-----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, FxB2j6ZxiPxAaOhPh1GLa0zIZ/4i7GxxTuHj5P7/NEpmoI2hAAMLe7LQeTuSWewT zJZnOFqjluF7sA72gXCIwQ== 0000950134-99-005442.txt : 19990615 0000950134-99-005442.hdr.sgml : 19990615 ACCESSION NUMBER: 0000950134-99-005442 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990611 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XETA CORP CENTRAL INDEX KEY: 0000742550 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 731130045 STATE OF INCORPORATION: OK FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16231 FILM NUMBER: 99645084 BUSINESS ADDRESS: STREET 1: 4500 S GARNETT STE 1000 CITY: TULSA STATE: OK ZIP: 74146 BUSINESS PHONE: 9186648200 MAIL ADDRESS: STREET 1: 4500 S GARNETT SUITE 1000 CITY: TULSA STATE: OK ZIP: 74146 10-Q 1 FORM 10-Q FOR QUARTER ENDED APRIL 30, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-16231 XETA Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 73-1130045 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1814 West Tacoma, Broken Arrow, OK 74012-1406 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 918-664-8200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 4500 S. Garnett, Suite 1000, Tulsa, OK 74146 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at June 1, 1999 - -------------------------------- --------------------------- Common Stock, $.10 par value 1,986,587 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - April 30, 1999 and October 31, 1998 Consolidated Statements of Operations - For the Three and six months ending April 30, 1999 and 1998 Consolidated Statement of Shareholders' Equity - November 1, 1998 through April 30, 1999 Consolidated Statements of Cash Flows - For the Six months ending April 30, 1999 and 1998 Notes to Consolidated Financial Statements 2 3 XETA CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS
April 30, 1999 October 31,1998 -------------- --------------- (Unaudited) Current Assets: Cash and cash equivalents $ 1,935,477 $ 3,238,218 Current portion of net investment in sales-type leases 1,690,605 1,500,095 Other receivables, net 4,046,190 3,561,201 Inventories, net 2,790,658 2,022,256 Deferred tax asset, net 549,045 575,587 Prepaid expenses and other assets 185,712 73,895 ------------ ------------ Total current assets 11,197,687 10,971,252 ------------ ------------ Noncurrent Assets: Net investment in sales-type leases, less current portion above 2,504,875 1,210,939 Purchased service and long distance contracts, net 1,627,389 2,537,437 Property, plant & equipment, net 3,960,316 2,817,370 Capitalized software production costs, net of accumulated amortization of $513,066 at April 30, 1999 and $453,066 at Oct. 31, 1998 649,392 655,370 Other assets 247,287 99,618 ------------ ------------ Total noncurrent assets 8,989,259 7,320,734 ------------ ------------ Total assets $ 20,186,946 $ 18,291,986 ============ ============ LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,212,784 $ 1,747,009 Unearned revenue 4,005,674 3,096,217 Accrued liabilities 835,819 824,454 Accrued federal and state income taxes 59,432 181,876 ------------ ------------ Total current liabilities 6,113,709 5,849,556 ------------ ------------ Unearned service revenue 1,377,388 730,314 ------------ ------------ Noncurrent deferred tax liability, net 513,052 526,881 ------------ ------------ Commitments Shareholders' equity: Preferred stock; $.10 par value; 50,000 shares authorized, 0 issued -- -- Common stock; $.10 par value; 10,000,000 shares authorized, 2,316,284 and 2,286,284 issued at April 30, 1999 and October 31, 1998, respectively 231,628 228,628 Paid-in capital 5,336,218 5,135,818 Retained earnings 9,521,110 7,568,905 ------------ ------------ 15,088,956 12,933,351 Less treasury stock, at cost (2,906,159) (1,748,116) ------------ ------------ Total shareholders' equity 12,182,797 11,185,235 ------------ ------------ Total liabilities & shareholders' equity $ 20,186,946 $ 18,291,986 ============ ============
The accompanying notes are an integral part of these statements. 3 4 XETA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months For the Six Months Ending April 30, Ending April 30, 1999 1998 1999 1998 ---- ---- ---- ---- Installation and service revenues $ 4,432,943 $ 3,240,683 $ 8,428,542 $ 6,131,198 Sales of systems 4,664,806 3,080,100 7,493,974 5,036,909 Long distance services 143,172 245,565 364,687 449,064 ----------- ----------- ----------- ----------- Net sales and service revenues 9,240,921 6,566,348 16,287,203 11,617,171 ----------- ----------- ----------- ----------- Installation and service cost 2,895,024 2,047,259 5,418,165 3,801,392 Cost of sales 2,712,666 2,035,226 4,400,490 3,280,483 Cost of long distance services 37,766 88,149 123,823 163,371 ----------- ----------- ----------- ----------- Total cost of sales and service 5,645,456 4,170,634 9,942,478 7,245,246 ----------- ----------- ----------- ----------- Gross profit 3,595,465 2,395,714 6,344,725 4,371,925 ----------- ----------- ----------- ----------- Operating expenses: Selling, general and administrative 1,213,634 1,134,053 2,222,233 2,009,836 Engineering, research and development 125,954 89,927 228,588 190,586 Amortization 491,953 81,216 970,048 162,432 ----------- ----------- ----------- ----------- Total operating expenses 1,831,541 1,305,196 3,420,869 2,362,854 ----------- ----------- ----------- ----------- Income from operations 1,763,924 1,090,518 2,923,856 2,009,071 Interest and other income 132,742 154,719 280,349 333,865 ----------- ----------- ----------- ----------- Income before provision for income taxes 1,896,666 1,245,237 3,204,205 2,342,936 Provision for income taxes 741,000 462,000 1,252,000 869,000 ----------- ----------- ----------- ----------- Net income $ 1,155,666 $ 783,237 $ 1,952,205 $ 1,473,936 =========== =========== =========== =========== Earnings per share Basic $ 0.57 $ 0.38 $ 0.97 $ 0.73 =========== =========== =========== =========== Diluted $ 0.50 $ 0.33 $ 0.84 $ 0.63 =========== =========== =========== =========== Weighted average shares outstanding 2,016,252 2,037,090 2,023,002 2,020,226 =========== =========== =========== =========== Weighted average shares equivalents 2,305,012 2,357,606 2,310,869 2,357,990 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 4 5 XETA CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NOVEMBER 1, 1998 THROUGH APRIL 30, 1999 (Unaudited)
Common Stock Treasury Stock --------------------------- --------------------------- Number of Shares Issued Paid-in Retained & Outstanding Par Value Shares Amount Capital Earnings ------------- --------- ------ ------ ------- -------- Balance - October 31, 1998 2,286,284 $228,628 (264,547) $(1,748,116) $5,135,818 $7,568,905 Stock options exercised 30,000 3,000 27,000 Tax benefit of stock Options exercised 173,400 Treasury stock acquired (65,150) (1,158,043) Net Income 1,952,205 --------- --------- -------- ----------- ---------- ---------- Balance - April 30, 1999 2,316,284 $ 231,628 (329,697) $(2,906,159) $5,336,218 $9,521,110 ========= ========= ======== =========== ========== ==========
The accompanying notes are an integral part of these statements. 5 6 XETA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ending April 30, 1999 1998 ------------ ------------ Cash flows from operating activities: Net Income $ 1,952,205 $ 1,473,936 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 189,451 142,286 Amortization 970,048 162,432 Loss on sale of assets -- 14,517 Provision for doubtful accounts receivable 18,000 58,000 Change in assets and liabilities: (Increase) decrease in net investment in sales-type leases (1,484,446) 188,158 Increase in other receivables (502,989) (1,709,637) Increase in inventories (768,402) (1,055,345) (Increase) decrease in deferred tax asset 26,542 (266,131) Increase in prepaid expenses and other assets (259,486) (33,909) Increase (decrease) in accounts payable (534,225) 784,235 Increase in unearned revenue 1,556,531 627,942 Increase in accrued income taxes 50,956 433,630 Increase (decrease) in accrued liabilities 11,365 (56,917) Decrease in deferred tax liabilities (13,829) (73,128) ------------ ------------ Total adjustments (740,484) (783,867) ------------ ------------ Net cash provided by operating activities 1,211,721 690,069 ------------ ------------ Cash flows from investing activities: Additions to capitalized software (54,022) (103,468) Additions to property, plant & equipment (1,332,397) (842,342) Proceeds from sale of assets -- 852 ------------ ------------ Net cash used in investing activities (1,386,419) (944,958) ------------ ------------ Cash flows from financing activities: Purchase of treasury stock (1,158,043) (942,738) Exercise of stock options 30,000 92,900 ------------ ------------ Net cash used in financing activities (1,128,043) (849,838) ------------ ------------ Net decrease in cash and cash equivalents (1,302,741) (1,104,727) Cash and cash equivalents, beginning of period 3,238,218 6,011,841 ------------ ------------ Cash and cash equivalents, end of period $ 1,935,477 $ 4,907,114 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 10,284 $ 3,743 Cash paid during the period for income taxes $ 1,170,972 $ 761,106
The accompanying notes are an integral part of these statements. 6 7 XETA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1999 (Unaudited) (1) BASIS OF PRESENTATION The consolidated financial statements included herein include the accounts of XETA Corporation and its wholly-owned subsidiary, Xetacom, Inc. Xetacom's operations have been insignificant to date. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements have been prepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures made in these financial statements are adequate to make the information presented not misleading when read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest financial statements filed as part of the Company's Annual Report on Form 10-KSB, Commission File No. 0-16231. Management believes that the financial statements contain all adjustments necessary for a fair statement of the results for the interim periods presented. All adjustments made were of a normal recurring nature. (2) INVENTORIES The following are the components of inventories:
April 30, October 31, 1999 1998 ------------ ------------ (Unaudited) Raw materials $ 1,260,666 $ 1,092,278 Finished goods and spare parts 1,854,992 1,254,978 ------------ ------------ 3,115,658 2,347,256 Less reserve for excess and obsolete inventory (325,000) (325,000) ------------ ------------ $ 2,790,658 $ 2,022,256 ============ ============
7 8 (3) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
April 30, October 31, 1999 1998 ------------ ------------ (Unaudited) Building $ 2,397,954 $ 1,565,601 Data processing and computer field equipment 1,506,755 1,368,075 Land 611,582 611,582 Office furniture 435,290 136,143 Other 333,388 271,171 ------------ ------------ 5,284,969 3,952,572 Less accumulated depreciation (1,324,653) 1,135,202 ------------ ------------ $ 3,960,316 $ 2,817,370 ============ ============
(4) UNEARNED INCOME Unearned income consists of the following:
April 30, October 31, 1999 1998 ------------ ------------ (Unaudited) Service contracts $ 1,472,881 $ 1,245,506 Customer deposits 1,302,744 688,778 Warranty service 1,071,284 951,238 Systems shipped, but not installed 79,254 69,364 Other deferred revenue 79,511 141,331 ------------ ------------ Total current deferred revenue 4,005,674 3,096,217 Noncurrent unearned service revenues 1,377,388 730,314 ------------ ------------ $ 5,383,062 $ 3,826,531 ============ ============
8 9 (5) INCOME TAXES The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
April 30, October 31, 1999 1998 ------------ ------------ (Unaudited) Deferred tax assets: Prepaid service contracts $ 452,605 $ 347,322 Nondeductible reserves 293,703 315,585 Unamortized cost of service contracts 66,518 -- Other 56,054 35,078 ------------ ------------ Total deferred tax asset 868,880 697,985 ------------ ------------ Deferred tax liabilities: Unamortized capitalized software development costs 220,793 222,826 Tax income to be recognized on sales-type lease contracts 505,479 250,479 Unamortized cost of long distance contracts 89,002 110,190 Other 17,613 65,784 ------------ ------------ Total deferred tax liability 832,887 649,279 ------------ ------------ Net deferred tax asset $ 35,993 $ 48,706 ============ ============
(6) INTEREST AND OTHER INCOME Interest and other income recorded in the accompanying financial statements consists primarily of interest income earned from sales-type leases and cash investments. (7) EARNINGS PER SHARE All earnings per share amounts disclosed herein have been calculated under the provisions of SFAS 128. Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the reported period. A reconciliation of net income and weighted average shares used in computing basic and diluted earnings per share is as follows:
For the Quarter Ending April 30 ---------------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS - 1999 Net income $1,155,666 2,016,252 $.57 Options issued to employees 288,760 Diluted EPS Net income $1,155,666 2,305,012 $.50 Basic EPS - 1998 Net income $783,237 2,037,090 $.38 Options issued to employees 320,516 Diluted EPS Net income $783,237 2,357,606 $.33
9 10
For the Six Months Ending April 30 ---------------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS - 1999 Net income $1,952,205 2,023,002 $.97 Options issued to employees 287,867 Diluted EPS Net income $1,952,205 2,310,869 $.84 Basic EPS - 1998 Net income $1,473,936 2,020,226 $.73 Options issued to employees 337,764 Diluted EPS Net income $1,473,936 2,357,990 $.63
(8) FOOTNOTES INCORPORATED BY REFERENCE Certain footnotes are applicable to the consolidated financial statements, but would be substantially unchanged from those presented in the Company's Annual Report on Form 10-KSB, Commission File No. 0-16231, filed with the Securities and Exchange Commission on January 28, 1999. Accordingly, reference should be made to those statements for the following:
