-----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, PvGjWF7Xxz3kDc+TveAmCAS9HrSPUjWJTXu5g0UnwEJ//UfLIpHKjGV8rn5iUSkG 89SEi3h4DBW8puNTIpE70Q== 0000950130-96-004285.txt : 19961111 0000950130-96-004285.hdr.sgml : 19961111 ACCESSION NUMBER: 0000950130-96-004285 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19961108 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER GENERATED SOLUTIONS INC CENTRAL INDEX KEY: 0001018761 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 133208358 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-09297 FILM NUMBER: 96657520 BUSINESS ADDRESS: STREET 1: 1675 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2124083800 MAIL ADDRESS: STREET 1: 1675 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 S-1/A 1 AMENDMENT #2 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996 REGISTRATION NO. 333-09297 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- COMPUTER GENERATED SOLUTIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) -------------- DELAWARE 7379 13-3208358 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION INCORPORATION OR NUMBER) ORGANIZATION) 1675 BROADWAY NEW YORK, NEW YORK 10019 (212) 408-3800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) -------------- PHILIP FRIEDMAN PRESIDENT AND CHIEF EXECUTIVE OFFICER COMPUTER GENERATED SOLUTIONS, INC. 1675 BROADWAY NEW YORK, NEW YORK 10019 (212) 408-3800 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) -------------- COPIES TO: DENNIS J. FRIEDMAN, ESQ. GERALD S. TANENBAUM, ESQ. CHADBOURNE & PARKE LLP CAHILL GORDON & REINDEL 30 ROCKEFELLER PLAZA 80 PINE STREET NEW YORK, NEW YORK 10112 NEW YORK, NEW YORK 10005 (212) 408-5100 (212) 701-3000 -------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS Subject to Completion Dated November 8, 1996 Shares [LOGO] COMPUTER GENERATED SOLUTIONS, INC. Common Stock (par value $0.001 per share) All of the shares of Common Stock, par value $0.001 per share (the "Common Stock"), offered hereby are being sold by Computer Generated Solutions, Inc., a Delaware corporation (the "Company"). Prior to this offering (the "Offering"), there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price of the Common Stock will be between $ and $ per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price of the Common Stock. Immediately after the Offering, Philip Friedman, the Company's President and Chief Executive Officer, will have the power to vote % of the outstanding shares of Common Stock (assuming no exercise of the Underwriters' over- allotment option). See "Description of Capital Stock." Application has been made to have the Common Stock quoted on the Nasdaq National Market under the symbol "CGSI." SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - -------------------------------------------- Per Share $ $ $ - -------------------------------------------- Total (3) $ $ $
- -------------------------------------------------------------------------------- (1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $ . (3) The Company has granted the Underwriters an option to purchase up to an additional shares of Common Stock, on the same terms as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock being offered by this Prospectus are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by Cahill Gordon & Reindel, counsel for the Underwriters. It is expected that delivery of the shares of Common Stock will be made against payment therefor on or about , 1996 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York. J.P. MORGAN & CO. OPPENHEIMER & CO., INC. , 1996 No person has been authorized to give any information or make any representation other than those contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or any of the Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Common Stock in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. No action has been or will be taken in any jurisdiction by the Company or any Underwriter that would permit a public offering of the Common Stock or possession or distribution of this Prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons into whose possession this Prospectus comes are required by the Company and the Underwriters to inform themselves about and to observe any restrictions as to the Offering and the distribution of this Prospectus. TABLE OF CONTENTS
PAGE Prospectus Summary ...................... 3 Risk Factors ............................ 6 The Company ............................. 10 Use of Proceeds ......................... 11 Dividend Policy ......................... 11 Capitalization .......................... 12 Dilution ................................ 13 Selected Financial Information .......... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 15 Business ................................ 23
PAGE Management .............................. 33 Certain Relationships and Related Party Transactions ........................... 37 Principal Stockholders .................. 38 Description of Capital Stock ............ 39 Shares Eligible for Future Sale ......... 42 Underwriting ............................ 43 Legal Matters ........................... 44 Experts ................................. 44 Change of Auditors....................... 44 Additional Information .................. 45 Index to Financial Statements............ F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. The Company intends to furnish its stockholders with annual reports containing financial statements audited by its independent auditors and with quarterly reports containing unaudited financial statements for each of the first three quarters of each fiscal year. IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the information contained in this Prospectus (i) gives effect to the amendment and restatement of the Company's certificate of incorporation and by-laws and certain other related actions regarding the conversion of the Company from S corporation to C corporation and the restructuring of the Company's capital stock, all of which will take place immediately prior to the consummation of the Offering and is more fully described below under "The Company," and (ii) assumes the Underwriters' over- allotment option is not exercised. THE COMPANY Computer Generated Solutions, Inc. offers its clients a Composite Solution for their information technology ("IT") requirements. The Composite Solution is based on a modular approach which allows the Company to utilize its products and services to create customized solutions for its clients. Products and services provided by the Company range from the ACS Optima Software (as defined) bundled with IBM AS/400 hardware and related support services, to professional services, technical training, full service on-site and remote help desk support and call management services. The marketing of many of the Company's products and services is enhanced through its strategic and other relationships with recognized leaders in the IT industry, including International Business Machines Corporation ("IBM") and AT&T Corp. ("AT&T"). IBM and AT&T accounted for approximately 33% and 3%, respectively, of the Company's total revenues in 1995 and approximately 37% and 4%, respectively, for the six months ended June 30, 1996. The Company is a leading supplier of integrated business information systems to the apparel industry. Its solution includes its proprietary ACS Optima software and a number of fully integrated complementary products licensed to the Company (the "ACS Optima Software"), a comprehensive, integrated business information system specifically designed for the apparel industry. The Company provides the ACS Optima Software to many leading United States apparel manufacturers. Representative examples of the Company's ACS Optima Software clients include several divisions of Sara Lee Corporation ("Sara Lee"), Polo Ralph Lauren Corporation ("Polo Ralph Lauren"), G-III Apparel Group Ltd. ("G-III Apparel") and Marzotto (U.S.A.) Corporation ("Marzotto"). These clients accounted for, in the aggregate, approximately 7% and 8% of the Company's total revenues in 1995 and for the six months ended June 30, 1996, respectively. The Company also provides a variety of professional services, delivered on a project basis or through staff augmentation, to address clients' systems requirements, ranging from strategy and design through development and implementation to maintenance and support. The Company provides these professional services primarily to clients in the financial, entertainment and communications industries. Representative examples of the Company's clients for professional services include Merrill Lynch & Co., Inc. ("Merrill Lynch"), EMI Music Publishing ("EMI Music") and NYNEX Corporation ("NYNEX"). These clients accounted for, in the aggregate, approximately 5% and 3% of the Company's total revenues in 1995 and for the six months ended June 30, 1996, respectively. The Company maintains a national proprietary database consisting of technical profiles and resumes of approximately 25,000 professionals. The Company believes that this database, its existing technical staff and other software tools enable it to offer its clients the technical resources necessary to meet their IT requirements and address the challenges of creating "Year 2000" compliant systems. Through its technical training services, the Company provides approximately 350 comprehensive technical and end-user training classes to its clients' personnel in many leading-edge technologies, including Visual Basic, PowerBuilder, Visual C++ and Sybase. The Company provides a complete range of IT outsourcing support services, including on-site and remote help desks and integrated call management centers staffed and managed by the Company's personnel. In providing these services, the Company uses sophisticated tools that enable it to serve as the transparent extension of its 3 clients' technical support infrastructure. These services provide the Company's clients with immediate access to skilled technical personnel and a cost- effective solution to their IT outsourcing support needs. The Company's IT outsourcing support clients include IBM, AT&T and Paine Webber Group Inc. ("Paine Webber"). All of the Company's contracts are generally cancellable by the client at any time or, with respect to some of the Company's larger contracts, including those with IBM, on 30 to 90 days' notice. At June 30, 1996, the Company had over 900 employees operating through facilities located in New York, Atlanta, Chicago, Dallas, Los Angeles, Tampa and Rochester, MN. The Company's total revenue increased from $5.6 million in 1991 to $36.0 million in 1995. THE OFFERING COMMON STOCK OFFERED........................... shares COMMON STOCK OUTSTANDING AFTER THE OFFERING(1). total shares of Common Stock USE OF PROCEEDS TO THE COMPANY................. Repayment of certain indebtedness, including approximately $2.5 million of indebtedness owed to Philip Friedman, the Company's President and Chief Executive Officer, fund distributions to the Company's existing stockholders of the cumulative amount of the Company's undistributed earnings for the entire period it was an S corporation (approximately $3.3 million at June 30, 1996) and for general corporate purposes, including working capital, potential strategic acquisitions, strategic business partnerships and future product enhancements. See "Use of Proceeds." DIVIDEND POLICY................................ The Company presently intends to retain its earnings for reinvestment in the Company and, therefore, does not anticipate paying dividends on the Common Stock in the foreseeable future, other than the payment of the dividend to the Company's existing stockholders as described above. See "The Company" and "Dividend Policy." PROPOSED NASDAQ NATIONAL MARKET SYMBOL......... "CGSI"
