivered by hand or deposited in the United States mail, first class,
postage prepaid, unless specifically required to be by certified mail, and
addressed as follows.
If to Company: EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
Attention: President
With a copy to: EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
Attention: General Counsel
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If to Distributor: Claricom, Inc. d/b/a/
EXECUTONE Business Solutions
478 Wheelers Farms Road
Milford, Connecticut 06460
Attention: President
With a copy to: Claricom, Inc. d/b/a/
EXECUTONE Business Solutions
478 Wheelers Farms Road
Milford, Connecticut 06460
Attention: Corporate Counsel
and to Ropes & Gray
One International Place
Boston, MA 02110
Attn: Joel Freedman
and to Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Mr. J. Lavine and Mr. D. Poler
24. RELATIONSHIP OF PARTIES. Distributor is an independent contractor. Nothing
in this Agreement shall be construed to mean that Distributor is an agent,
employee, franchisee or subcontractor of Company. This Agreement shall not
be construed to create any rights or obligations of any person or entity
other than the parties.
25. CONSTRUCTION; DEFINITION. For purposes of this Agreement, including all
exhibits hereto, the Company shall mean EXECUTONE Information Systems, Inc.,
a Virginia corporation, its subsidiaries and any person that directly or
indirectly controls, is controlled by or is under common control thereof and
any successors and assigns thereof.
26. ARBITRATION. Any controversy relating to the phrase "reasonably related to"
in Section 7(b)(i) that cannot be settled by mutual agreement shall be
finally settled by arbitration as follows: Any party who is aggrieved shall
deliver a notice to the other party hereto setting forth the substance of
the dispute. Any points remaining in dispute 10 days after the other party's
receipt of such notice shall be submitted to binding arbitration in the
State of Connecticut before a single arbitrator with industry experience
mutually agreeable to the parties, and failing such agreement, appointed in
accordance with the American Arbitration Association Arbitration Rules (the
"Rules"), modified only as herein expressly provided. The arbitrator may
enter a default decision against any party who fails to participate in the
arbitration proceedings after having been notified of the proceedings. The
arbitrator will be instructed to render a decision within ten business days.
The decision of the arbitrator on the points in dispute submitted to him
will be final, unappealable and binding, effective for all purposes as of
the date of the controversy (as determined by such arbitrator). In any
arbitration under this Section, the non-prevailing party shall pay the
expenses of the arbitration, including its own and the prevailing party's
fees and expenses (including reasonable attorneys' fees).
27. AUTHORIZATION AND EXECUTION. The parties and the persons signing this
Agreement represent and warrant that those persons are fully authorized to
enter into the terms and conditions of, and to execute, this Agreement on
behalf of the respective parties.
COMPANY: DISTRIBUTOR:
EXECUTONE INFORMATION SYSTEMS, INC. CLARICOM, INC.
By: _______________________________ By: ___________________________
_______________________________ ____________________________
Its:_______________________________ Its: _____________________________
(Corporate Seal)
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DESCRIPTION OF EXHIBITS
EXHIBIT A Distributor's Authorized Area
EXHIBIT B Distributor's Authorized Products and Authorized Software
EXHIBIT C Distributor's Use of Company's Trademarks
EXHIBIT D Cross Territorial Policy
EXHIBIT E National Accounts Policy
EXHIBIT F Federal Accounts Policy
EXHIBIT G CCM Accounts Policy (Not Applicable)
EXHIBIT H Health Care Accounts Policy (Not Applicable)
EXHIBIT I Distributor's Forecast Form
EXHIBIT J Nonexclusive Distributor's Quota
EXHIBIT K Software License Form
EXHIBIT I Software License Form
EXHIBIT M Areas Exempt from Certain Provisions of Section 11
[EXHIBITS OMITTED]