Note Description ---- ----------- 1 Business and summary of significant accounting policies 4 Accrued liabilities 6 Income taxes 7 Revolving Credit Agreement 8 Purchased Service and Long Distance Contracts 9 Stock options 11 Commitments 12 Major Customers and Concentration of Credit Risk 13 Employment Agreements 14 Contingency 15 Retirement plan
10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the quarter ending April 30, 1999, XETA Corporation (the "Company") earned net income of $1.156 million or $.50 per share (diluted) on revenues of $9.241 million compared to net income of $.783 million or $.33 per share (diluted) on revenues of $6.566 million reported for the quarter ending April 30, 1998. For the six month period ending April 30, 1999, the Company earned net income of $1.952 million or $.84 per share (diluted) on revenues of $16,287 million. This compares to net income of $1.474 million or $.63 per share (diluted) on revenues of $11.617 million for the six months ending April 30, 1998. The growth in the Company's revenues and earnings is the result of many factors including a surge in orders for the Company's call accounting systems, continued market acceptance of its PBX product and service offerings, and a favorable mix in revenues which enhanced the gross margins earned on total systems sales. These factors offset declines in the gross margins earned on service revenues. Additionally, the quarterly and year-to-date results were achieved while simultaneously amortizing approximately one-fourth and one-half, respectfully, of the cost of the PBX contracts which were purchased in the fourth quarter of fiscal 1998. The discussion which follows provides further analysis of the matters mentioned above as well as other major factors and trends which management believes had the most significant impact on the financial condition of the Company as of April 30, 1999 and the results of operations for the quarter and six month periods then ended as compared to the same periods a year ago. Also included in this discussion are the major factors, trends and risks which management believes will affect the outlook for the Company. This analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in this report. FINANCIAL CONDITION During the first half of fiscal 1999, the Company's cash balances decreased $1.303 million. This decline consisted of cash earned from operations of $1.211 million offset by $1.386 million used in investing activities and $1.128 million used in financing activities. Investing activities primarily included cash used for completing the construction of the Company's new headquarters and purchases of furnishings for the building. The Company relocated its operations to its new facilities in mid-March. The facility is approximately 75% larger than its previous, leased space. While no assurance can be given, management believes that the new building can accommodate the Company's future growth for the next three to five years without expansion. The cash spent on financing activities was spent primarily on the Company's on-going stock repurchase program. On February 5, 1999, the Company's board of directors approved an increase in the repurchase program to include one-half of each quarter's net income. Previously, one-third of net income had been allocated to stock repurchases. In addition, the directors approved a one-time allocation of $500,000 to the program. Purchases made under the program are made in open market transactions, the timing of which are dictated by overall financial and market conditions. The directors review the program 11 12 regularly. During the first six months of the year, the Company spent $1.158 million to purchase 65,150 common shares. The amount spent was partially offset by $30,000 received from the exercise of employee stock options. In September, 1998, the Company purchased approximately 100 Hitachi PBX service contracts and the associated spare parts inventory from Williams Communications Solutions, LLC ("WCS"). Since the closing, WCS has been shipping the inventory to the Company for testing. On May 12, 1999, the Company made a final payment of $156,000. This payment represented the negotiated purchase price for the tested inventory and a reduction in the purchase price of the service contracts to reflect the net effect of additional contracts identified after the initial closing and contracts which, by subsequent agreement of the parties, were not eligible to be purchased. Management believes that the Company's financial condition is strong. The Company will continue to evaluate opportunities to expand its business through acquisition of existing businesses or assets as well as through the addition of synergistic products or services. The Company remains debt free, and while no assurance can be given, management believes that it would have access to significant debt or equity financing should any contemplated expansion require additional capital. RESULTS OF OPERATIONS Total revenues increased 41% and 40% for the three and six month periods ending April 30, 1999, respectively, compared to those same periods in fiscal 1998. The increase in the second quarter consisted of an increase of installation and service revenues of $1.192 million or 37%, an increase in systems sales of $1.585 million or 51%, and a decrease in long distance revenues of $102,000 or 42%. The increase in total revenues for the six months ending April 30, 1999 consisted of an increase in installation and service revenues of $2.297 million or 37%, an increase in systems sales of $2.457 million or 49%, and a decrease in long distance revenues of $84,000 or 19%. The following discussion analyzes the Company's revenues by product line. PBX Revenues. Sales of PBX systems increased $.711 million or 28% during the second quarter of fiscal 1998 and increased $1.181 million or 29% for the year to date period. Revenues earned from PBX service related activities increased $.922 million or 41% for the second quarter of fiscal 1999 and increased $1.834 million or 44% for the year to date period. This growth is being fueled by continued strong market acceptance of the Company's PBX product and service offering, by a relatively healthy hotel industry, and by an increased focus on technology by hotel owners and managers. This focus on technology is due to a variety of factors including the increased use of local and wide area networks by the hotel industry and the desire to ensure that all technology systems are able to function properly in the year 2000. All of the Company's revenues earned from sales of new PBX systems were earned from sales of Hitachi systems. The Company has received four orders for Lucent PBX systems, for which the Company became a distributor in November, 1998. Installations of those systems has begun during the third quarter. The Company expects to continue to sell both manufacturers' systems for the foreseeable future. In addition to the factors described above, a portion of the growth in PBX service related revenues reflects revenues earned from the service contracts purchased from WCS in the fourth quarter of fiscal 1998. 12 13 Call Accounting Revenues. Sales of call accounting systems increased $.873 million or 152% in the second quarter and $1.276 million or 128% for the year to date period. Revenues earned from call accounting installation and service related activities increased $270,000 or 27% in the second quarter and $463,000 or 23% for the year to date period. The Company is enjoying a surge in orders for its new, network-friendly Virtual XL(TM) Series call accounting system. This product, introduced in 1998, performs all of the functions of the Company's XL(R) Series call accounting system, but can also be connected to private and/or public networks to allow remote access to reports. Most of the orders for these new systems represent upgrades or replacements of existing systems, however the healthy hotel industry and the Company's continued market penetration have resulted in sales to new customers as well. The Company's backlog of call accounting systems remains very large and management expects call accounting related revenues to continue to show strong gains for the last half of fiscal 1999 compared to the prior year. Long Distance Services. Revenues earned from long distance services decreased $102,000 or 42% for the quarter ending April 30, 1999 and decreased $84,000 or 19% for the six months ending April 30, 1999 compared to those same periods a year ago. This decline represents lower usage of 0+ services at customer hotels. It is not known whether this trend will continue or whether revenues will recover to previous levels. Due to competitive pressures in the long distance segment of the hotel industry, the Company is not focusing on this segment of its product offerings. Gross Margins. The gross margins earned on total revenues were 39% in the second quarter of fiscal 1999 compared to 36% in the second quarter of fiscal 1998. Gross margins earned on total revenues for the year to date period ending on April 30, 1999 were 39% compared to 38% for the same period in fiscal 1998. Gross margins earned on service revenues were 35% for the second quarter of fiscal 1999 compared to 37% for the second quarter of fiscal 1998. For the six month period, the gross margins on service revenues were 36% in the current year compared to 38% in the previous year. The margins on service revenues are slightly below management's target range for this revenue stream. Management is evaluating its cost structure and processes in its service department. It is not known at this time whether those evaluations will result in changes that could produce higher gross margins on service revenues. The gross margins earned on systems sales during the second quarter of fiscal 1999 were 42% compared to 34% a year earlier and were 41% for the year to date period in fiscal 1999 compared to 35% a year earlier. These increases reflect the higher proportion of higher margin call accounting sales during these periods. While no assurance can be given, management expects this trend to continue throughout the remainder of fiscal 1999. Sales of call accounting systems are expected to trend back to historical levels in fiscal 2000. Operating Expenses. Operating expenses for the quarter ending April 30, 1999 increased $526,000 or 40% compared to the quarter ending April 30, 1998. Operating expenses incurred for the year to date period ending April 30, 1999 increased $1,058,000 or 45% compared to the first half of fiscal 1998. The majority of this increase is due to the increase in amortization expense 13 14 associated with the purchase of service contracts from WCS. The increase in amortization expense was $411,000 in the second quarter and was $808,000 for the six month period. This amortization is primarily related to the purchase of service contracts from WCS. Amortization of the purchase price will continue into the fourth quarter of fiscal 1999. Other increases in operating expenses for both periods under comparison are primarily related to sales expenses, commissions and executive bonuses which increased in conjunction with increases in sales and net income. Partially offsetting the increases in operating expenses was collection of a judgement against a former customer of the Company. This judgement was for $116,000 and represented payment on trade receivables which had been previously written-off as a bad debt. Interest and Other Income. When compared to the previous year, interest and other income decreased $22,000 or 14% in the second quarter and decreased $54,000 or 16% in the year to date period. These decreases included declines in interest income from cash investments due to lower cash balances during the periods and lower interest income earned from XETAPLAN sales-type leases. Tax Expense. The Company has recorded a combined federal and state tax provision of 39% of income before taxes compared to a combined rate of 37% in fiscal 1998. The increase in the tax rate reflects primarily an increase in estimated state income taxes, which fluctuate based on the Company's sales volumes in each state. OUTLOOK AND RISK FACTORS The statements contained in this section are based on current expectations. The statements are forward-looking in nature and actual results may differ materially. All such statements should be read in conjunction with the risk factors discussed herein and elsewhere in this report. Those statements should also be read in conjunction with the Company's Form 10-KSB for the year ended October 31, 1998 which contains an expanded discussion of risk factors that should be read in conjunction with this report. Particular attention should be paid to the Company's disclosures in the Form 10-KSB regarding the potential effect of the year 2000 ("Y2k") on its business. The Company is in the early stages of its relationship with Lucent. Many of the Company's sales and service technicians have been trained on the Lucent system and the Company is actively marketing the Lucent Guestworks(TM) PBX. To date, the Company has received four orders for Lucent systems. While no assurance can be given, management believes that the Lucent system will enable the Company to compete more effectively in some segments of the market, specifically large hotels. For the Lucent product offering to be successful however, the Company must quickly establish itself as a quality installer and service provider of Lucent products. The Company's performance in these areas over the next few quarters will largely determine the success of its Lucent product offering. As a supplier of PC-based computer systems and proprietary software, the issues surrounding the potential effect of the year 2000 ("Y2k") on the Company's business are extremely complex. The evaluation of those issues is ongoing and will continue up to and through the beginning of that year. As of the date of this report, management believes that the disclosures provided in 14 15 the Company's 1998 Annual Report accurately reflect the current state of its evaluations and its response to the Y2k issues that have come to its attention. The discussion below provides a brief update regarding the Company's actions regarding Y2k as it relates to the Company's proprietary PC-based products. The Company is continuing to contact all of its customers regarding the availability of a software upgrade developed by the Company for its PC-based call accounting products. This upgrade includes patches designed to compensate for all Y2K issues of which the Company has become aware. The Company is also providing its customers under service contracts with a hardware test diskette which the Company developed for its systems. This diskette is designed to test for Y2K problems related to a system's hardware. The Company believes that many of the Y2K problems that will occur in the computer industry will be related to the hardware systems. To date, there have been no reported test failures and management does not expect there to be any as the testing continues. Management believes that should a customer's system report a failure during testing, additional software can be written to "patch" the problem. Management expects the process of notifying customers of the availability of the software upgrade will be substantially complete by the end of the fiscal year on October 31, 1999 and that those customers who respond to the notification will have received and tested their upgrade by that time. Customers who fail to respond to the Company's notices cannot be assured that their systems will function satisfactorily when using dates after December 31, 1999. The Company is involved in three matters of pending litigation. See "Legal Proceedings" under Part II below for a further discussion of this litigation. Item 3 of Part I has been omitted as inapplicable. 