- ------- (1)Excludes shares of Common Stock to be reserved for issuance under the Company's 1996 Long-Term Incentive Plan. See "Management--1996 Long Term Incentive Plan." 4 SUMMARY FINANCIAL INFORMATION
----------------------------------------------------------------------------- SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------ --------------------- Dollars in thousands, except 1991 1992 1993 1994 1995 1995 1996 per share data --------- --------- --------- --------- --------- ----------- --------- (UNAUDITED) STATEMENTS OF OPERATIONS DATA(1) Revenues................ $ 5,572 $12,189 $26,003 $24,710 $35,947 $15,494 $27,353 Direct costs............ 3,328 8,863 20,982 16,870 25,977 10,572 20,886 --------- --------- --------- --------- --------- --------- --------- Income from direct operations............. 2,244 3,326 5,021 7,840 9,970 4,922 6,467 Selling, general and administrative expenses............... 1,489 1,973 2,916 4,725 6,690 3,007 4,504 Compensation amounts to S corporation stockholders........... 592 1,232 1,950 3,041 1,502 201 380 Amortization of cost in excess of fair value of assets purchased....... -- -- -- 213 320 160 160 --------- --------- --------- --------- --------- --------- --------- 2,081 3,205 4,866 7,979 8,512 3,368 5,044 --------- --------- --------- --------- --------- --------- --------- Operating income (loss). 163 121 155 (139) 1,458 1,554 1,423 Interest expense........ -- -- -- 77 473 225 295 --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes........... 163 121 155 (216) 985 1,329 1,128 Income taxes............ 21 31 39 60 33 60 61 --------- --------- --------- --------- --------- --------- --------- Net income (loss)....... $ 142 $ 90 $ 116 $ (276) $ 952 $ 1,269 $ 1,067 ========= ========= ========= ========= ========= ========= ========= PRO FORMA (UNAUDITED) Historical income before income taxes................................... $ 985 $ 1,128 Pro forma provision for income taxes(2)................................. 396 488 --------- --------- Pro forma net income.................................................... $ 589 $ 640 ========= ========= Pro forma net income per share(3)....................................... $ $ ========= =========
-------------------------------------------------------------------------------- DECEMBER 31, JUNE 30, 1996 ----------------------------------------------------- ------------------------- 1991 1992 1993 1994 1995 HISTORICAL AS ADJUSTED(4) --------- --------- --------- --------- --------- ---------- -------------- BALANCE SHEET DATA Working capital......... $ 411 $ 549 $ 953 $ 1,296 $ 1,943 $ 2,793 Total assets............ 1,577 3,092 6,454 7,727 11,653 13,182 Short-term debt, including current portion of capital lease obligations...... 465 608 -- 2,272 4,088 2,926 Long-term debt, including capital lease obligations............ 333 476 934 2,383 2,625 2,584 Stockholders' equity.... 283 364 480 456 1,408 2,475
- ------- (1)For all periods shown, the Company was treated as an S corporation for income tax purposes. Therefore, the Company's historical statements of operations data do not include a provision for U.S. federal income taxes. (2)Adjusted for all periods to record a provision for income taxes as if the Company had been a C corporation. See "The Company." (3)Computed by dividing pro forma net income by the weighted average number of shares of Common Stock outstanding during the periods. (4)Adjusted to reflect the Offering and the use of a portion of the net proceeds therefrom to repay indebtedness and to pay a distribution to the Company's existing stockholders. See "Use of Proceeds." 5 RISK FACTORS DEPENDENCE ON COMPUTER INDUSTRY TRENDS AND MOVEMENT TOWARDS OUTSOURCING The Company's future success is dependent upon the continuation of a number of trends in the computer industry, including the migration by IT end-users to multivendor and multisystem computing environments, the overall increase in the sophistication and interdependency of computing technology and a focus by IT managers on cost-efficient solutions. The Company believes these trends have resulted in an increased demand for support service providers that have the ability to deliver a broad range of IT and support services and a movement by many clients towards outsourcing. The Company's business and growth will depend in large part on the movement toward outsourcing IT services continuing. There can be no assurance that these trends will continue, as organizations may elect to perform such services in-house or that the trends, should they continue, will not serve as an inducement to other companies to enter the Company's market. A significant reversal of these trends could have a material adverse effect on the Company's financial condition and results of operations. See "Business--Industry Background." DEPENDENCE ON SIGNIFICANT RELATIONSHIPS; ABSENCE OF LONG-TERM CONTRACTS The Company's largest client, IBM, accounted for 33% and 37% of the Company's revenues for 1995 and the six months ended June 30, 1996, respectively. Client contract terms vary depending on the nature of the engagement, and there can be no assurance that a client will renew a contract when it terminates. In addition, the Company's contracts are generally cancellable by the client at any time or, with respect to some of the Company's larger contracts, including those with IBM, on 30 to 90 days' notice, and clients may unilaterally reduce their use of the Company's services under such contracts without penalty. The termination or significant reduction of its business relationship with any of its significant clients would have a material adverse effect on the Company's financial condition and results of operations. See "Business." ABILITY TO ATTRACT AND RETAIN QUALIFIED PROJECT MANAGERS AND OTHER TECHNICAL EXPERTS The Company's future success will depend, in part, on its ability to hire and retain adequately trained project and resource managers, systems analysts, business analysts, programming staff and other technical experts who can fulfill the increasingly sophisticated needs of its clients. The Company's on- going need for technical expert resources arises from (i) increased demand for the Company's services, (ii) turnover, which is generally high in the industry, and for the Company, was approximately 27% in 1995, and (iii) client requests for programmers trained in the newest software technologies. Competition for highly skilled employees in the information systems and services and IT outsourcing support services industry is intense. In particular, competition is intense for the limited number of qualified project managers and professionals with certain specialized skills, such as a working knowledge of certain leading software products. The Company enters into non-competition agreements and does not enter into employee contracts with its project managers and technical experts. There can be no assurance that the Company will be successful in attracting and retaining the qualified personnel it requires to continue its growth. EXTREMELY COMPETITIVE INDUSTRY The industry in which the Company operates is extremely competitive, highly fragmented and subject to rapid changes. While many companies provide information systems and services and IT outsourcing support services, management believes that no one company is dominant. There are numerous and varied providers of such services, including firms specializing in call center operations, temporary staffing and personnel placement companies, general management consulting firms, divisions of large hardware and software companies and niche providers of IT services, many of which compete in only certain markets. The Company competes with and faces potential competition from a number of companies that have significantly greater financial, technical and marketing resources, greater name recognition and a more established client base than the Company. In addition, many of the services offered by the Company historically have been provided, and could in the future be provided, by the in-house personnel of its clients. The Company believes that its ability to compete depends, in part, on a number of factors, including the ability of the Company to hire, retain and motivate a significant number of highly skilled employees and the development by others of products and services that are competitive with the Company's products and services. 6 Management believes that price is not the primary factor in a client's determination to purchase ACS Optima Software and related services but that product functionality and methodology for implementation are the principal competitive considerations. The Company believes that the principal competitive factors in its professional services business include the nature of the services offered, quality of service, responsiveness to customer needs, business experience and technical expertise. With respect to its IT outsourcing support services, the Company competes primarily on the basis of quality of service and price, and the Company could be adversely affected by the price at which others offer comparable IT outsourcing support services. Many of the Company's larger clients purchase IT outsourcing support services primarily from a limited number of preferred vendors. The Company has experienced and continues to anticipate significant pricing pressure from these clients in order to remain competitive. Although the Company believes that it can meet its client's demands for information systems and services and IT outsourcing support services, there can be no assurance that the Company will continue to compete successfully with its existing competitors or will be able to compete successfully with any new competitors. INTERNAL EXPANSION AND ACQUISITION RISKS The Company's continued growth through internal expansion is dependent on the Company's ability to generate additional revenue from existing and new clients. The Company believes that internal expansion also will depend on the Company's ability to obtain and develop new products and services, including those related to the "Year 2000" problem, and there can be no assurance that the Company will be able to obtain or develop such products or services. Part of the Company's strategy in enhancing its professional service revenues is to provide solutions to its customers' "Year 2000" problems through products and services, including professional resources. There can be no assurance that any products for "Year 2000" will be accepted by the Company's clients or that the Company will recognize any revenues from such products or related professional resources. See "Business--Information Systems and Services--Professional Services." As part of its business strategy, the Company intends to expand by acquiring IT solutions, outsourcing support, consulting and systems integration businesses in attractive markets or which have desirable client relationships. While the Company from time to time evaluates acquisition opportunities, it has not entered into any definitive agreement or understanding with respect to any particular acquisition. The success of this strategy depends not only upon the Company's ability to identify and acquire businesses on a cost-effective basis, but also upon its ability to integrate acquired operations into its organization effectively, to retain and motivate key personnel and to retain clients of acquired firms. In addition, the Company expects to experience competition for acquisitions, and there can be no assurance that suitable acquisition candidates will be available, that acquisitions can be completed on reasonable terms or that the Company will have access to adequate funds to effect any desired acquisition. In addition, as part of its business strategy, the Company intends to expand internationally. The Company's success in expanding internationally will be affected by, and any future international operations will be subject to, certain additional risks, including general economic and political conditions in each applicable country, the effect of any applicable foreign tax structures, tariff and trade regulations, difficulties in obtaining local licenses, the difficulty of managing an organization spread over various jurisdictions and geographical regions and compliance with a variety of changing local laws and regulations. In addition, legislation in foreign countries may not always provide adequate protection for the Company's proprietary intellectual property rights. International operations may also subject the Company's operating results to the effects of fluctuations in foreign currency exchange rates. RISKS ASSOCIATED WITH MANAGEMENT OF A LARGE AND RAPIDLY CHANGING BUSINESS The Company has experienced significant growth, which has placed and, if sustained, will continue to place a substantial strain on its operational, administrative and financial resources. The Company's ability to effectively manage growth of its staff and facilities will require it to continue to improve its operational, financial and other internal systems, and to train, motivate and manage its project managers and other technical experts. If the Company's management is unable to manage growth effectively or its employees are unable to achieve anticipated performance levels, such occurrences could have a material adverse effect on the Company's financial condition and results of operations. RELIANCE ON KEY EXECUTIVES The Company's success depends to a significant extent upon the continued services of its executive officers and other key management and sales personnel, in particular Philip Friedman, the Company's President and Chief Executive 7 Officer. The Company has no employment contracts with any of its employees and maintains key man insurance on Philip Friedman in the amount of only $500,000. The unavailability of the continuing services of any of its executive officers and other key management and sales personnel could have an adverse effect on the Company's financial condition and results of operations. See "Management." DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS The Company's success is dependent, in part, upon its proprietary intellectual property rights. The Company relies on contractual arrangements, such as trade secrets and non-disclosure agreements, and copyright and trademark law to protect its proprietary intellectual property. While the Company holds registered copyrights with respect to certain modules of the ACS Optima Software, generally enters into confidentiality agreements with its employees, consultants, clients and potential clients and limits access to and distribution of its confidential and proprietary data, there can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. The Company's business includes the development of custom software applications in connection with specific client engagements. Ownership of such software is generally assigned to the client. Although the Company believes that its products and services do not infringe on the intellectual property rights of others, there can be no assurance that such a claim will not be asserted against the Company in the future. RISK OF EMERGENCY INTERRUPTION OF HELP DESK AND CALL MANAGEMENT OPERATIONS The Company's operations are dependent upon the ability to protect its help desk and call management operations and its information databases against damage that may be caused by fire, power failure, telecommunications failures, unauthorized intrusion, computer viruses and other emergencies. At its facilities, the Company has taken precautions to protect itself and its customers from events that could interrupt delivery of the Company's services. These precautions include off-site storage of backup data, fire protection and physical security systems. Notwithstanding such precautions, there can be no assurance that a fire, natural disaster, human error, equipment malfunction or inadequacy or other event would not result in a prolonged interruption in the Company's ability to provide services to its clients. Such an event could have a material adverse effect on the Company's financial condition and results of operations. In addition, at its clients' facilities, protecting help desk and call management operations is the responsibility of its clients. While management believes that its clients have taken precautions similar to those taken by the Company at its facilities, there can be no assurance that this will continue to be the case. To the extent such precautions are not taken, this could have a material adverse effect on the Company's financial condition and results of operations. CONTROLLING STOCKHOLDER; ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK Upon consummation of the Offering, Philip Friedman, the Company's President and Chief Executive Officer, and his brother Victor Friedman, the Company's Executive Vice President (collectively, the "Principal Stockholders"), will beneficially own % and %, respectively, of the outstanding shares of Common Stock. As a result, Philip Friedman will be able to control the outcome of matters requiring a stockholder vote, including electing directors, adopting or amending certain provisions of the Company's Certificate of Incorporation (as defined) and By-Laws (as defined) and approving or preventing certain mergers or other similar transactions, such as a merger involving the Company or a sale of substantially all of the Company's assets (including transactions that could give holders of the Common Stock the opportunity to realize a premium over the then-prevailing market price for their shares). Therefore, purchasers of Common Stock offered hereby will become minority stockholders of the Company and will be unable to control the management or business policies of the Company. Moreover, subject to contractual restrictions and general fiduciary obligations, the Company is not prohibited from engaging in transactions with its management, the Principal Stockholders or entities in which such persons are interested. The Certificate of Incorporation also provides for the Board of Directors to be divided into three classes of directors serving staggered three-year terms and certain super majority voting provisions. The Company's Certificate of Incorporation does not provide for cumulative voting in the election of directors and, as a result, Philip Friedman can elect all the directors if he so chooses. Furthermore, the Company is subject to Section 203 of the Delaware General Corporation Law. The existence of these provisions, 8 together with the stock ownership of the Principal Stockholders, would be expected to have an anti-takeover effect, including possibly discouraging takeover attempts that might result in a premium over the market price for the shares of Common Stock. See "Description of Capital Stock" and "Principal and Selling Stockholders." The Company's Certificate of Incorporation authorizes the issuance of "blank check" preferred stock ("Preferred Stock") with such designations, rights and preferences as may be determined from time to time by the Board of Directors. In the event of issuance, such Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. In addition, the issuance of Preferred Stock may adversely affect the voting and dividend rights, rights upon liquidation and other rights of the holders of Common Stock (including the purchasers of Common Stock in the Offering). Although the Company has no present intention to issue any shares of such Preferred Stock, the Company retains the right to do so in the future. ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock. There can be no assurance that, following the Offering, an active trading market for the Common Stock will develop or be sustained or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined by negotiations among the Company and the Representatives (as defined) and will not necessarily be indicative of the market price of the Common Stock after the Offering. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. In addition, the market price of the Common Stock could be subject to significant fluctuations in response to variations in quarterly operating results, changes in earnings estimates by securities analysts, general trends in the technology and emerging growth company sectors and other factors. The securities markets have experienced significant price and volume fluctuations from time to time in recent years that often have been unrelated or disproportionate to the operating performance of particular companies and which have particularly affected the market price of equity securities of technology companies. These broad fluctuations may adversely affect the market price of the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Sales of substantial amounts of Common Stock in the public market after the Offering could adversely affect the prevailing market price of the shares of Common Stock offered hereby and the Company's ability to raise additional capital through additional public offerings of equity securities. In addition to the shares of Common Stock offered hereby, as of the date of this Prospectus, there will be shares of Common Stock outstanding, all of which are "restricted" shares (the "Restricted Shares") under the Securities Act of 1933, as amended (the "Securities Act"), and are held by the Principal Stockholders. Beginning 180 days after the date of this Prospectus, upon the expiration of certain lock-up agreements with the Underwriters, the Restricted Shares will first become eligible for sale in the public market subject to certain volume and other resale restrictions pursuant to Rule 144 under the Securities Act. The Principal Stockholders are also entitled to certain rights with respect to the registration under the Securities Act of shares held by them. See "Certain Relationships and Related Party Transactions." In addition, after the Offering, the Company intends to file a registration statement under the Securities Act to register shares of Common Stock reserved for issuance upon the exercise of options or awards of restricted stock that may be granted under the 1996 Long-Term Incentive Plan. See "Management--1996 Long-Term Incentive Plan," "Principal and Selling Stockholders" and "Shares Eligible for Future Sale." NO DIVIDENDS The Company anticipates that, for the foreseeable future, all earnings, if any, will be retained for the operation and expansion of its business and that it will not pay dividends after the payment of the dividends to the Company's Principal Stockholders as described under "The Company." See "Dividend Policy." IMMEDIATE AND SUBSTANTIAL DILUTION The purchasers of the shares of Common Stock will experience immediate dilution after the Offering. See "Dilution." In addition, an aggregate of shares of Common Stock are reserved for issuance under the Company's 1996 Long-Term Incentive Plan, which shares, when and if issued, may cause additional dilution to the purchasers of Common Stock offered hereby. 