15 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company first reported on the matter of ALLENDALE MUTUAL INSURANCE CO. V. XETA CORPORATION, HITACHI TELECOM (USA), INC., PUBLIC SERVICE COMPANY OF COLORADO, AT&T, US WEST LONG DISTANCE, INC., AND DOES 1-100, in its Quarterly Report on Form 10-Q for the fiscal quarter ending January 31, 1999. In May, 1999, an order of the court was entered upon motion of the plaintiff in this matter, dismissing without prejudice all of the defendants except the Company and Does 1-100, and granting the plaintiff leave to amend its complaint. The Company is currently conducting discovery for the purpose of designating non-party fault, which would allow a jury to consider the fault of non-parties to the litigation in determining the extent of the Company's responsibility, if any. The Company's insurance carrier has assumed the defense of this lawsuit on behalf of the Company under reservation of rights. Since the Company last reported in detail on the matter of ASSOCIATED BUSINESS TELEPHONE SYSTEMS, INC. ("ABTS"), PLAINTIFF, VS. XETA CORPORATION, DEFENDANT AND THIRD-PARTY PLAINTIFF, VS. D&P INVESTMENTS, INC. ("D&P"), in its Annual Report on Form 10-KSB for the fiscal year ended October 31, 1998, the parties participated in a court-mandated settlement conference which was held on May 18, 1999. The parties continue to negotiate settlement under direction of the court and are scheduled to continue the settlement conference before the court during the week of June 7, 1999; however, at this time no agreement has been reached. Since 1994, when the Company was first notified by one of its hotel customers that the customer had been sued in Federal court for patent infringement by PHONOMETRICS, INC., a Florida company, the Company has been monitoring numerous patent infringement lawsuits filed by Phonometrics against certain telecommunications equipment manufacturers and hotels who use such equipment. While the Company has not been named as a defendant in any of these cases, several of its customers are named defendants and have notified the Company that they seek indemnification under the terms of their contracts with the Company. Other than the filing of briefs in Phonometrics' appeal of the Florida court's October 26, 1998 order, no significant developments have occurred in this case, to the knowledge of the Company, since the Company last reported on this matter in its Annual Report on Form 10-KSB for the fiscal year ended October 31, 1998. Items 2 and 3 of Part II have been omitted because they are inapplicable or the response thereto is negative. 16 17 Item 4 At the regularly scheduled annual shareholders' meeting held on March 25, 1999, management's nominees for election to the Board of Directors were elected to office without contest by votes cast as follows:
Name of Director For Against ---------------- --- ------- Ron Barber 1,859,611 6,860 Donald Duke 1,859,611 6,860 Robert Hisrich 1,859,611 6,860 Jack Ingram 1,859,611 6,860 Ron Siegenthaler 1,859,611 6,860 Robert Wagner 1,859,611 6,860
Shareholders' at the annual meeting also voted upon a proposal to grant the Board of Directors discretion to declare a stock split on a basis of 5-to-4, 4-to-3, 3-to-2, or 2-to-1, if at all, and to amend the Company's Certificate of Incorporation to effect a corresponding reduction in the par value of the stock, if the Board deems it to be appropriate and in the best interests of the Company to do so at any time prior to the next annual meeting of shareholders. The proposal was passed by an affirmative vote of 1,790,808 shares of outstanding voting stock in favor, 11,647 shares against, and 2,168 shares abstaining. Item 5 of Part II has been omitted because it is inapplicable or the response thereto is negative. Item 6. (a) Exhibits - See the Exhibit Index at Page 19. (b) Reports on Form 8-K - During the quarter for which this report is filed, the Registrant did not file any reports with the Securities and Exchange Commission on Form 8-K. 17 18 SIGNATURES Pursuant to the requirements 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. XETA CORPORATION (Registrant) Dated: June 9, 1999 By: /s/ Jack R. Ingram Jack R. Ingram President Dated: June 9, 1999 By: /s/ Robert B. Wagner Robert B. Wagner Vice President of Finance 18 19 EXHIBIT INDEX
SEC. NO. Description - -------- ----------- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession - None. (3) Articles of Incorporation and Bylaws - previously filed as Exhibits 3.1, 3.2, and 3.3 to the Registrant's Registration Statement on Form 5.1, Registration No. 33-7841. (4) Instruments defining rights of security holders, including indentures - previously filed as Exhibits 3.1, 3.2 and 3.3 to the Registrant's Registration Statement on Form S-1, Registration No. 33-7841. (10) Material Contracts - 10.1 Dealer Agreement Among Lucent Technologies; Distributor and Inacom Communications, Inc.; and XETA Corporation, for Business Telecommunications Systems. (11) Statement re: computation of per share earnings - Inapplicable. (15) Letter re: unaudited interim financial information - Inapplicable. (18) Letter re: change in accounting principles - Inapplicable. (19) Report furnished to security holders - None. (22) Published report regarding matters submitted to a vote of security holders - None. (23) Consents of experts and counsel 23.1 Consent of Arthur Andersen LLP (24) Power of attorney - None. (27) Financial Data Schedule (99) Additional exhibits - None.
19 EX-10.1 2 DEALER AGREEMENT EFFECTIVE MARCH 19, 1999 1 DEALER AGREEMENT AMONG LUCENT TECHNOLOGIES, INC; DISTRIBUTOR, INACOM COMMUNICATIONS, INC.; AND XETA CORPORATION FOR BUSINESS COMMUNICATIONS SYSTEMS TABLE OF CONTENTS 1.0 DEFINITIONS..................................................................1 2.0 DEALER APPOINTMENT...........................................................2 3.0 DEALER RESPONSIBILITIES......................................................3 4.0 INSTALLATION, WARRANTY AND POST-WARRANTY SERVICES............................5 5.0 PRODUCT, PRODUCT COMPONENTS, AND SOFTWARE LICENSE CHANGES....................5 6.0 DEALER FORECAST AND REPORTS..................................................6 7.0 INSURANCE....................................................................6 8.0 USE OF INFORMATION...........................................................6 9.0 LICENSE......................................................................7 10.0 TRADEMARKS..................................................................7 11.0 PRODUCT WARRANTY............................................................7 12.0 LIMITATION OF LIABILITY.....................................................8 13.0 INDEMNITY...................................................................9 14.0 INFRINGEMENT...............................................................10 15.0 TERMINATION OF AGREEMENT...................................................10 16.0 EFFECTS OF TERMINATION.....................................................11 17.0 SURVIVAL OF OBLIGATIONS....................................................12 18.0 FORCE MAJEURE..............................................................12 19.0 SEVERABILITY...............................................................12 20.0 ASSIGNMENT.................................................................12 21.0 NON-WAIVER.................................................................12 22.0 CHOICE OF LAW AND DISPUTES.................................................12 23.0 NOTICES....................................................................14 24.0 ENTIRE AGREEMENT...........................................................14 25.0 TERM.......................................................................14 APPENDIX: ADDRESSES............................................................15 APPENDIX: AREA.................................................................16 PRODUCT APPENDIX: DEFINITY(R) ECS & ASSOCIATED ADJUNCTS PRODUCT APPENDIX: GUESTWORKS(TM) SERVER & ASSOCIATED ADJUNCTS ATTACHMENT: EXISTING LUCENT DEALERS WITH EXCLUSIVE PRIMARY AREAS OF RESPONSIBILITY
2 AGREEMENT NO.: NEDA5I INDIRECT 990349 DEALER AGREEMENT AMONG LUCENT TECHNOLOGIES INC.; DISTRIBUTOR, INACOM COMMUNICATIONS, INC.; AND XETA CORPORATION FOR BUSINESS COMMUNICATIONS SYSTEMS This Dealer Agreement ("Agreement") is effective as of March 19,1999 and is among Lucent Technologies Inc. ("Lucent"), a Delaware corporation, through its Business Communications Systems unit ("BCS"), with offices at 211 Mount Airy Road, Basking Ridge, New Jersey 07920; XETA Corporation, ("Dealer"), an Oklahoma corporation, with its principal place of business at 5350 Manhattan Circle, Suite 210, Boulder, CO 80303; and Inacom Communications, Inc. ("Distributor"), a Delaware Corporation, with its principal place of business at Technologies Center, 13831 Chalco Valley Parkway, Omaha, NE 68138. LUCENT, DISTRIBUTOR AND DEALER HEREBY AGREE AS FOLLOWS: 1.0 DEFINITIONS For the purposes of this Agreement, the following terms and their definitions shall apply: 1.1 "Area" means the specific geographic area in which Dealer has agreed to market Lucent Products in accordance with this Agreement. The specific geographic areas that comprise the Area are identified by city, state, county and zip code or other appropriate description in the Appendix: Area. 1.2 "Dealer Service" means one or more of those services Dealer may choose to perform itself for Lucent Products in the Area. Dealer Services include system configuration to the End User, installation, warranty, and provision of post-warranty on-site maintenance. 1.3 "End User" means a third party to whom Dealer markets or sells Lucent Products within the Area for use by such third party in the ordinary course of its business and not for resale; see Section 2.8 of this Agreement for further limitations. 1.4 "Lucent Product" means a Lucent equipment model identified in a Product Appendix to this Agreement that Dealer has purchased from Distributor and that Distributor has purchased directly from Lucent through its BCS Distribution Development and Management group or an order source within Lucent designated by the BCS Distribution Development and Management group (collectively, "DDM") and that carries the standard Lucent warranty when resold to an End User. Lucent Products under this agreement are new only. Each Lucent Product consists of one or more Product Components. The set of Product Components that may be used to equip a Lucent Product is determined solely by Lucent. 1.5 "Lucent Service" means one or more of those services provided by Lucent that Dealer may choose to resell as a Lucent Service Sales Agent, including system configuration, installation, provision of post-warranty and on-site and remote maintenance service, and Professional Services. Lucent Service also includes post-warranty remote maintenance service separate from post-warranty on-site maintenance service, which Dealer may offer in conjunction with Dealer Service. Lucent Services, including the prices at which they may be offered to end users and the commissions payable on their sale, and the price at which Lucent will provide remote maintenance service as a subcontractor for Dealer Service are described and identified in an Appendix. 1.6 "Product Component" means an item of equipment identified by a Lucent equipment price element code. To the extent that a Product Component contains or consists of any firmware or software, an End User shall have the right to use such firmware or software in accordance with Section 9.0. 1 3 1.7 "Software" means any computer program that is composed of routines, subroutines, instructions, processes, algorithms, and like ideas or know-how, owned by or licensed to Lucent and or one or more of its suppliers, regardless of the medium of delivery, including revisions, patches and updates of the same. 1.8 "Territory" means the United States of America, including the District of Columbia but excluding 1) the Commonwealth of Puerto Rico and all other territories, protectorates and possessions of the United States of America, and 2) the geographical areas defined as the "Primary Area of Responsibility" for Cincinnati Bell Telecommunication Services Inc. (the Cincinnati Bell Telephone Company operating area in the states of Ohio, Kentucky and Indiana). The above listed exclusions do not preclude Dealer from making sales calls and obtaining contracts with customers headquartered in the excluded areas so long as all Lucent Products under such contracts are installed outside the excluded areas. 2.0 DEALER APPOINTMENT 2.1 Lucent hereby authorizes Distributor to sell to Dealer, for resale to End User customers only who are located in Dealer's Area, the Lucent Products purchased from DDM and listed in a Product Appendix hereto. Dealer's authorized marketing location(s) and shipping location(s) are set forth in the Appendix: Addresses. If Dealer has marketed or sold new Lucent Products to an End User as defined in Section 1.3 hereof, which Lucent Products are installed and used at premises within Dealer's Area, Dealer may market and sell limited quantities of Lucent Products to other locations of that End User outside the Area but in the Territory. Lucent's authorization is predicated on Dealer's agreement to market the Lucent Products in the Area and to achieve the Area forecast submitted pursuant to Section 6.0 of this Agreement. Lucent Products installed outside the Area will not be considered by Lucent when determining whether Dealer has achieved its Area forecast submitted pursuant to Section 6.0 of this Agreement. Dealer's sales of Lucent Products outside the Area (unless specifically permitted by this Section 2.1), Dealer's failure to limit its marketing efforts and sales of Lucent Products to authorized End-Users, or Dealer's failure to achieve levels of sales acceptable to Lucent in the Area shall, among others, be grounds for termination or nonrenewal of this Agreement. 2.2 Dealer and Distributor acknowledge that Distributor is obligated to provide Lucent with its best efforts to prevent or cure any breach of this Agreement by Dealer and that if Distributor fails to provide such assistance or if Distributor causes or contributes to such breaches, Lucent has the right to terminate its agreements with Distributor and all subtending Dealer Agreements, including this one. In the event of issues between Dealer and Distributor that do not rise to the level of breaches of this Agreement, but may cause one or the other to terminate this Agreement without cause, both Dealer and Distributor acknowledge that Lucent intends not to become involved in resolving any such issues. 2.3 Dealer shall have no right to authorize others to resell or market Lucent Products and any such authorization or attempted authorization shall be void and without effect. Dealer's sales of Lucent Products to other resellers shall be grounds for termination or nonrenewal of this Agreement. Dealer is not authorized to employ sales agents (other than an employee of Dealer located at an authorized Dealer marketing location) or other independent contractors to market Lucent Products. Dealer agrees that it has no exclusive right to market the Lucent Products set forth in a Product Appendix hereto in the Area or Territory, and that no franchise is granted to Dealer herein. No payment of any fee or equivalent charge is required of Dealer by Lucent as a condition of this Agreement. 2.4 Lucent expressly reserves both the right to contract with others to market Lucent Products in the Territory and the Area and to itself directly engage in such marketing. 2.5 The relationship of the parties under this Agreement shall be, and shall at all times remain, one of independent contractors and not that of franchisor and franchisee, joint venturers, or principal and agent. Neither Dealer nor Distributor shall have any authority to assume or create obligations on behalf of Lucent with respect to Lucent Products, and neither Dealer nor Distributor shall take any action that has the effect of creating the appearance of its having such authority. 2 4 2.6 Dealer, directly or through a contractor, shall be solely responsible for payment of all their unemployment, Social Security and other payroll taxes including contributions from Dealer when required by law. No person furnished by Dealer to sell Products or provide Services under this agreement shall under any circumstances be deemed to be an employee of Lucent. 2.7 Dealer may market Lucent Products only from the authorized marketing locations in its Area. During the term of this Agreement, no new or additional Dealer marketing location(s) may be established in or outside of the Area to market Lucent Products without prior written authorization from Lucent. 2.8 Dealer may not market or sell Lucent Products to any office, department, agency, or defense installation of the United States Government. Dealer is not appointed or authorized to market or sell Lucent Products to the United States Government by reason of the fact that Dealer has, in the past, sold used or unused products manufactured by Lucent to the United States Government. 3.0 DEALER RESPONSIBILITIES 3.1 Dealer has previously submitted an "Authorized Dealer Application". Dealer certifies and warrants that, to the best of its knowledge, such information is current, accurate, complete and not misleading. Dealer also agrees during the term of this Agreement to notify Distributor and Lucent immediately in writing and describe in detail any significant or material change in such information. 3.2 Dealer represents that it has the necessary marketing capabilities, integrity and dedication to sell forecast quantities of complete Lucent business telecommunications systems to End Users located in Dealer's Area. Dealer agrees to devote its best efforts to promote and market Lucent Products to End Users within the Area. Dealer also warrants that it will conduct its business in a manner that reflects favorably on the quality image of Lucent Products and on the good name, goodwill or reputation of Lucent and will not employ deceptive, misleading or unethical practices that are or might be detrimental to Lucent or its Products. 3.3 Dealer shall not purchase or otherwise obtain Lucent Products for resale from any source other than Distributor unless a Lucent Product is not available from Distributor on a timely basis, in which case Dealer may purchase that Lucent Product from the Lucent Catalogs or the NPSC, provided that such purchases are only to meet a specific customer need. Dealer's purchase or resale of an unused product originally manufactured by Lucent that, if purchased from Distributor, would be a Lucent Product under this Agreement, shall be grounds for immediate termination of this Agreement. 3.4 Dealer shall provide and consistently maintain a staff of adequately trained and competent sales personnel, knowledgeable of the specifications, features and advantages of the Lucent Products. Such personnel shall be made aware of the restrictions on use of Lucent's Information as set forth in Section 8.0. All training that Lucent requires Dealer personnel to undergo that enables Dealer to market and demonstrate Lucent Products effectively shall be provided at no charge to Dealer. All other marketing or Lucent Product training requested by the Dealer and offered by Lucent, will be furnished to Dealer at Lucent's standard rates, terms and conditions. However, Lucent will waive such fees to train the first 10 Dealer sales personnel. 3.5 Dealer represents that it has or will acquire the service capabilities necessary to meet Lucent's quality standards for design, installation, and provision of warranty and maintenance on-site services for Lucent Products, if Dealer opts to provide such services. If Dealer chooses to provide Dealer Service, Dealer shall provide and consistently maintain a staff of services personnel, trained on the Lucent Products to Lucent's specifications. Such personnel shall be made aware of the restrictions on use of Lucent's Information as set forth in Section 8.0. All services training that Lucent requires Dealer personnel to undergo, or other services training requested by the Dealer and offered by Lucent, will be furnished to Dealer at Lucent's standard rates, terms and conditions. However, Lucent will waive such fees to train the first 50 Dealer technicians and 5 dealer CSR's. If Dealer has subcontracted with Lucent to perform all or part of Dealer Service to an End User and Dealer installs unused product(s) manufactured by Lucent but not purchased from DDM as part of that End User's system, in addition to 3 5 any other remedies available to Lucent, Lucent may terminate any Dealer licenses to use Lucent maintenance software and also terminate its subcontracts with Dealer to perform Dealer Service. If Dealer has sold a Lucent Product system and a Lucent Post-Warranty Maintenance service contract to an End User, Dealer will advise such End User that addition of used and unused product(s) to the Lucent Product system may void Lucent's warranty and cause Lucent to terminate the service contract. 3.6 Dealer agrees to purchase and maintain a working Lucent system either as a demonstration model or as Dealer's primary telecommunications system at Dealer's principal marketing location. 3.7 Dealer shall inform End Users of the Services available from Dealer. 3.8 Dealer shall report promptly to Lucent all known or suspected Lucent Product defects or safety problems and keep Lucent informed of End User complaints with respect to Lucent Products or Services. 3.9 Dealer shall provide Lucent reasonable access to Dealer's premises during normal business hours to inspect and verify Dealer performance of its obligations under this Agreement, including the right to inspect and audit Dealer's records relating to Lucent Product transactions in and out of Dealer's Area, Dealer's purchases and sales of unused products, Distribution Functions and Dealer Services. 3.10 Dealer shall comply with all applicable requirements of federal, state and local laws, ordinances, administrative rules and regulations, including, by way of illustration and not limitation, all requirements of Part 68 of the Federal Communication Commission's (FCC) Rules and Regulations and the Federal Export Administration Act of 1969, 50 U.S.C. app. Sections 2401-2414. 3.11 a. To ensure fulfillment of Lucent's Product and Software warranties to End Users, to ensure End User safety, to ensure End Users receive the latest information concerning the use of Lucent Products and enhancements thereto, to maintain End User satisfaction, and to assist Lucent in tracking equipment maintenance obligations and materiel accountability, Dealer agrees to maintain and make available to Lucent on reasonable request an accurate and complete list of Dealer's Lucent Product and Software End Users by name, installation address, the Lucent Product Components furnished to each End User, the transaction date, and (for End Users who elect to install their own systems only), all serial numbers associated with the new Lucent Products, Software or new Lucent Product Components. The obligation to maintain and make such information available to Lucent shall survive expiration or termination of this Agreement. Lucent will use this information solely for the purposes set forth in this Section 3.11. b. If Lucent is to install the Products, Dealer shall give the information described in 3.11a., above, to the Lucent Branch where the End User is located, in the agreed format, as soon as Dealer's order process is completed. This will enable the customer to receive the Lucent Warranty on the new Lucent Products and Software, and if the customer has a Post Warranty Maintenance contract and has like products, the new Lucent Products will automatically be added to that contract when the Warranty expires. 3.12 Dealer shall keep accurate accounts, books and records relating to the business of Dealer with respect to Lucent Products and Dealer Services in accordance with generally accepted commercial and business accounting principles and practices that are sufficient for Lucent to ascertain Dealer's compliance with its obligations under this Agreement. 3.13 To maintain Lucent's high standards for End User satisfaction and Lucent Product and Service quality, Dealer agrees to abide by Lucent's Dealer Quality Policy. Dealer agrees to participate in Lucent's Customer 4 6 Satisfaction Surveys. Lucent may conduct performance reviews of all Dealer responsibilities and Dealer fulfillment of the Lucent Dealer Quality Policy. 3.14 By the fifth (5th) business day of each month, in a format to be provided by Lucent to Dealer, Dealer will submit a point-of-sale report of sales made the previous month, by Lucent order code, ZIP code, and quantity. 4.0 INSTALLATION, WARRANTY AND POST-WARRANTY SERVICES 4.1 Any installation or post-warranty Services required by End Users purchasing Products from Dealer may be furnished by Dealer. To ensure the provision of high quality installation and post-warranty Services to End Users, Dealer shall: (i) be adequately trained; and (ii) perform such Services competently and in accordance with any applicable Lucent standards. The indemnity obligations of Dealer under Section 13.1 shall apply to any Services furnished by Dealer to End Users. If Dealer desires to have Lucent perform installation and post warranty Services for Dealer's End Users, Dealer may apply for appointment as a Lucent Service Sales Agent. 4.2 If Dealer desires to furnish Services directly to End Users, Lucent will provide installation and maintenance training for the Products Dealer is authorized to market. Initial training will be furnished to Dealer without charge under Lucent's standard terms and conditions. Additional training will be provided at Lucent's standard rates, terms and conditions. 