9 THE COMPANY The Company was founded in April 1984. Prior to the Offering, Philip Friedman and his brother Victor Friedman owned 90% and 10%, respectively, of the common stock. Since its incorporation, the Company has been treated for federal income tax purposes as an S corporation under Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code"), and the Company's earnings have been taxed for federal and certain state income tax purposes directly to its stockholders rather than to the Company. See Note 13 to the financial statements of the Company. The Company will terminate its S corporation status effective as of the day preceding the consummation of the Offering (the "S Termination Date"). As a result, the Company will have a final S short year ending on and including the day preceding the S Termination Date. On and after the S Termination Date, the Company will no longer be treated as an S corporation and, accordingly, will be fully subject to federal, state and local income taxes. Upon consummation of the Offering, the Company plans to distribute to its stockholders of record immediately prior to the Offering the cumulative amount of its undistributed earnings for the entire period that it was an S corporation (i.e., from inception through the day preceding the S Termination Date), which earnings have been or will be taxed to such stockholders for federal and certain state income tax purposes. As of June 30, 1996, the cumulative balance of such undistributed S period earnings was approximately $3.3 million. To this amount will be added, for purposes of calculating the amount of the distribution, the earnings of the Company from June 30, 1996 to the day prior to the S Termination Date (less any distributions made by the Company during such period). Should there be any adjustments to the Company's federal taxable income that result in a shifting of income from taxable years in which the Company was an S corporation to subsequent non-S corporation taxable years of the Company, or vice versa, the stockholders of record immediately prior to the Offering shall pay to the Company (in the former circumstance) or the Company shall pay to such stockholders (in the latter circumstance), the amount of federal, state and local income taxes, including penalties and interest, incurred by the Company or the stockholders, as the case may be, as a result of such adjustment to income (without regard to any tax benefit that the stockholders may realize from an increase in the basis of their Common Stock that results from such adjustment); provided that the stockholders' obligation to the Company cannot exceed the amount of the income that was shifted from an S corporation year to a non-S corporation year less the federal, state and local income taxes incurred by the stockholders with respect to such income. To the extent that any such amount is paid to a stockholder after the date which is one year from the S Termination Date, such amount will be increased in an amount, if any, necessary to reimburse such stockholder for taxes required to be paid by him as a result of his receipt of such amount (as so increased). The cost to the Company of any such payment could exceed the amount of the savings realized by the Company as a result of such adjustment to income. The stockholders of record immediately prior to the Offering will also indemnify and hold harmless the Company from any federal and New York state income tax liabilities (including interest and penalties) that result from the failure of the Company to qualify as an S corporation for any year or years ending on or prior to December 31, 1995 or for the period from January 1, 1996 through the day prior to the S Termination Date. Prior to the consummation of the Offering, the Company will also adopt an amended and restated certificate of incorporation (the "Certificate of Incorporation") and by-laws (the "By-Laws"). The Certificate of Incorporation will provide for "blank check" Preferred Stock, a Board of Directors that will be divided into three classes of directors serving staggered three-year terms and certain super majority voting provisions. See "Description of Capital Stock." Also immediately prior to the Offering, the Company will effect a for one stock split of its existing common stock, following which the Company's current stockholders, Philip Friedman and Victor Friedman, will exchange such common stock on a one-for-one basis for Common Stock. The Company is incorporated in the State of Delaware and maintains its principal executive offices at 1675 Broadway, New York, New York 10019. The Company's telephone number is (212) 408-3800. 10 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby are estimated to be approximately $ million (or approximately $ million if the Underwriters' over-allotment option is exercised in full), after deducting underwriting discounts and estimated Offering expenses and assuming an initial offering price of $ per share. The Company intends to use the net proceeds (i) to repay all outstanding indebtedness (a) owed to Philip Friedman in the aggregate amount of approximately $2.5 million, which indebtedness is payable upon demand and bears interest at 10.0%, (b) under the Company's revolving credit facility ($2.2 million as of June 30, 1996), which indebtedness bears interest at the bank's prime rate (8.25% at June 30, 1996) and matures in May 1997, and (c) under the Company's term loan ($267,000 outstanding as of June 30, 1996), which indebtedness bears interest at 1.25% per annum above such prime rate and matures in June 1997, (ii) to distribute to its stockholders of record immediately prior to the Offering the cumulative amount of the Company's undistributed earnings for the entire period that it was an S corporation (approximately $3.3 million at June 30, 1996) and (iii) for general corporate purposes, including working capital, potential strategic acquisitions, strategic business partnerships and future product enhancements. While the Company from time to time evaluates acquisition opportunities, it has not entered into any definitive agreement or understanding, and is currently not participating in any negotiations, with respect to any particular acquisition. The Company currently anticipates that any acquisition would be of a business similar or complementary to the business currently conducted by the Company. DIVIDEND POLICY The Company has not paid any cash dividends on its common stock in the last two years ended December 31, 1995 or in the six month period ended June 30, 1996. The Company intends to retain its earnings for reinvestment in the Company and, therefore, does not anticipate paying any dividends on the Common Stock in the foreseeable future, other than the payment of the dividend to the Company's Principal Stockholders as described under "The Company." Subject to any restrictions in any future financing agreements, any future determination as to the payment of dividends will be at the discretion of the Company's Board of Directors and will depend on the Company's results of operations, financial condition, capital requirements and other factors deemed relevant by the Board of Directors. 11 CAPITALIZATION The following table sets forth the short-term debt, including current portion of capital lease obligations, and capitalization of the Company as of June 30, 1996 and as adjusted to give effect to the sale by the Company of shares of Common Stock offered hereby at an assumed initial public offering price of $ per share, the application of a portion of the estimated net proceeds therefrom to repay indebtedness and the distribution of approximately $3.3 million of undistributed S corporation earnings as described in "Use of Proceeds." ------------- AS OF JUNE 30, 1996 --------------------- ACTUAL(1) AS ADJUSTED --------- ----------- Dollars in thousands, except share data Short-term debt, including current portion of capital lease obligations....................................... $2,926 $ 136 ========= =========== Long-term debt, less current portion of capital lease obligations............................................. 438 438 --------- ----------- Subordinated debt-stockholder............................ 2,146 -- --------- ----------- Stockholders' equity: Preferred Stock, $.001 par value, 1,000,000 shares authorized, no shares issued and outstanding.......... -- -- Common Stock, $.001 par value, shares authorized, shares issued and outstanding Actual and shares issued and outstanding................................ As Adjusted(2)........................................ 1 Additional paid-in capital............................. 228 Retained earnings...................................... 2,388 Less shares held in treasury at cost............. (142) --------- ----------- Total stockholders' equity........................... 2,475 ========= =========== Total capitalization................................. $5,059 $ ========= ===========
- ------- (1) After giving effect to the proposed stock split and subsequent exchange discussed under "The Company." (2) Issued and outstanding shares do not include shares of Common Stock re- served for issuance under the Company's 1996 Long-Term Incentive Plan. 12 DILUTION At June 30, 1996, the net tangible adjusted book value of the Company was approximately $ million, or $ per share of Common Stock. After giving effect to the sale by the Company of shares of Common Stock offered hereby (assuming an initial public offering price of $ per share and after deducting underwriting discounts and estimated Offering expenses), the pro forma net tangible adjusted book value of the Company at June 30, 1996 would have been $ million, or $ per share of Common Stock. This represents an immediate increase in net tangible book value of $ per share to existing stockholders before the Offering, and an immediate dilution of $ per share to the purchasers of such shares at the public offering price. The following table illustrates the dilution in net tangible book value per share to new investors: Assumed initial public offering price per share of the Common Stock $ --------- Net tangible book value per share at June 30, 1996 $ --------- Increase in net tangible book value per share after the Offering --------- Pro forma net tangible book value per share after the Offering --------- Dilution per share to new investors $ =========
The following table summarizes at June 30, 1996, after giving effect to the sale by the Company of shares of Common Stock offered hereby: (i) the number of shares of Common Stock purchased by existing stockholders from the Company and the total consideration and average price per share paid to the Company for such shares, (ii) the number of shares of Common Stock purchased by new investors in the Offering from the Company and the total consideration and the price per share paid by them for such shares and (iii) the percentage of shares purchased from the Company by existing stockholders and the new investors and the percentages of the consideration paid to the Company for such shares by existing stockholders and new investors. --------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION --------------------- --------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- --------- --------- --------- ------------- Existing stockholders % $ % $ New investors --------- --------- --------- --------- --------- Total 100% $ 100% ========= ========= ========= =========