4.3 Replacement, spare or maintenance Product Components required by Dealer, to the extent that Lucent in its sole discretion makes such Product Components available, can be purchased either directly from Lucent pursuant to this Agreement or through Lucent's National Parts Sales Center (NPSC). In the event Dealer elects to purchase such Product Components from the NPSC, such purchases shall be at the prices, terms and conditions established by the NPSC. Replacement, spare and maintenance Product Components provided to Dealer or purchased by Dealer under this Agreement may, at Lucent's option, be either new or refurbished. 4.4 Dealer may incorporate Lucent's remote maintenance support features in all its Services Offers to End Users. Lucent will serve as Dealer's subcontractor for such remote maintenance. NO LICENSE IS GRANTED, AND NO TITLE OR OTHER OWNERSHIP RIGHTS IN LUCENT'S INTELLECTUAL PROPERTY RELATED TO LUCENT'S PROVISION OF REMOTE MAINTENANCE SUPPORT SHALL PASS TO DEALER UNDER THIS AGREEMENT OR AS A RESULT OF ANY PERFORMANCE HEREUNDER. Dealer agrees to provide Lucent with accurate information on End User port capacity, software attachments, and other information required in order for Lucent to invoice Dealer accurately for such remote support. Failure to provide such accurate information or to update it on a timely basis shall entitle Lucent to terminate this Agreement upon written notice to Dealer. Connection of unused product(s) manufactured by Lucent but not purchased from DDM as part of an End User's system may, in addition to any other remedies available to Lucent, permit Lucent to terminate any Dealer licenses to use Lucent maintenance software and also to terminate all its subcontract(s) with Dealer to perform Dealer Service. 5.0 PRODUCT, PRODUCT COMPONENTS, AND SOFTWARE LICENSE CHANGES 5.1 Lucent may without the consent of Dealer, but with ninety(90) days advance written notice to Dealer, delete any Lucent Product from Product Appendix(ces) and, upon thirty (30) days advance written notice to Dealer, delete any Lucent Product Component listed in Product Appendix(ces). 5.2 Lucent may, at any time without advising Dealer, make changes in the Lucent Products or Lucent Product Components or modify the drawings and specifications relating thereto, or substitute Lucent Products or Lucent Product Components of later design to fill an order, provided the changes, modifications or substitutions under normal and proper use do not adversely impact upon form, fit or function or are recommended by Lucent to enhance safety. Lucent may, at any time with ten days advance notice to Dealer, change the terms of its End User Software License. 5 7 6.0 DEALER FORECAST AND REPORTS 6.1 Upon execution of this Agreement, Dealer shall submit to Lucent a forecast of total Lucent Product orders to be placed by Dealer during the contract term. The forecast must specify, for each quarter, the total unit quantities of each Lucent Product construct (i.e., average configuration of Lucent Product Components in an initial End User installation of a Lucent Product model) to be ordered. 6.2 Lucent may reject any forecast submitted by Dealer if, in Lucent's sole judgment, such forecast does not project either: (1) the level of Lucent Product orders Lucent reasonably requires of Dealer to achieve its marketing objectives in the Area; or (2) a realistic assessment of Dealer's potential successful marketing opportunities in the Area during the forecast period. Lucent shall notify Dealer in writing within thirty (30) days of receipt of Dealer's forecast if Lucent has rejected such forecast or it will be deemed to have been accepted by Lucent. 6.3 Dealer shall submit the forecast of Lucent Product orders and actual Lucent Product installation data specified in Section 3.12 in a format specified by Lucent. 7.0 INSURANCE Dealer shall maintain, during the term of this Agreement, all insurance and bonds required by any applicable law, including but not limited to: (1) workers' compensation insurance as prescribed by the laws of all states in which work pursuant to this Agreement is performed; (2) employer's liability insurance with limits of at least $1 million per occurrence; and (3) comprehensive personal liability insurance coverage (including products liability coverage and comprehensive automobile liability coverage) with limits of at least $1 million for bodily injury, including injury to any one person and $1 million on account of any single occurrence, and $1 million for each occurrence of property damage, or in lieu of such limits, bodily injury and property damage liability insurance (including products liability and comprehensive automobile coverage) with a combined single limit of at least $2 million per occurrence. Dealer shall name Lucent as an Additional Insured on all such policies. Upon request of Distributor or Lucent, Dealer shall furnish adequate proof of such insurance. 8.0 USE OF INFORMATION All technical and business information, National List prices, discounts or rebates, and trade secrets in any form, furnished to any party under or in contemplation of this Agreement and identified as or known by the receiving party or parties to be proprietary to the furnishing party (all hereinafter designated "Information") shall remain the property of the furnishing party. Unless the furnishing party otherwise expressly agrees in writing, such Information: (i) shall be treated in confidence by the receiving party or parties and used only for the purposes of performing the receiving party's or parties' obligations under this Agreement; (ii) shall not be disclosed to anyone, except to employees of the receiving party or parties and End Users to whom such disclosure is necessary to the use for which rights are granted hereunder; (iii) shall not be reproduced or copied in whole or in part, except as necessary for use as authorized in this Agreement; and (iv) shall, together with any copies thereof, be returned, be destroyed or, if recorded on an erasable storage medium, be erased when no longer needed or when this Agreement terminates, whichever occurs first. Any copies made as authorized herein shall contain the same copyright notice or proprietary notice or both that appear on the Information copied. The above conditions do not apply to any part of the Information (i) which is or becomes known to the receiving party or parties free of any obligation to keep same in confidence; (ii) which is or becomes generally available to the public without breach of this Agreement; or (iii) which is independently developed by the receiving party or parties. The obligation of confidentiality and restrictions on use of Information shall exist for a period of (i) two (2) years after the termination of this Agreement, or (ii) seven (7) years after the receipt of such Information, whichever is longer. 6 8 9.0 LICENSE 9.1 Upon delivery of Lucent Product firmware and software to Dealer, Lucent grants to Dealer a personal and non-exclusive right to use such licensed materials ("Licensed Materials") in the Area and Territory solely to fulfill its duties and obligations under this Agreement. NO TITLE OR OTHER OWNERSHIP RIGHTS IN INTELLECTUAL PROPERTY OR OTHERWISE IN THE LICENSED MATERIAL OR ANY COPY THEREOF SHALL PASS TO DEALER UNDER THIS AGREEMENT OR AS A RESULT OF ANY PERFORMANCE HEREUNDER. 9.2 Dealer agrees: (i) to make only those copies of Software necessary for its use under this Agreement and assure that such copies contain any proprietary or copyright notice appearing on the Software being copied; (ii) not to reverse engineer, decompile or disassemble the Licensed Materials or otherwise attempt to learn the source code, structure, algorithms or ideas underlying the Licensed Materials; (iii) not to export the Licensed Materials out of the Territory, and (iv) not to use the Software directly for any third person or permit any third person to use the Software except as necessary under this Agreement. 9.3 Lucent further grants to Dealer the right to furnish Licensed Materials to End Users coincident with the sale of Lucent Products utilizing such Licensed Materials, provided, however, that unless the Licensed Materials come with a limited use license, which may be in the form of a shrink-wrap (break-the-seal) agreement, provided by Lucent, Dealer obtains agreement in writing from the End User, before or at the time of furnishing each copy of Licensed Materials, in the form set forth in an Appendix to this Agreement. 10.0 TRADEMARKS 10.1 Lucent grants Dealer permission to utilize certain Lucent designated trademarks, insignia, and symbols ("Marks") in Dealer's advertising and promotion of Lucent Products furnished hereunder, provided such use conforms to Lucent's standards and guidelines. Dealer shall not do business under any Mark or any derivative or variation thereof, and Dealer shall not directly or indirectly hold itself out as having any relationship to Lucent or its affiliates other than as an "Authorized Lucent Dealer" or other Lucent approved term. Except as provided in Section 16.1, Marks may only be used by Dealer to advertise and promote the Lucent Products during the term of this Agreement. Marks are not to be used by Dealer in any way to imply Lucent's endorsement of products, licensed materials or services not furnished hereunder, such as used or unused products originally manufactured by Lucent. Marks are not to be used by Dealer in advertising or marketing materials, including print media, radio, television, broadcast facsimile, telemarketing or Internet websites, that principally reach End User prospective customers outside Dealer's Area. Such uses of Marks will be cause for immediate termination of this Agreement. Dealer will not alter or remove any Mark applied to Lucent Products without the prior written approval of Lucent. Nothing in this Agreement creates in Dealer and Dealer agrees not to assert, any rights in the Marks. 10.2 All Dealer-initiated advertisements or promotions using Marks or any reference thereto, whether under a promotional allowance program or otherwise, shall receive pre-publication review and approval by Lucent with respect to, but not limited to context, style, appearance, composition, timing and media. 10.3 This Agreement does not give Dealer any rights to use the logo or trademark of AT&T Corp. Such rights cannot be obtained under this Agreement or any other Agreement with Lucent Technologies Inc. 11.0 PRODUCT WARRANTY 11.1 Dealer may, but is not required to, provide warranties and remedies in addition to but not less than the warranties and remedies set forth in Section 11.2. Dealer shall inform the End User of Lucent's Limitation of Liability as set forth in Section 12 of this Agreement, in a reasonable manner. Lucent has warranted to Distributor the title of the Lucent Products purchased by Distributor from DDM and resold to Dealer under this Agreement. This warranty of title is the only warranty provided to Dealer. 7 9 11.2 Dealer shall, before or at the time of delivery of Lucent Products, advise an End User of the following: (i) that the Lucent Products may contain remanufactured parts that are equivalent to new in performance and appearance; (ii) that there is a toll fraud exclusion in Lucent's warranty, with a specific reference to the words of that exclusion and an explanation of the meaning of those words; (iii) that the Lucent Products are warranted to the end user on the Delivery or In-Service Date, whichever is applicable, and for a period of one (1) year thereafter to operate in accordance with Lucent's standard published specifications; and if any Lucent Products are not operational during the warranty period, that the End User shall notify the Dealer who at its option will replace or repair those Lucent Products without charge. Replaced Lucent Products become the property of Dealer; and (iv) THAT LUCENT AND ITS AFFILIATES AND SUPPLIERS MAKE NO OTHER WARRANTIES EXPRESS OR IMPLIED AND SPECIFICALLY DISCLAIM ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE. 11.3 EXCEPT FOR THE WARRANTY OF TITLE TO DISTRIBUTOR AND THE LIMITED PRODUCT WARRANTY TO DEALER'S END USERS REFERENCED IN THIS SECTION, LUCENT, ITS AFFILIATES AND SUPPLIERS MAKE NO WARRANTIES EXPRESS OR IMPLIED AND SPECIFICALLY DISCLAIM ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE. 11.4 The indemnity obligations of Dealer under Section 13.1 shall apply to Dealer's provision of End User warranty assistance services and to any failure to refer to and explain the toll fraud exclusion to an End User. Dealer may return Lucent Products replaced under Section 11.2 (iii) to Lucent for replacement by Lucent. 11.5 Dealer shall, before or at the time of delivery of used or unused Lucent products, advise an End User of the following: (i) Used or unused Lucent products were not purchased by Dealer under this Agreement, and if purchased from Distributor, Distributor did not purchase such products from Lucent under its Distributor Agreement with Lucent; (ii) Used or unused products are not warranted by Lucent; (iii) Dealer has no knowledge of the conditions under which unused products may have been stored or shipped prior to their delivery to Dealer; and (if End User has a Service Agreement with Lucent); (iv) Used or unused products may not be certifiable for addition to the Service Agreement. 12.0 LIMITATION OF LIABILITY EXCEPT FOR PERSONAL INJURY AND EXCEPT FOR THE LIABILITY EXPRESSLY ASSUMED BY LUCENT UNDER SECTIONS 13 AND 14 OF THIS AGREEMENT, THE LIABILITY OF LUCENT AND ITS PARENT OR AFFILIATES FOR ANY CLAIMS, LOSSES, DAMAGES OR EXPENSES FROM ANY CAUSE WHATSOEVER (INCLUDING CLAIMS OF INFRINGEMENT AND ACTS OR OMISSIONS OF THIRD PARTIES) REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE LESSER OF THE DIRECT DAMAGES PROVEN OR THE REPAIR, REPLACEMENT COSTS (INCLUDING THE COSTS OF COVER) OR PURCHASE PRICE OF THE PRODUCTS OR SERVICE THAT DIRECTLY GIVES RISE TO THE CLAIM. IN NO EVENT SHALL LUCENT OR ITS PARENT OR AFFILIATES BE LIABLE TO DEALER OR TO ANY OTHER COMPANY OR 8 10 ENTITY FOR ANY INCIDENTAL, RELIANCE, CONSEQUENTIAL OR ANY OTHER INDIRECT LOSS OR DAMAGE (INCLUDING LOST PROFITS OR REVENUES OR CHARGES FOR COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO PRODUCTS ["TOLL FRAUD"]) ARISING OUT OF THIS AGREEMENT. NO ACTION OR PROCEEDING AGAINST LUCENT MAY BE COMMENCED MORE THAN TWELVE (12) MONTHS AFTER THE CAUSE OF ACTION ACCRUES. THIS SECTION SHALL SURVIVE FAILURE OF AN EXCLUSIVE REMEDY. EXCEPT FOR PERSONAL INJURY, THE LIABILITY OF DEALER AND ITS PARENT OR AFFILIATES FOR ANY CLAIMS, LOSSES, DAMAGES OR EXPENSES FROM ANY CAUSE WHATSOEVER (INCLUDING CLAIMS OF INFRINGEMENT AND ACTS OR OMISSIONS OF THIRD PARTIES) REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE LESSER OF THE DIRECT DAMAGES PROVEN OR THE REPAIR, REPLACEMENT COSTS (INCLUDING THE COSTS OF COVER) OR PURCHASE PRICE OF THE PRODUCTS OR SERVICE THAT DIRECTLY GIVES RISE TO THE CLAIM. IN NO EVENT SHALL DEALER OR ITS PARENT OR AFFILIATES BE LIABLE TO LUCENT OR TO ANY OTHER COMPANY OR ENTITY FOR ANY INCIDENTAL, RELIANCE, CONSEQUENTIAL OR ANY OTHER INDIRECT LOSS OR DAMAGE (INCLUDING LOST PROFITS OR REVENUES OR CHARGES FOR COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO PRODUCTS ["TOLL FRAUD"]) ARISING OUT OF THIS AGREEMENT. NO ACTION OR PROCEEDING AGAINST DEALER MAY BE COMMENCED MORE THAN TWELVE (12) MONTHS AFTER THE CAUSE OF ACTION ACCRUES. THIS SECTION SHALL SURVIVE FAILURE OF AN EXCLUSIVE REMEDY. 13.0 INDEMNITY 13.1 Unless Dealer's liability is otherwise limited or excluded in other sections of this Agreement, Dealer will indemnify Lucent for the full amount of any settlement or final judgment that arises out of a claim or suit by a third party to the extent that such claim or suit is based on strict tort liability, breach of a warranty provided by Dealer, or the intentional or negligent acts or omissions of Dealer. Dealer's obligation to indemnify Lucent will be reduced in proportion to which the settlement or final judgment is attributable to the strict tort liability of Lucent, breach of a Lucent warranty, or the intentional or negligent acts or omissions of Lucent, unless liability for such acts or omissions of Lucent is otherwise excluded in other sections of this Agreement, or the negligent acts or omissions of any other third party not under Dealer's direct control. Dealer's obligation to indemnify Lucent shall be contingent upon: (1) Lucent promptly notifying Dealer in writing of the existence of any claim or suit that may result in a settlement or judgment for which Dealer may be obligated to indemnify Lucent; (2) Lucent giving Dealer full opportunity and authority to assume sole responsibility to settle and defend any such claim or suit; and (3) Lucent furnishing to Dealer upon reasonable request all information and assistance that Dealer deems to be reasonably required to settle or defend such claim or suit. Dealer will also indemnify Lucent for the full amount of any settlement or final judgment that arises out of a claim or suit by a third party based on Dealer's establishment of its relationship with Lucent, whatever the nature of the claim or suit. These indemnities are in lieu of all other obligations of Dealer, express or implied, in law or in equity, to indemnify Lucent for claims or suits covered by this section. Dealer's liability to indemnify Lucent shall in no event exceed $500,000. 13.2 Unless Lucent's liability is otherwise limited or excluded in other sections of this Agreement, Lucent will indemnify Dealer for the full amount of any settlement or final judgment that arises out of a claim or suit by a third party to the extent that such claim or suit is based on the strict tort liability of Lucent, breach of a Lucent warranty, or the intentional or negligent acts or omissions of Lucent. Lucent's obligation to indemnify Dealer shall be reduced in proportion to which the settlement or final judgment is attributable to the strict tort liability of Dealer, breach of a Dealer warranty, or the intentional or negligent acts or omissions of Dealer or any other third party not under Lucent's direct control. Lucent's obligation to indemnify Dealer will be contingent upon: (1) Dealer promptly notifying Lucent in writing of the existence of any claim or suit that may result in a settlement or final judgment for which Lucent may be obligated to indemnify Dealer; (2) Dealer giving Lucent full opportunity and authority to assume sole responsibility to settle or defend any such claim or suit; and (3) Dealer furnishing to Lucent upon reasonable request all information and assistance available to Dealer that Lucent deems to be reasonably required to settle or defend such claim or suit. THIS INDEMNITY IS IN LIEU OF ALL OTHER 9 11 OBLIGATIONS OF LUCENT, EXPRESS OR IMPLIED, IN LAW OR IN EQUITY, TO INDEMNIFY DEALER FOR CLAIMS OR SUITS COVERED BY THIS SECTION. LUCENT'S LIABILITY TO INDEMNIFY DEALER SHALL IN NO EVENT EXCEED $500,000. 13.3 The party electing to take responsibility for settling or defending any claim or suit covered by this Section 13.0 will be responsible for the attorney's fees and costs incurred by said party to settle or defend such claim or suit. 14.0 INFRINGEMENT 14.1 Lucent will defend or settle, at its own expense, any action brought against Dealer or an End User, to the extent that it is based on a claim that the normal use or sale of any Lucent Products provided under this Agreement infringe any United States patent, trademark or copyright, that any licensed materials provided under this Amendment infringe any United States copyright or violate the trade secret of a third party. Lucent will pay those costs, damages and attorneys' fees finally awarded against Dealer or an End User in any such action attributable to any such claim, but such defense, settlements and payments are conditioned on the following: (i) that Lucent shall be notified promptly in writing by Dealer or an End User of any such claim; (ii) that Lucent shall have sole control of the defense of any action on such claim and of all negotiations for its settlement or compromise; (iii) that Dealer or End User shall cooperate in a reasonable way to facilitate the settlement or defense of such claim, and that Dealer or End User has made no statement or taken any action that might hamper or undermine Lucent's defense or settlement; (iv) that such claim does not arise from modifications to Lucent Products or licensed materials not authorized by Lucent or from use or combination of the Lucent Products with software and/or apparatus or equipment not supplied or specified by Lucent; (v) that such claim does not arise from adherence to Dealer's or End User's instructions or the use of items, materials or information of Dealer's or End User's origin, design or selection; and (vi) that should Lucent Products or licensed materials become, or in Lucent's opinion, be likely to become, the subject of such claim of infringement, then Dealer or End User shall permit Lucent, at Lucent's option and expense, either to: (1) procure for Dealer or End User the right to continue using the Lucent Products or licensed materials, or (2) replace or modify the same so that it is not subject to such claim and is functionally equivalent or (3) upon failure of (1) and (2) above despite the reasonable efforts of Lucent, remove the infringing Lucent Product or terminate Dealer's or End User's rights under the license and refund the purchase price or fee paid less a reasonable allowance for use, damage and obsolescence. In the event that a claim of infringement arises for which the liability of Lucent is excepted under (iv) or (v) above, Dealer or End User will defend and save Lucent harmless to the same extent and subject to the same limitations as apply to Lucent when Lucent is liable hereunder. This Section 14.0 states the entire liability of Lucent with respect to infringement by Lucent Products or licensed materials provided hereunder. 15.0 TERMINATION OF AGREEMENT 15.1 Unless a party gives written notice of its intent not to renew to the other parties ninety (90) days in advance of the termination date, this Agreement will automatically renew for an additional term. Any party may terminate this Agreement without cause on ninety (90) days notice, except that all parties agree not to terminate this Agreement without cause during the first six months of the initial term of this Agreement. 15.2 Lucent may terminate this Agreement upon thirty (30) days prior written notice to Dealer and Distributor if: (i) Dealer markets or sells Lucent Products outside the Area except as specifically permitted in Section 2.1; (ii) Dealer fails to limit its marketing efforts to authorized locations or End-Users as defined in Section 1.3; (iii) Dealer fails to make reasonable commercial efforts to achieve levels of sales that comply with the Lucent Product forecasts for the Area submitted pursuant to Section 6.0; (iv) Dealer fails to provide an acceptable quality of service to End Users; or (v) there occurs any material change in the management or control of Dealer. 15.3 Except as otherwise provided in this Agreement, either party may terminate this Agreement upon thirty (30) days prior written notice if the party has defaulted in the performance or has breached its obligations under this Agreement, and such breach or default remains uncured for a period of twenty (20) business days following receipt of notice of such breach or default. 10 12 15.4 Lucent or Distributor may terminate this Agreement upon twenty-four (24) hours written notice if Dealer has: (i) become insolvent, invoked as a debtor any laws relating to the relief of debtors' or creditors' rights, or has had such laws invoked against it; (ii) become involved in any liquidation or termination of its business; (iii) been involved in an assignment for the benefit of its creditors; (iv) sold or attempted to resell Lucent Products to any third party other than an End User; (v) appointed or attempted to appoint any unauthorized agent or unauthorized manufacturer's representatives for Lucent Products; (vi) purchased from a source other than Distributor, sold or attempted to resell any unused products manufactured by Lucent that, if purchased from DDM through Distributor, would be a Lucent Product under this Agreement; (vii) remotely accessed PBX locations maintained by Lucent directly; (viii) activated software features without compensation to Lucent when compensation is due to Lucent; (ix) misrepresented, by statement or by omission, Dealer's authority to resell under this or any other written agreement with Lucent that is limited to specific Lucent products or services, by stating or implying, by use of a Lucent Mark or otherwise, that the authority granted in this or such other agreement applies to any Lucent product or service not covered by this or such other agreement, or (x) failed to comply with Lucent's guidelines for the proper use of Lucent's Marks. 15.5 Dealer may terminate this Agreement on twenty-four (24) hours written notice if Lucent or Distributor has: (i) become insolvent, invoked as a debtor any laws relating to the relief of debtors' or creditors' rights, or has had such laws invoked against it; or (ii) become involved in any liquidation or termination of its business; (iii) been involved in an assignment for the benefit of its creditors. 15.6 Notwithstanding such termination rights, each party reserves all of its legal rights and equitable remedies, including without limitation those under the Uniform Commercial Code. 15.7 No party shall be liable to any other on account of termination of this Agreement, either for compensation or for damages of any kind or character whatsoever, on account of the loss by Lucent, Distributor or Dealer of present or prospective profits on sales or anticipated sales, good will, or expenditures, investments or commitments made in connection therewith or in connection with the establishment, development or maintenance of Distributor's or Dealer's business. 16.0 EFFECTS OF TERMINATION Upon termination or expiration of this Agreement, Dealer shall immediately: 16.1 discontinue any and all use of Marks, including but not limited to such use in advertising or business material of Dealer, except to identify the Lucent Products; provided that if Lucent does not repurchase Dealer's remaining inventory, Dealer may continue using Marks as authorized in this Agreement for an additional ninety (90) days for the limited purpose of marketing such inventory to End Users after termination is effective; 16.2 remove and return to Lucent or destroy at Lucent's request, any and all promotional materials supplied without charge by Lucent except those necessary for the limited purpose of marketing existing Dealer inventory pursuant to Section 16.1; 16.3 return all Lucent proprietary Information, Licensed Materials and Software, except that which Lucent determines is necessary to operate and maintain previously furnished Lucent Products; 16.4 cease holding itself out, in any manner, as a Lucent authorized Dealer of the Lucent Products; and 16.5 notify and arrange for all publishers and others (including, but not limited to, publisher of telephone and business directories) who may identify, list or publish Dealer's name as a Lucent authorized Dealer of Lucent Products, to discontinue such listings. 11 13 17.0 SURVIVAL OF OBLIGATIONS The respective obligations of Dealer and Lucent under this Agreement that by their nature would continue beyond the termination, cancellation or expiration of this Agreement, shall survive termination, cancellation or expiration hereof, such as, by way of example only, the obligations pursuant to the following Sections: USE OF INFORMATION, LICENSE, TERMINATION OF AGREEMENT, LIMITATION OF LIABILITY, INDEMNITY and TRADEMARKS. 