13 SELECTED FINANCIAL INFORMATION The following selected financial information of the Company as of and for the year ended December 31, 1995 and as of and for the six months ended June 30, 1996 are derived from the financial statements of the Company which were audited by Ernst & Young LLP, independent auditors. The report of such auditors with respect to such financial statements appear elsewhere in this Prospectus. The following selected financial information of the Company as of and for the years ended December 31, 1991, 1992, 1993 and 1994 are derived from the financial statements of the Company which were audited by BDO Seidman, LLP, independent auditors. The report of such auditors with respect to the financial statements as of December 31, 1994 and for each of the two years in the period ended December 31, 1994 appears elsewhere in this Prospectus. The selected financial information as of and for the six months ended June 30, 1995 is derived from unaudited financial statements which have been prepared on the same basis as the audited financial statements, and, in management's opinion, includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information shown herein. Historical results are not necessarily indicative of future results. The following selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation," "Capitalization" and the Company's financial statements and notes thereto included elsewhere in this Prospectus. --------------------------------------------------
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ---------------------------------------- ------------------- Dollars in thousands, except 1991 1992 1993 1994 1995 1995 1996 per share data ------- ------- ------- ------- ------- ----------- ------- (UNAUDITED) STATEMENTS OF OPERATIONS DA- TA(1) Revenues.................... $ 5,572 $12,189 $26,003 $24,710 $35,947 $15,494 $27,353 Direct costs................ 3,328 8,863 20,982 16,870 25,977 10,572 20,886 ------- ------- ------- ------- ------- ------- ------- Income from direct opera- tions...................... 2,244 3,326 5,021 7,840 9,970 4,922 6,467 Selling, general and admin- istrative expenses......... 1,489 1,973 2,916 4,725 6,690 3,007 4,504 Compensation amounts to S corporation stockholders... 592 1,232 1,950 3,041 1,502 201 380 Amortization of cost in ex- cess of fair value of as- sets purchased............. -- -- -- 213 320 160 160 ------- ------- ------- ------- ------- ------- ------- 2,081 3,205 4,866 7,979 8,512 3,368 5,044 ------- ------- ------- ------- ------- ------- ------- Operating income (loss)..... 163 121 155 (139) 1,458 1,554 1,423 Interest expense............ -- -- -- 77 473 225 295 ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes...................... 163 121 155 (216) 985 1,329 1,128 Income taxes................ 21 31 39 60 33 60 61 ------- ------- ------- ------- ------- ------- ------- Net income (loss)........... $ 142 $ 90 $ 116 $ (276) $ 952 $ 1,269 $ 1,067 ======= ======= ======= ======= ======= ======= ======= PRO FORMA (UNAUDITED) Historical income before income taxes........................ $ 985 $ 1,128 Pro forma provision for income taxes(2)...................... 396 488 ------- ------- Pro forma net income......................................... $ 589 $ 640 ======= ======= Pro forma net income per share(3)............................ $ $ ======= =======
--------------------------------------------------
DECEMBER 31, JUNE 30, 1996 --------------------------------------- ------------------------- 1991 1992 1993 1994 1995 HISTORICAL AS ADJUSTED(4) ------- ------- ------- ------- ------- ---------- -------------- BALANCE SHEET DATA Working capital............. $ 411 $ 549 $ 953 $ 1,296 $ 1,943 $ 2,793 Total assets................ 1,577 3,092 6,454 7,727 11,653 13,182 Short-term debt, including current portion of capital lease obligations.......... 465 608 -- 2,272 4,088 2,926 Long-term debt, including capital lease obligations.. 333 476 934 2,383 2,625 2,584 Stockholders' equity........ 283 364 480 456 1,408 2,475
- ------- (1) FOR ALL PERIODS SHOWN, THE COMPANY WAS TREATED AS AN S CORPORATION FOR INCOME TAX PURPOSES. THEREFORE, THE COMPANY'S HISTORICAL STATEMENTS OF OPERATIONS DATA DO NOT INCLUDE A PROVISION FOR U.S. FEDERAL INCOME TAXES. (2) ADJUSTED FOR ALL PERIODS TO RECORD A PROVISION FOR INCOME TAXES AS IF THE COMPANY HAD BEEN A C CORPORATION. SEE "THE COMPANY." (3) COMPUTED BY DIVIDING PRO FORMA NET INCOME BY THE WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OF THE COMPANY OUTSTANDING DURING THE PERIODS. (4) ADJUSTED TO REFLECT THE OFFERING AND THE USE OF A PORTION OF THE NET PROCEEDS THEREFROM TO REPAY INDEBTEDNESS AND TO PAY A DISTRIBUTION TO THE COMPANY'S STOCKHOLDERS. SEE "USE OF PROCEEDS." 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements of the Company and related notes thereto and other financial information included elsewhere in this Prospectus. OVERVIEW The Company derives its revenues by providing IT services. The Company's information systems and services include the ACS Optima Software and IBM's AS/400 hardware, as well as a complete range of professional services and training. The Company's IT outsourcing support services consist of on-site and remote help desk and integrated call management services. Information systems and services revenues were 93.0%, 78.0%, 64.0% and 53.0% of total revenue in 1993, 1994, 1995 and for the six months ended June 30, 1996, respectively. Information systems and services revenues as a percentage of total revenues decreased as a result of the growth in revenues from IT outsourcing support services. Nevertheless, the Company achieved 19.0% growth in information systems and services revenue dollars in 1995 principally as a result of an acquisition consummated in 1994 and new business. In May 1994, the Company purchased the business operations of ACS Software Products Group, which included the ACS Optima Software package. Previously, the Company had been a remarketer of ACS software and had received commission revenues from the sale of ACS software. The excess of the total acquisition cost over the fair value of net assets acquired of $959,000 is amortized on a straight-line basis over three years. In October 1994, the Company enhanced its ability to provide professional services to the financial community when it purchased the business operations of Real-Time Technology, Inc. ("Real-Time"), an information consulting company which provided professional services primarily to the financial community. Real-Time was then owned by Victor Friedman. For the years 1993, 1994 and 1995 and the six months ended June 30, 1996, substantially all of the Company's information systems and services revenues, other than revenues from sales of hardware and software, were generated on a time plus materials basis. Research and development costs associated with the ACS Optima Software are expensed as incurred and are included in direct costs. In 1994, the Company undertook a focused effort to increase revenues from ACS Optima Software and services and IT outsourcing support services and decrease revenue from hardware sales, which generally have lower margins. As a result, total revenues decreased 5.0% in 1994 but income from direct operations increased 56.1%. For 1995, revenues excluding hardware revenues, increased 59.0% from 1994 and hardware revenues decreased 11.0%. The Company's IT outsourcing support services have grown significantly since 1993. In 1993, IT outsourcing support services revenue represented only 7.0% of total revenues, compared to 47.0% for the six month period ended June 30, 1996. Revenues from the Company's IT outsourcing support business increased 141.0% in 1995. In October 1995, the Company was awarded a contract by IBM to provide its customers with call management support at IBM's Atlanta and Dallas facilities. The Company has been advised by IBM that effective January 1, 1997, call management services provided by the Company from such facilities in Dallas and Atlanta will be provided directly by IBM. The Company expects to recognize revenues of approximately $8.5 million for providing these services in 1996. Outsourcing support services revenues from remote help desk and call management services were $5.2 million, $11.0 million and $10.6 million for 1994, 1995 and for the six months ended June 30, 1996, respectively. The Company's on-site help desk support services, which were started in mid-1994, provided $1.9 million in revenues for 1995 and $2.2 million for the six months ended June 30, 1996. IT outsourcing support services revenues are generated on a time plus materials basis. The Company, with the consent of its stockholders, has elected to be taxed as an S corporation pursuant to the Code and certain state tax laws. As such, the Company has not been subject to federal and certain state income taxes and the stockholders have included the Company's taxable income or loss in their individual income tax returns. Income taxes in 1993, 1994, 1995 and the six months ended June 30, 1996 primarily represent New York City corporate income taxes. The New York City income tax rate is 8.85%. RESULTS OF OPERATIONS Six Months Ended June 30, 1996 as compared to Six Months Ended June 30, 1995 Revenues. The Company's total revenues increased 76.5% to $27.4 million for the six months ended June 30, 1996 from $15.5 million for the six months ended June 30, 1995. Information systems and services revenues increased 15 26.1% to $14.5 million for the six months ended June 30, 1996 from $11.5 million for the six months ended June 30, 1995. This was primarily due to an increase in revenues from ACS Optima Software and related systems integration sales of $5.2 million, from $5.3 million in the six months ended June 30, 1995 to $10.5 million in the six months ended June 30, 1996. This increase was partially offset by a decrease in revenues from professional services of $2.5 million, from $5.2 million in the six months ended June 30, 1995 to $2.7 million in the six months ended June 30, 1996. IT outsourcing support revenues increased 220.0% to $12.9 million for the six months ended June 30, 1996 from $4.0 million for the six months ended June 30, 1995, principally due to the start of the Company's call management business in October 1995. The balance of the increase in IT outsourcing support revenues resulted from growth in existing remote help desk services and the expansion of on-site help desk services. Direct Costs. Direct costs, which are comprised primarily of direct salaries, direct benefits and related costs and resale purchases of third party hardware and software, increased 97.6% to $20.9 million (76.4% of revenues) for the six months ended June 30, 1996 from $10.6 million (68.2% of revenues) for the six months ended June 30, 1995. Direct costs increased as a percentage of revenues primarily due to (i) the significant increase in the number of employees associated with the Company's growth in IT outsourcing support revenues and (ii) the resale purchase of third party hardware and software, which increased to $3.7 million for the six months ended June 30, 1996 from $700,000 for the six months ended June 30, 1995. Direct costs which are associated with sales of third party hardware and software are larger as a percentage of revenues than direct costs associated with professional services or IT outsourcing support services. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") consist primarily of indirect salaries and facility costs for administrative, selling and executive personnel, as well as insurance costs, advertising, professional fees and other non-direct costs. SG&A expenses increased by 49.8% to $4.5 million (16.5% of revenues) for the six months ended June 30, 1996 from $3.0 million (19.4% of revenues) for the six months ended June 30, 1995. The overall increase in SG&A resulted from the Company supporting its growing infrastructure. Some of the larger increases were selling and administrative salaries ($800,000), facility costs ($400,000) and advertising ($150,000). SG&A decreased as a percentage of revenues because certain SG&A costs are fixed and for the six months ended June 30, 1996 were absorbed over a larger revenue base. Compensation Amounts to S Corporation Stockholders. Compensation amounts to S corporation stockholders for the six months ended June 30, 1996 and 1995 represent base salaries paid to stockholders but do not include an accrual for year end bonuses. Compensation amounts to S corporation stockholders increased $179,000 to $380,000, (1.4% of revenues) for the six months ended June 30, 1996 from $201,000 (1.3% of revenues) for the six months ended June 30, 1995. Amortization of Cost in Excess of Fair Value of Assets Purchased. Amortization of cost in excess of fair value of assets purchased was $160,000 for the six months ended June 30, 1995 and 1996. Operating Income. Operating income decreased 8.4% to $1.4 million (5.2% of revenues) for the six months ended June 30, 1996 from $1.6 million (10.0% of revenues) for the six months ended June 30, 1995. This decrease in operating income resulted from the increase in direct costs as a percentage of revenues, partially offset by the increase in revenues and the decrease in SG&A as a percentage of revenues. Interest Expense. Interest expense increased to $295,000 (1.1% of revenues) for the six months ended June 30, 1996 from $225,000 (1.5% of revenues) for the six months ended June 30, 1995. This increase was principally the result of increased working capital borrowings used to finance the Company's growth. Net Income. For the reasons stated above, net income decreased 15.9% to $1.1 million (3.9% of revenues) for the six months ended June 30, 1996 from $1.3 million (8.2% of revenues) for the six months ended June 30, 1995. Year Ended December 31, 1995 as compared to Year Ended December 31, 1994 Revenues. The Company's total revenues increased 45.5% to $35.9 million in 1995 from $24.7 million in 1994. Information systems and services revenues increased 19.1% to $23.1 million in 1995 from $19.4 million in 1994, principally because of revenues associated with the full year effects of the ACS acquisition which was consummated in 16 May of 1994. IT outsourcing support revenues increased 143.3% to $12.9 million in 1995 from $5.3 million in 1994, primarily due to increased revenues realized from existing and additional remote help desk services and the start up of call management and on-site help desk services. Direct Costs. Direct costs increased 54.0% to $26.0 million (72.3% of revenues) for 1995 from $16.9 million (68.3% of revenues) for 1994. Direct costs increased as a percentage of revenues because of the addition of a number of technical personnel in connection with the increase in ACS Optima and IT outsourcing support services revenue, which technical personnel needed to be properly trained, thereby resulting in lower than normal billable production. In addition, the increase in IT outsourcing support services revenue, which generally realize lower margins, also contributed to the increase in direct costs as a percentage of revenues. Finally, during the early part of 1995, the Company completed certain professional services contracts related to AS/400 programming, which generally have higher margins. Selling, General and Administrative Expenses. SG&A expenses increased by 41.6% to $6.7 million (18.6% of revenues) for 1995 from $4.7 million (19.1% of revenues) for 1994. The Company incurred an increase of approximately $1.1 million in selling and administrative salaries to support its operational growth and approximately $900,000 of additional SG&A expense related to the Company's move into larger facilities in New York and Atlanta, the expansion of its Los Angeles facility and the opening of its Dallas office. SG&A decreased as a percentage of revenues because certain SG&A costs are fixed and in 1995 were absorbed over a larger revenue base. Compensation Amounts to S Corporation Stockholders. Compensation amounts to S corporation stockholders for annual periods represents annual salaries and year-end bonuses. Such compensation decreased approximately $1.5 million in 1995 to $1.5 million (4.2% of revenues) from $3.0 million (12.3% of revenues) in 1994. A portion of each year's compensation amounts to S corporation stockholders was subsequently loaned to the Company in the form of subordinated debt in the amounts of $1.2 million and $300,000 in 1994 and 1995, respectively. Amortization of Costs in Excess of Fair Value of Assets Purchased. Amortization of costs in excess of fair value of assets purchased, which consists of cost in excess of fair value of assets purchased related to the acquisition of the ACS Software Products Group, increased 50.2% to $320,000 (0.9% of revenues) for 1995 from $213,000 (0.9% of revenues) for 1994. The 1995 balance reflects a full year of amortization. Operating Income (Loss). Operating income increased to $1.5 million (4.1% of revenue) for 1995 from a loss of $139,000 for 1994. The improvement in operating income is a result of the increase in revenues discussed above, together with the decrease in compensation amounts to S corporation stockholder, partially offset by an increase in direct costs as a percentage of revenues. Interest Expense. Interest expense increased from $77,000 (0.3% of revenues) in 1994 to $473,000 (1.3% of revenues) in 1995. This increase is a result of increased working capital borrowings used to finance the Company's growth, as well as interest expense associated with an increase in subordinated debt to stockholders. Net Income (Loss). For the reasons stated above, net income increased $1.2 million to $952,000 (2.6% of revenues) for 1995 from a loss of $276,000 for 1994. Year Ended December 31, 1994 as compared to Year Ended December 31, 1993 Revenues. The Company's total revenues decreased 5.0% to $24.7 million in 1994 from $26.0 million in 1993. Information systems and services revenues decreased 19.8% to $19.4 million in 1994 from $24.2 million in 1993 because hardware revenues decreased by $12.7 million while other IT services revenues increased by $7.9 million. In 1994, the Company made a focused effort to increase revenues from ACS Optima Software and related services and IT outsourcing support services and decrease revenue from hardware sales, which generally have lower margins. IT outsourcing support revenues increased 194.4% to $5.3 million for 1994 from $1.8 million for 1993 due to additional remote help desk contracts begun in 1994. 17 Direct Costs. Direct costs declined 19.6% to $16.9 million (68.3% of revenues) for 1994 from $21.0 million (80.7% of revenues) for 1993. Direct costs as a percentage of revenues decreased because of the decreases in revenues from hardware sales, which have larger direct costs as a percentage of revenues than direct costs associated with professional services or IT outsourcing support services. Selling, General and Administrative Expenses. SG&A expenses increased by 62.0% to $4.7 million (19.1% of revenues) for 1994 from $2.9 million (11.2% of revenues) for 1993. This increase was attributable to the change in product mix discussed above and the development of an infrastructure to support increases in IT services revenue. Compensation Amounts to S Corporation Stockholders. Compensation amounts to S corporation stockholders increased $1.0 million to $3.0 million (12.3% of revenues) for 1994 from $2.0 million (7.5% of revenues) for 1993. $1.2 million of the compensation amounts to S corporation stockholders in 1994 was subsequently loaned to the Company in the form of subordinated debt. Amortization of Costs in Excess of Fair Value of Assets Purchased. Amortization of costs in excess of fair value of assets purchased began in May 1994 upon consummation of the acquisition of ACS Software Products Group and was $213,000. Operating Income (Loss). Operating income decreased by $294,000 to a loss of $139,000 for 1994 from operating income of $155,000 (0.6% of revenues) for 1993, principally because of the increase in compensation amounts to S corporation stockholders and SG&A as percentages of revenues, together with the decrease in total revenues, partially offset by the decrease in direct costs as a percentage of revenues. Interest Expense. In 1994 the Company incurred interest expense of $77,000 due to working capital borrowings used to finance the Company's growth. The Company incurred no interest expense in 1993. Net Income (Loss). For the reasons stated above, net income decreased $392,000 to a net loss of $276,000 for 1994 from net income of $116,000 (0.4% of revenues) for 1993. 18 PRO FORMA STATEMENTS OF OPERATIONS DATA (UNAUDITED) Since 1984, the Company has elected to be taxed as an S corporation pursuant to the Code and certain state tax laws. The pro forma statements of operations differ from the historical statements of operations as a result of an adjustment to record a provision for income taxes on income as if the Company had been a C corporation. As a result, the historical statements of operations for 1995 and the six months ended June 30, 1996 are not directly comparable and such periods will not be comparable to future periods.
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 1995 JUNE 30, 1996 ----------------- ------------- Dollars in thousands, except per share data Pro Forma Statements of Operations Data: Revenues....................................... $35,947 $27,353 Direct costs................................... 25,977 20,886 --------- --------- Income from direct operations.................. 9,970 6,467 Selling, general and administrative expenses... 6,690 4,504 Compensation amounts to S corporation stock- holders....................................... 1,502 380 Amortization of costs in excess of fair value of assets purchased........................... 320 160 --------- --------- 8,512 5,044 Operating income............................... 1,458 1,423 Interest expense............................... 473 295 --------- --------- Income before income taxes..................... 985 1,128 Income taxes................................... 396 488 --------- --------- Pro forma net income........................... $ 589 $ 640 ========= ========= Pro forma net income per share................. $ $ ========= =========
19 SELECTED QUARTERLY OPERATING RESULTS The following table sets forth quarterly unaudited statements of operations information of the Company for each of the ten quarters ended June 30, 1996 and the percentage of the Company's revenues represented by each item. The unaudited quarterly information has been prepared on the same basis as the annual information presented elsewhere in this Prospectus and, in management's opinion, includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the quarters presented. The operating results for any quarter are not necessarily indicative of the results for any future period.
--------------------------------------------------------------------------------------- QUARTERS ENDED 1994 1995 1996 -------------------------------- -------------------------------- --------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 Dollars in thousands ------- ------- -------- ------- ------- ------- -------- ------- ------- ------- STATEMENTS OF OPERATIONS DATA Revenues................ $ 4,739 $ 7,267 $ 5,800 $ 6,904 $ 7,142 $ 8,352 $ 9,372 $11,081 $12,436 $14,917 Direct costs............ 3,248 5,087 3,734 4,801 4,961 5,611 6,962 8,443 9,414 11,472 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income from direct operations............. 1,491 2,180 2,066 2,103 2,181 2,741 2,410 2,638 3,022 3,445 Selling, general and administrative expenses............... 873 1,212 1,219 1,421 1,421 1,587 1,766 1,916 1,988 2,516 Compensation amounts to S corporation stockholders........... 38 190 38 2,775(1) 100 100 100 1,202(1) 190 190 Amortization of cost in excess of fair value of assets purchased....... -- 53 80 80 80 80 80 80 80 80 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 911 1,455 1,337 4,276 1,601 1,767 1,946 3,198 2,258 2,786 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Operating income (loss) 580 725 729 (2,173) 580 974 464 (560) 764 659 Interest expense........ -- 15 15 47 118 107 122 126 147 148 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes........... 580 710 714 (2,220) 462 867 342 (686) 617 511 Income taxes............ 19 28 29 (16) 15 45 11 (38) 35 26 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss)....... $ 561 $ 682 $ 685 $(2,204) $ 447 $ 822 $ 331 $ (648) $ 582 $ 485 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= PRO FORMA Historical income before income taxes.................... $ 462 $ 867 $ 342 $ (686) $ 617 $ 511 Pro forma provision (benefit) for income taxes (2)....... 188 354 140 (286) 267 221 ------- ------- ------- ------- ------- ------- Pro forma net income..................................... $ 274 $ 513 $ 202 $ (400) $ 350 $ 290 ======= ======= ======= ======= ======= =======
- ------- (1)Compensation amounts to S corporation stockholders for the fourth quarter include discretionary annual bonuses which are expensed in the fourth quarter. Such amounts were approximately $2.7 million and $900,000 for the 1994 and 1995 periods, respectively. (2)Adjusted for all periods to record a provision for income taxes as if the Company had been a C corporation. See "The Company." 20 -------------------------------------------------------
AS A PERCENTAGE OF REVENUES 1994 1995 1996 ----------------------------------- ----------------------------------- ---------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 ------- ------- -------- ------- ------- ------- -------- ------- ------- ------- STATEMENTS OF OPERATIONS DATA Revenues................ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Direct costs............ 69 70 64 69 70 67 74 76 76 77 --- --- --- ---- --- --- --- --- --- --- Income from direct operations............. 31 30 36 31 30 33 26 24 24 23 Selling, general and administrative expenses............... 18 17 21 21 20 19 19 17 16 17 Compensation amounts to S corporation stockholders........... 1 2 1 40 1 1 1 11 1 1 Amortization of cost in excess of fair value of assets purchased....... -- 1 1 1 1 1 1 1 1 1 --- --- --- ---- --- --- --- --- --- --- 19 20 23 62 22 21 21 29 18 19 --- --- --- ---- --- --- --- --- --- --- Operating income (loss). 12 10 13 (31) 8 12 5 (5) 6 4 Interest expense........ -- 0 0 1 2 2 1 1 1 1 --- --- --- ---- --- --- --- --- --- --- Income (loss) before income taxes........... 12 10 13 (32) 6 10 4 (6) 5 3 Income taxes............ 0 0 1 0 0 0 0 0 0 0 --- --- --- ---- --- --- --- --- --- --- Net income (loss)....... 12% 10% 12% (32%) 6% 10% 4% (6%) 5% 3% === === === ==== === === === === === === PRO FORMA Historical income before income taxes.................... 6% 10% 4% (6%) 5% 3% Pro forma provision (benefit) for income taxes........... 3 4 1 (3) 2 1 --- --- --- --- --- --- Pro forma net income..................................... 3% 6% 3% (3%) 3% 2% === === === === === ===
The Company's quarterly operating results have varied and are expected to continue to vary in the future. These fluctuations may be caused by many factors, including, among others: the size and timing of ACS Optima Software and hardware sales; customer order deferrals in anticipation of new ACS Optima Software releases; variation of ACS Optima Software and hardware sales as a percentage of total revenues; timing of introduction or enhancement of products by the Company or its competitors; changes in the Company's operating expenses; personnel changes and general industry and economic conditions. LIQUIDITY AND CAPITAL RESOURCES The Company historically has relied primarily upon cash flows from operations, borrowings under its revolving credit facility and capital lease financings to finance its operations and acquisitions. Net cash provided by (used in) operating activities was $2.7 million, ($4.7 million), ($1.3 million) and $1.7 million for 1993, 1994, 1995 and the six months ended June 30, 1996, respectively. Net cash used in investing activities for 1993, 1994, 1995 and the six months ended June 30, 1996 was $119,000, $874,000, $579,000 and $141,000, respectively. Cash used in investing activities in 1994 is primarily related to the ACS acquisition and for 1994 and all other periods includes capital expenditures for computer equipment and furniture and fixtures. Net cash provided by (used in) financing activities in 1993, 1994, 1995 and the six months ended June 30, 1996 was ($124,000), $3.1 million, $1.5 million and ($1.4 million), respectively. During the six months ended June 30, 1996, the Company repaid the balance of certain acquisition debt and a portion of its notes payable to the bank. The Company's revolving credit facility consists of a revolving line of credit with Bank Leumi Trust Company of New York ("Bank Leumi") providing for outstanding borrowings of up to 80% of eligible accounts receivable with maximum borrowings of up to $5.5 million. Subsequent to June 30, 1996, the revolving line of credit was increased to $7.0 million. The line of credit, which expires in May 1997, is collateralized by a security interest in substantially all of the assets of the Company. The line of credit bears interest at the bank's prime rate (currently 8.25%). At June 30, 1996, the Company had $2.2 million outstanding under the revolving credit facility. Outstanding amounts under the revolving line of credit are also supported by a 10% compensating balance arrangement. A portion of the net proceeds from the Offering will be used to repay amounts at such time outstanding under the revolving credit facility. See "Use of Proceeds." 21 The Company also had an outstanding balance of $267,000 at June 30, 1996 on an $800,000 three year term loan with Bank Leumi. The term loan is payable in equal monthly installments of approximately $22,000 and bears interest at 1.25% per annum above the bank's prime rate. Net proceeds from the term loan were used to fund the acquisition of ACS Software Products Group. The term loan contains financial covenants relating to minimum tangible net worth, working capital and a maximum debt-to-equity ratio. A portion of the net proceeds from the Offering will be used to repay amounts outstanding under the term loan. See "Use of Proceeds." The Company had an outstanding balance of approximately $2.5 million at June 30, 1996, payable to Philip Friedman, the Company's President and Chief Executive Officer, pursuant to a demand note that bears interest at 10% per annum. A portion of the net proceeds from the Offering will be used to repay all amounts outstanding under this demand note. See "Use of Proceeds." Historically, cash flow from operations and borrowings under the revolving credit facility have been sufficient to satisfy the Company's liquidity needs. The Company believes that the net proceeds from the sale of Common Stock offered hereby, together with anticipated cash flow from operations and borrowings under the revolving credit facility, will be sufficient to finance the Company's current operations through approximately the end of 1997; however, as the Company's operations continue to expand, it may require additional funds. In addition, while the Company presently anticipates that capital expenditures for the foreseeable future will be consistent with those incurred on an historical basis, as the Company's operations continue to expand, there can be no assurance that this will be the case. To the extent that additional funds are needed, whether to finance the Company's operations, future acquisitions or capital expenditures, the Company may be required to obtain additional financing through one or more offerings of equity or debt securities, the amendment of the Company's existing revolving credit facility, a new credit facility or any combination of the foregoing. INFLATION In the last three years, inflation has not had a significant impact on the Company. RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning after December 31, 1995 and prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using existing accounting rules prescribed by Accounting Principles board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. It is the Company's intention to present such information in accordance with APB 25 as described in (ii) above. 22 BUSINESS The Company offers its clients a Composite Solution for their IT requirements. The Composite Solution is based on a modular approach which allows the Company to utilize its products and services to create customized solutions for its clients. Products and services provided by the Company range from the ACS Optima Software bundled with IBM AS/400 hardware and related support services, to professional services, technical training, full service on-site and remote help desk support and call management services. The marketing of many of the Company's products and services is enhanced through its strategic and other relationships with recognized leaders in the IT industry, including IBM and AT&T. IBM and AT&T accounted for approximately 33% and 3%, respectively, of the Company's total revenues in 1995, and approximately 37% and 4%, respectively, for the six months ended June 30, 1996. The Company is a leading supplier of integrated business information systems to the apparel industry. Its solution includes the ACS Optima Software, a comprehensive, integrated business information system specifically designed for the apparel industry. The Company provides the ACS Optima Software to many leading United States apparel manufacturers. Representative examples of the Company's ACS Optima Software clients include several divisions of Sara Lee, Polo Ralph Lauren, G-III Apparel and Marzotto. These clients accounted for, in the aggregate, approximately 7% and 8% of the Company's total revenues in 1995 and for the six months ended June 30, 1996, respectively. The Company also provides a variety of professional services, delivered on a project basis or through staff augmentation, to address clients' systems