18.0 FORCE MAJEURE Except for Dealer's obligation to make timely payments, neither party shall be held responsible for any delay or failure in performance to the extent that such delay or failure is caused by fires, embargoes, explosions, labor disputes, government requirements, civil or military authorities, acts of God, inability to secure raw materials or transportation facilities, acts or omissions of carriers or suppliers or any other causes beyond the parties' control whether or not similar to the foregoing. 19.0 SEVERABILITY If any section, or clause thereof, in this Agreement is held to be unenforceable, then the meaning of such section or clause will be construed so as to render it enforceable, to the extent feasible; and if no reasonable interpretation would save such section or clause, it will be severed from this Agreement and the remainder will remain in full force and effect. However, in the event such section or clause is considered an essential element of this Agreement by either Lucent or Dealer, the parties shall promptly negotiate a replacement therefor. 20.0 ASSIGNMENT Dealer shall not assign any right or interest under this Agreement or delegate any work or other obligation to be performed or owed by Dealer under this Agreement without the prior written consent of Lucent, which consent shall not be unreasonably withheld. Any assignment or delegation by Dealer without such consent shall be void and ineffective. By the provision of notice thereof in accordance with this Agreement, Lucent shall have the right to assign this Agreement and to assign its rights and delegate its obligations and liabilities under this Agreement, either in whole or in part (an "Assignment"), to any entity that is, or that was immediately preceding such Assignment, a current subsidiary, business unit, division or other affiliate of Lucent. The notice of Assignment shall state the effective date thereof. Upon the effective date and to the extent of the Assignment, Lucent shall be released and discharged from all obligations and liabilities under this Agreement. Such Assignment, release and discharge shall be complete and shall not be altered by the termination of the affiliation between Lucent and the entity assigned rights or delegated obligations and liabilities under this Agreement. 21.0 NON-WAIVER No course of dealing, course of performance or failure of either party strictly to enforce any term, right or condition of this Agreement shall be construed as a waiver of any term, right or condition. 22.0 CHOICE OF LAW AND DISPUTES 22.1 The construction, interpretation and performance of this Agreement shall be governed by the local laws of the State of Delaware. 22.2 Any controversy or claim, whether based on contract, tort, strict liability, fraud, misrepresentation, or any other legal theory, related directly or indirectly to this Agreement (the "Dispute") shall be resolved solely in accordance with the terms of this Section, except as set forth in paragraph 22.6 below. 22.3 If the Dispute cannot be settled by good faith negotiation between the parties, Lucent and Dealer will submit the Dispute to non-binding mediation. If complete agreement cannot be reached within thirty (30) days of submission to mediation, any remaining issues will be resolved by binding arbitration in accordance with 12 14 paragraphs 22.4 and 22.5 below. The Federal Arbitration Act, 9 U.S.C. Sections 1 to 15, not state law, will govern the arbitrability of all Disputes. 22.4 A single arbitrator who is knowledgeable in the telecommunications products field or in commercial matters will conduct the arbitration. The arbitrator's decision and award will be final and binding and may be entered in any court with jurisdiction. The arbitrator will not have authority to limit, expand or otherwise modify the terms of this Agreement. 22.5 The mediation and, if necessary, the arbitration will be conducted under the then current rules of the alternate dispute resolution (ADR) firm selected by the parties, or if the parties are unable to agree on an ADR firm, the parties will conduct the mediation and, if necessary, the arbitration under the then current rules and supervision of the American Arbitration Association (AAA). Lucent and Dealer will each bear its own attorneys' fees associated with the mediation and, if necessary, the arbitration. Lucent and Dealer will pay all other costs and expenses of the mediation/arbitration as the rules of the selected ADR firm provide. The parties and their representatives shall hold the existence, content and result of the mediation and arbitration in confidence. 22.6 Unless both parties agree otherwise, Disputes relating to Dealer's compliance with Section 10 of this Agreement (Trademarks) shall be exempt from the dispute resolution processes described in this Section. 13 15 23.0 NOTICES All notices under this Agreement shall be in writing and shall be given in person, by facsimile, by receipted courier or by certified U.S. mail, addressed to the addresses set forth at the beginning of this Agreement or to such other address as either party may designate by written notice to the other. All written notices sent by mail shall be sent first class or better, postage prepaid. All notices shall be deemed to have been given on the earlier of the date actually received or the fifth day after mailing. 24.0 ENTIRE AGREEMENT The terms and conditions contained in this Agreement supersede all prior oral or written understandings between the parties and constitute the entire Agreement between them concerning the subject matter of this Agreement and shall not be contradicted, explained or supplemented by any course of dealing between Lucent or any of its affiliates and Distributor and any of its affiliates or Dealer or any of its affiliates. This Agreement shall not be modified or amended except by a writing signed by an authorized representative of the party to be charged. 25.0 TERM This Agreement shall be effective as of March 19, 1999, and shall have a term of two years beginning on said date. IN WITNESS WHEREOF the parties have caused this Agreement to be signed by their duly authorized representatives. LUCENT TECHNOLOGIES INC. INACOM COMMUNICATIONS, INC. By: /s/ CONRAD T. TRIDENTE By: /s/ PAUL REITMEIER Name: Conrad T. Tridente Name: Paul Reitmeier Title: District Manager Title: President Date: March 19, 1999 Date: March 18, 1999 XETA CORPORATION By: /s/ JACK R. INGRAM Name: Jack R. Ingram Title: President Date: March 10, 1999 14 16 APPENDIX: ADDRESSES A. Marketing Location(s): XETA CORPORATION NATIONAL SALES OFFICES MR. STEVE BROWN MR. ERROL INGRAM National Account Manager National Account Manager XETA Corporation XETA Corporation 4003 Lincoln Drive West, Suite 1 3500 Oak Lawn, Suite 400 Mariton, NJ 08053 Dallas, TX 75219 PH: 609-988-7179 PH: 214-528-8838 FX: 609-988-7197 FX: 214-528-9990 E-mail: sbrown@XETA.com E-mail: eingram@XETA.com MR. SEAN BUSCH MR. DONALD E. REIGEL National Account Manager Vice President of Sales and Marketing XETA Corporation XETA Corporation 300 Main Street, Suite 510 5350 Manhattan Circle, Suite 210 Lafayette, IN 47901 Boulder, CO 80303 PH: 765-742-8844 PH: 303-499-8578 FX: 765-742-6672 FX: 303-499-8579 E-mail: sbusch@XETA.com E-mail: dreigel@XETA.com MR. MARTY CASTENS MR. RON RIVERA National Account Manager National Account Sales Engineer XETA Corporation XETA Corporation 4500 South Garnett Road, Suite 1000 5350 Manhattan Circle, Suite 210 Tulsa, OK 74146 Boulder, CO 80303 PH: 918-664-8200 PH: 303-543-0286 FX: 918-664-6876 FX: 303-499-8579 E-mail: mcastens@XETA.com E-mail: rrivera@XETA.com 15 17 MR. CLYDE EDSON MS. DARLENE SCHRINER National Account Manager PBX Project Manager XETA Corporation XETA Corporation 1180 Spring Centre South Boulevard, 5350 Manhattan Circle, Suite 210 Suite 340 Boulder, CO 80303 Altamonte Springs, FL 32714 PH: 303-499-8578 PH: 407-774-1235 FX: 303-499-8579 FX: 407-774-3242 E-mail: darlene@XETA.com E-mail: cedson@XETA.com MR. HARVE HOWARD MR. MIKE SHADDOW National Account Manager National Account Manager XETA Corporation XETA Corporation 4500 South Garnett Road, Suite 1000 19130 Wind Dancer Street Tulsa, OK 74146 Lutz, FL 33549 PH: 918-664-8200 PH: 813-920-7030 FX: 918-664-6876 FX: 813-926-2928 E-mail: hhoward@XETA.com E-mail: mshaddow@XETA.com MS. LISA ROSENTHAL National Account Sales Assistant XETA Corporation 5350 Manhattan Circle, Suite 210 Boulder, CO 80303 PH: 303-499-8577 FX: 303-499-8579 E-mail: lrosen@XETA.com B. Shipping Location(s): Inacom Distribution Center 13900 Chalco Valley Parkway Omaha, Nebraska 68138 16 18 APPENDIX: AREA A. Authorized Area for XETA Corporation for: PRODUCT APPENDIX: DEFINITY(R) ECS & ASSOCIATED ADJUNCTS PRODUCT APPENDIX: GUESTWORKS(TM) SERVER & ASSOCIATED ADJUNCTS
State County ----- ------ United States The Fifty States of the United States of America including Washington D.C., excluding the Areas defined in Section 1.8 of the Agreement, and the Areas covered by the Attachment: Existing Lucent Dealers with Exclusive Primary Areas of Responsibility.
17 19 PRODUCT APPENDIX: DEFINITY(R) ECS & ASSOCIATED ADJUNCTS A. Products: DEFINITY(R) ECS Products & Associated Adjuncts and Accessories as it strictly relates to the Hospitality Industry. DEFINITY G3vs DEFINITY G3si DEFINITY AUDIX(R) Intuity(TM) AUDIX 6400 Series Voice Terminals 8400 Series Voice Terminals Basic Call Management Systems Call Management Systems Standby Power Systems Passageway -Telephony Services -Direct Connect B. For the products covered by this Product Appendix, the following is the End User Software License referred to in Section 9 of the Agreement: END USER SOFTWARE LICENSE LIMITED WARRANTY AND LIMITED LIABILITY COMPATIBILITY. THE SOFTWARE IS NOT WARRANTED FOR NONCOMPATIBLE SYSTEMS. SOFTWARE. Lucent Technologies warrants that if the Software does not substantially conform to its specifications, the end-user customer ("You") may return it to the place of purchase within 90 days after the date of purchase, provided that You have deployed and used the Software solely in accordance with this License Agreement and the applicable Lucent Technologies installation instructions. Upon determining that the returned Software is eligible for warranty coverage, Lucent Technologies will either replace the Software or, at Lucent Technologies's option, will offer to refund the License Fee to You upon receipt from You of all copies of the Software and Documentation. In the event of a refund, the License shall terminate. DISCLAIMER OF WARRANTIES. LUCENT TECHNOLOGIES MAKES NO WARRANTY, REPRESENTATION, OR PROMISE to you NOT EXPRESSLY SET FORTH IN THIS AGREEMENT. Lucent TECHNOLOGIES DISCLAIMS AND EXCLUDES ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. LUCENT TECHNOLOGIES DOES NOT WARRANT THAT THE SOFTWARE OR DOCUMENTATION WILL SATISFY YOUR REQUIREMENTS, THAT THE SOFTWARE OR DOCUMENTATION ARE WITHOUT DEFECT OR ERROR, OR THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED. ALSO, LUCENT TECHNOLOGIES DOES NOT WARRANT THAT THE SOFTWARE WILL PREVENT, AND LUCENT TECHNOLOGIES WILL NOT BE RESPONSIBLE FOR, UNAUTHORIZED USE (OR CHARGES FOR SUCH USE) OF COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD). Some states do not allow the exclusion of implied warranties or limitations on how long an implied warranty lasts, so the above limitation may not apply to You. This warranty gives You specific legal rights which vary from state to state. EXCLUSIVE REMEDY AND LIMITATION OF LIABILITY. EXCEPT FOR BODILY INJURY PROXIMATELY CAUSED BY LUCENT TECHNOLOGIES' NEGLIGENCE, YOUR EXCLUSIVE REMEDY AND LUCENT TECHNOLOGIES' ENTIRE LIABILITY ARISING FROM OR RELATING TO THIS LICENSE AGREEMENT OR TO THE SOFTWARE OR DOCUMENTATION SHALL BE LIMITED TO DIRECT DAMAGES IN AN AMOUNT NOT TO EXCEED $10,000. LUCENT 18 20 TECHNOLOGIES SHALL NOT IN ANY CASE BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR PUNITIVE DAMAGES, EVEN IF LUCENT TECHNOLOGIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. LUCENT TECHNOLOGIES IS NOT RESPONSIBLE FOR LOST PROFITS OR REVENUE OR SAVINGS, LOSS OF USE OF THE SOFTWARE, LOSS OF DATA, COSTS OF RECREATING LOST DATA, THE COST OF ANY SUBSTITUTE EQUIPMENT OR PROGRAM, CHARGES FOR COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD), OR CLAIMS BY ANY PERSON OTHER THAN YOU. THESE LIMITATIONS OF LIABILITY SHALL APPLY NOTWITHSTANDING THE FAILURE OF AN EXCLUSIVE REMEDY. Some states do not allow the exclusion or limitation of incidental or consequential damages, so the above limitation or exclusion may not apply to You. Lucent Technologies grants You a personal, non-transferable and non-exclusive right to use, in object code form, all software and related documentation furnished under the Agreement between Lucent Technologies and [Dealer]. This grant shall be limited to use with the equipment for which the software was obtained or, on a temporary basis, on back-up equipment when the original equipment is inoperable. Use of software on multiple processors is prohibited unless otherwise agreed to in writing by Lucent Technologies. You agree to use your best efforts to see that your employees and users of all software licensed under this Agreement comply with these terms and conditions and You will refrain from taking any steps, such as reverse assembly or reverse compilation, to derive a source code equivalent of the software. You are permitted to make a single archive copy of software. Any copy must contain the same copyright notice and proprietary marking as the original software. Use of software on any equipment other than that for which it was obtained, removal of the software from the United States, or any other material breach shall automatically terminate this license. If the terms of this license differ from the terms of any license packaged with the software, the terms of the license packaged with the software shall govern. C. [For Dealers licensing the Orange Label Flash Card only.] The following new Section 26 is added to the Agreement with respect to this Product Appendix: 26. SOFTWARE LICENSE, ORANGE LABEL FLASH CARD MEDIUM A. Lucent grants Dealer a personal, non-transferable and non-exclusive right to use, in object code form, DEFINITY ECS software ("the Software") solely for the purpose of providing maintenance service on DEFINITY ECS PBX systems. Title to and ownership of all Software shall remain with Lucent. Dealer will refrain from taking any steps, such as reverse assembly or reverse compilation, to derive a source code equivalent of the Software or to develop other software. Dealer will use its best efforts to ensure that its employees and users of the Software comply with these terms and conditions. B. Dealer may make a single archive copy of software. Any such copy must contain the same copyright notice and proprietary markings that the original Software contains. Use of the Software on any equipment other than that for which it was obtained, removal of the Software from the United States, use of the Software for any purpose other than maintenance of DEFINITY ECS PBX systems or any other material breach of the software license shall immediately and automatically terminate this license and will be cause for immediate termination of all Authorized Dealer Agreements between Dealer and Lucent. D. [For Dealers licensing the Orange Label Flash Card only]. Section 15.4 of the Agreement is amended by adding the language that is underscored and printed in bold, as follows: 15.4 Lucent may terminate this Agreement upon twenty-four (24) hours written notice if Dealer has: (i) become insolvent, invoked as a debtor any laws relating to the relief of debtors' or creditors' rights, or has had such laws invoked against it; (ii) become involved in any liquidation or termination of its business; (iii) been involved in an assignment for the benefit of its creditors; (iv) sold or attempted to resell Lucent Products to any third party other than an End User without Lucent's written consent; (v) appointed or 19 21 attempted to appoint any unauthorized agent or unauthorized manufacturer's representatives for Lucent Products; (vi) sold or attempted to resell any Lucent Products not previously authorized by Lucent under this Agreement or that are obtained from a source other than Lucent; (vii) remotely accessed PBX locations maintained by Lucent directly; (viii) activated software features without compensation to Lucent OR VIOLATED THE TERMS OF THE SOFTWARE LICENSE GRANTED BY ADDING SECTION 26 TO THE AGREEMENT IN CONNECTION WITH A PRODUCT APPENDIX FOR DEFINITY ECS SYSTEMS; (ix) misrepresented, by statement or by omission, Dealer's authority to resell under this or any other written agreement with Lucent that is limited to specific Lucent products or services, by stating or implying, by use of a Lucent Mark or otherwise, that the authority granted in this or such other agreement applies to any Lucent product or service not covered by this or such other agreement, or (x) failed to comply with Lucent's guidelines for the proper use of Lucent's Marks. Notwithstanding such termination rights, Lucent reserves all of its legal rights and equitable remedies, including without limitation those under the Uniform Commercial Code. 20 22 PRODUCT APPENDIX: GUESTWORKS(TM) SERVER & ASSOCIATED ADJUNCTS A. Products: GuestWorks(TM), and Associated Adjuncts and Accessories Guestworks Server (All Models) Intuity Audix Lodging Limited compatible Definity circuit packs and telephones, when ordered in conjunction with a Guestworks Server B. For the Products covered by this Product Appendix, the following replaces Section 1.3 of the Agreement: 1.3 "End User" means a third party with a hotel or motel business to whom Dealer markets or sells Products within the Area for hotel or motel use by such third party in the ordinary course of its business and not for resale; End User does not include any office, department, agency, or defense installation of the United States Government Marketing opportunities for sales of GuestWorks systems to third parties for use in health care or senior citizens' residence facilities must be individually reviewed with and approved by Lucent Technologies to be certain that the system will meet the customer's needs and that the sale will not expose Lucent Technologies to claims based on the system's unsuitability for such uses or similar theories. C. For the products covered by this Product Appendix, the following is added to the Agreement as Section 2.9: 2.9 Circuit packs and 8400 Series DCP telephones offered under this Product Appendix are intended for use with GuestWorks systems only. Orders for DCP telephones beyond those provided in the GuestWorks packaged offers will be rejected if the number of telephones ordered exceeds 10% of the total telephone capacity of the system ordered. Orders for circuit packs will be considered on an exception basis only. Failure to meet the requirements of this subsection will be grounds for immediate termination of this Product Appendix, and depending on the circumstances, may lead to termination of the Agreement to which this is appended. D. For the products covered by this Product Appendix, the following is the End User Software License referred to in Section 9 of the Agreement: END USER SOFTWARE LICENSE LIMITED WARRANTY AND LIMITED LIABILITY COMPATIBILITY. THE SOFTWARE IS NOT WARRANTED FOR NONCOMPATIBLE SYSTEMS. SOFTWARE. Lucent Technologies warrants that if the Software does not substantially conform to its specifications, the end-user customer ("You") may return it to the place of purchase within 90 days after the date of purchase, provided that You have deployed and used the Software solely in accordance with this License Agreement and the applicable Lucent Technologies installation instructions. Upon determining that the returned Software is eligible for warranty coverage, Lucent Technologies will either replace the Software or, at Lucent Technologies's option, will offer to refund the License Fee to You upon receipt from You of all copies of the Software and Documentation. In the event of a refund, the License shall terminate. DISCLAIMER OF WARRANTIES. LUCENT TECHNOLOGIES MAKES NO WARRANTY, REPRESENTATION, OR PROMISE TO YOU NOT EXPRESSLY SET FORTH IN THIS AGREEMENT. LUCENT TECHNOLOGIES DISCLAIMS AND EXCLUDES ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 21 23 LUCENT TECHNOLOGIES DOES NOT WARRANT THAT THE SOFTWARE OR DOCUMENTATION WILL SATISFY YOUR REQUIREMENTS, THAT THE SOFTWARE OR DOCUMENTATION ARE WITHOUT DEFECT OR ERROR, OR THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED. ALSO, LUCENT TECHNOLOGIES DOES NOT WARRANT THAT THE SOFTWARE WILL PREVENT, AND LUCENT TECHNOLOGIES WILL NOT BE RESPONSIBLE FOR, UNAUTHORIZED USE (OR CHARGES FOR SUCH USE) OF COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD). Some states do not allow the exclusion of implied warranties or limitations on how long an implied warranty lasts, so the above limitation may not apply to You. This warranty gives You specific legal rights which vary from state to state. EXCLUSIVE REMEDY AND LIMITATION OF LIABILITY. EXCEPT FOR BODILY INJURY PROXIMATELY CAUSED BY LUCENT TECHNOLOGIES'S NEGLIGENCE, YOUR EXCLUSIVE REMEDY AND LUCENT TECHNOLOGIES'S ENTIRE LIABILITY ARISING FROM OR RELATING TO THIS LICENSE AGREEMENT OR TO THE SOFTWARE OR DOCUMENTATION SHALL BE LIMITED TO DIRECT DAMAGES IN AN AMOUNT NOT TO EXCEED $10,000. LUCENT TECHNOLOGIES SHALL NOT IN ANY CASE BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR PUNITIVE DAMAGES, EVEN IF LUCENT TECHNOLOGIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. LUCENT TECHNOLOGIES IS NOT RESPONSIBLE FOR LOST PROFITS OR REVENUE OR SAVINGS, LOSS OF USE OF THE SOFTWARE, LOSS OF DATA, COSTS OF RECREATING LOST DATA, THE COST OF ANY SUBSTITUTE EQUIPMENT OR PROGRAM, CHARGES FOR COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD), OR CLAIMS BY ANY PERSON OTHER THAN YOU. THESE LIMITATIONS OF LIABILITY SHALL APPLY NOTWITHSTANDING THE FAILURE OF AN EXCLUSIVE REMEDY. Some states do not allow the exclusion or limitation of incidental or consequential damages, so the above limitation or exclusion may not apply to You. Lucent Technologies grants You a personal, non-transferable and non-exclusive right to use, in object code form, all software and related documentation furnished under the Agreement between Lucent Technologies and [Dealer]. This grant shall be limited to use with the equipment for which the software was obtained or, on a temporary basis, on back-up equipment when the original equipment is inoperable. Use of software on multiple processors is prohibited unless otherwise agreed to in writing by Lucent Technologies. You agree to use your best efforts to see that your employees and users of all software licensed under this Agreement comply with these terms and conditions and You will refrain from taking any steps, such as reverse assembly or reverse compilation, to derive a source code equivalent of the software. You are permitted to make a single archive copy of software. Any copy must contain the same copyright notice and proprietary marking as the original software. Use of software on any equipment other than that for which it was obtained, removal of the software from the United States, or any other material breach shall automatically terminate this license. If the terms of this license differ from the terms of any license packaged with the software, the terms of the license packaged with the software shall govern. 22 24 E. [For Dealers licensing the Orange Label Flash Card only.] The following new Section 26 is added to the Agreement with respect to this Product Appendix: 26. SOFTWARE LICENSE, ORANGE LABEL FLASH CARD MEDIUM A. Lucent grants Dealer a personal, non-transferable and non-exclusive right to use, in object code form, Guestworks software ("the Software") solely for the purpose of providing maintenance service on Guestworks PBX systems. Title to and ownership of all Software shall remain with Lucent. Dealer will refrain from taking any steps, such as reverse assembly or reverse compilation, to derive a source code equivalent of the Software or to develop other software. Dealer will use its best efforts to ensure that its employees and users of the Software comply with these terms and conditions. B. Dealer may make a single archive copy of software. Any such copy must contain the same copyright notice and proprietary markings that the original Software contains. Use of the Software on any equipment other than that for which it was obtained, removal of the Software from the United States, use of the Software for any purpose other than maintenance of Guestworks PBX systems or any other material breach of the software license shall immediately and automatically terminate this license and will be cause for immediate termination of all Authorized Dealer Agreements between Dealer and Lucent. F. [For Dealers licensing the Orange Label Flash Card only]. Section 15.4 of the Agreement is amended by adding the language that is underscored and printed in bold, as follows: 15.4 Lucent may terminate this Agreement upon twenty-four (24) hours written notice if Dealer has: (i) become insolvent, invoked as a debtor any laws relating to the relief of debtors' or creditors' rights, or has had such laws invoked against it; (ii) become involved in any liquidation or termination of its business; (iii) been involved in an assignment for the benefit of its creditors; (iv) sold or attempted to resell Lucent Products to any third party other than an End User without Lucent's written consent; (v) appointed or attempted to appoint any unauthorized agent or unauthorized manufacturer's representatives for Lucent Products; (vi) sold or attempted to resell any Lucent Products not previously authorized by Lucent under this Agreement or that are obtained from a source other than Lucent; (vii) remotely accessed PBX locations maintained by Lucent directly; (viii) activated software features without compensation to Lucent OR VIOLATED THE TERMS OF THE SOFTWARE LICENSE GRANTED BY ADDING SECTION 26 TO THE AGREEMENT IN CONNECTION WITH A PRODUCT APPENDIX FOR GUESTWORKS; (ix) misrepresented, by statement or by omission, Dealer's authority to resell under this or any other written agreement with Lucent that is limited to specific Lucent products or services, by stating or implying, by use of a Lucent Mark or otherwise, that the authority granted in this or such other agreement applies to any Lucent product or service not covered by this or such other agreement, or (x) failed to comply with Lucent's guidelines for the proper use of Lucent's Marks. Notwithstanding such termination rights, Lucent reserves all of its legal rights and equitable remedies, including without limitation those under the Uniform Commercial Code. 23 25 ATTACHMENT: EXISTING LUCENT DEALERS WITH EXCLUSIVE PRIMARY AREAS OF RESPONSIBILITY CINCINNATI BELL TELEPHONE COMPANY: In Ohio, the counties of Butler, Clermont, Hamilton, Warren, and a portion of Brown. In Kentucky, the counties of Boone, Campbell, Grant, Kenton, and portions of Harrison and Pendleton. In Indiana, the counties of Dearborn, Franklin, Switzerland and portions of Ohio (county) and Ripley. 24 EX-23.1 3 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of the Form S-8 made by Xeta Corporation on August 28, 1995. It should be noted that we have not audited any financial statements of the Company subsequent to October 31, 1998 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Tulsa, Oklahoma June 9, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3 & 4 OF THE COMPANY'S 10Q FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS OCT-31-1999 APR-30-1999 1,935,477 0 4,046,190 0 2,790,658 11,197,687 3,960,316 0 20,186,946 6,113,709 0 0 0 231,628 11,948,169 20,186,946 9,240,921 9,240,921 5,645,456 5,645,456 0 0 0 1,896,666 741,000 1,155,666 0 0 0 1,155,666 .57 .50
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