requirements, ranging from strategy and design through development and implementation to maintenance and support. The Company provides these professional services to clients primarily in the financial, entertainment and communications industries. Representative examples of the Company's clients for professional services include Merrill Lynch, EMI Music and NYNEX. These clients accounted for, in the aggregate, approximately 5% and 3% of the Company's total revenues in 1995 and for the six months ended June 30, 1996, respectively. The Company maintains a national proprietary database consisting of technical profiles and resumes of approximately 25,000 professionals. The Company believes that this database, its existing technical staff and other software tools enable it to offer its clients the technical resources necessary to meet their IT requirements and address the challenges of creating "Year 2000" compliant systems. Through its technical training services, the Company provides approximately 350 comprehensive technical and end-user training classes to its clients' personnel in many leading-edge technologies, including Visual Basic, PowerBuilder, Visual C++ and Sybase. The Company provides a complete range of IT outsourcing support services, including on-site and remote help desks and integrated call management centers staffed and managed by the Company's personnel. In providing these services, the Company uses sophisticated tools that enable it to serve as the transparent extension of its clients' technical support infrastructure. These services provide the Company's clients with immediate access to skilled technical personnel and a cost-effective solution to their IT outsourcing support needs. The Company's IT outsourcing support clients include IBM, AT&T and Paine Webber. The Company's contracts are generally cancellable by the client at any time or, with respect to some of the Company's larger contracts, including those with IBM, on 30 to 90 days' notice. INDUSTRY BACKGROUND Historically, enterprise-wide computing was conducted on proprietary host-based systems operating on mainframes and minicomputers typically supplied by a single vendor. These host-based systems offered centralized data processing and helped automate tasks such as manufacturing, distribution and financial reporting. In the 1980s, the ease-of-use and low cost of personal computers, combined with the increased availability of powerful application software, led to rapid growth in the number of computer users throughout organizations. Computing environments became increasingly varied and included personal computers and workstations from different vendors, as well as traditional minicomputers and mainframes. This transition to distributed computing environments, including client/server architectures, required businesses to seek methods of improving information processing across varying computer hardware and software configurations and to find cost effective ways to ensure that their employees have access to expert technical support. 23 Companies have found it increasingly difficult to service all of their IT needs through in-house personnel. This is due, in part, to rapid technological change that has resulted in information systems that are more complex and varied requiring specialized technical expertise. In addition, as part of the trend towards downsizing and improving return on investment in IT, many companies have decided to outsource portions of their IT services. Additionally, many management information systems ("MIS") departments lack the technical management and support, training capabilities and personnel needed to address the size and complexity of their own IT systems. As a result, in recent years, businesses have relied increasingly on IT service firms to develop, support and strengthen their MIS departments, to train their MIS employees and provide technical support services, including help desks. The IT services industry, including certain of the areas in which the Company offers its services and products, has grown significantly, and it is estimated that industry revenue will reach $196.0 billion by the year 2000. The Company believes that a number of factors have caused and will continue to cause this demand to increase, including: corporate efforts to improve operating efficiencies by reducing costs; the acceleration of technological change; and the rapid growth of both software applications and end-users. These factors will require organizations to fully integrate their existing systems and migrate to enterprise-wide systems. In addition, the Company believes that this industry growth will further drive demand for technically trained personnel to develop and operate such systems. Many businesses have started to outsource IT and support services and are turning over help desk, call management and other support services to third parties. The Company believes that demand for the services provided by IT firms is likely to increase due to the advantages outside consultants bring to their clients, including an ability to train and supply personnel with the skill sets required to utilize new and increasingly complex technology more economically than maintaining the equivalent level of expertise in-house. A specific challenge facing IT users is making their current systems "Year 2000" compliant. As the year 2000 approaches, businesses and governments are beginning to recognize that their current computer systems are incapable of accepting the millennium change and that modification will be necessary when two-year date fields become "00" following the year 1999. Resolution of problems relating to the "Year 2000" may require an analysis and adjustment of millions of lines of affected software code. The systems, solutions and personnel required to assess these problems and implement the proper changes are expected to be a significant factor in driving the industry's high rate of growth through the year 2000. It is estimated that the global cost of assessing and correcting the "Year 2000" problem is in excess of $300 billion. THE COMPOSITE SOLUTION The Company offers its clients a Composite Solution for their IT requirements. The Composite Solution is based on a modular approach which allows the Company to utilize its products and services to create customized solutions for its clients. Products and services provided by the Company range from the ACS Optima Software bundled with IBM AS/400 hardware and related support services, to professional services, technical training, full service on-site and remote help desk support and call management services. The Company believes that its Composite Solution, which enables the Company to offer its clients a single source for an integrated IT solution, gives the Company a marketing advantage since it provides the Company with numerous entry points to service a client's IT requirements. The Company typically establishes its initial relationship with a client by providing one or a limited number of its products and services. As the relationship develops, the Company and the client often will identify additional IT requirements which the Company is able to address with other products and/or services from its portfolio. STRATEGY The Company's objective is to continue its growth and to become a leading provider of a wide variety of information systems and services and IT outsourcing support services. The Company's principal strategies for achieving this objective are as follows: Strengthen its Position as the Provider of the Composite Solution The Company believes that its Composite Solution provides it with a go-to- market approach that differentiates it from its competitors. The Company's highly trained technical staff assesses a client's IT requirements and recommends a customized Composite Solution of one or more of the products and services offered by the Company. The Company intends to leverage initial client relationships by providing additional services through cross-selling its portfolio of solutions and expand its products and services to meet the changing needs of its clients. 24 Expand its Presence in the Apparel Industry The Company intends to further penetrate the apparel industry by leveraging its name recognition, substantial industry expertise and extensive client base. The Company intends to maintain ACS Optima's position as the leading business system for the apparel industry by (i) continuing to upgrade and improve the system's features in response to the changing requirements of its apparel clients and (ii) improving and enhancing systems consulting, integration and outsourcing support services. Further Penetrate AS/400 Market The Company believes that the AS/400 market has traditionally been under serviced by other IT companies. It is estimated that more than 350,000 AS/400s have been sold to date, making it the most widely used IBM midrange system. The Company has developed substantial expertise servicing and developing applications for the AS/400 platform, primarily as a result of its long-term relationship with IBM, as well as through its development of the ACS Optima Software. The Company intends to continue to market its IT services primarily to Fortune 2000 companies, especially to users of the AS/400 platform. Management believes that the Company's experience with the AS/400 enhances its ability to develop new relationships with potential clients whose systems run on AS/400s or other midrange platforms. Become A Leading Provider of "Year 2000" Solutions The Company believes that over the next five years it will have major opportunities to provide the solutions to rectify the problems created by the millennium change. The Company is licensed to use and market a specialized software tool and continually reviews and evaluates additional software tools that are designed to address the challenges facing MIS professionals in creating "Year 2000" compliant systems. The Company believes that its national, proprietary database, consisting of technical profiles and resumes of approximately 25,000 professionals and a personnel search engine, "Skills Finders Plus," enable it to access the technical resources necessary to implement "Year 2000" solutions. Leverage Strategic Alliances and Other Business Relationships The Company has formed several strategic alliances and other relationships with recognized leaders in the IT industry. IBM. The Company intends to leverage its successful historical relationship with IBM to expand the products and services it currently provides to IBM and other clients. The Company believes it can use its agreement with IBM designating it as an IBM National Solution Provider to further enhance its position in the apparel industry. Additionally, the Company believes that its agreement with IBM designating it as an IBM Industry Remarketer for the AS/400 and RS/6000 enhances its ability to provide a Composite Solution to its clients. AT&T. Pursuant to an agreement with AT&T, the Company currently provides help desk services to AT&T's clients. The Company intends to introduce to these clients and others the additional services that comprise the Company's Composite Solution. In addition, it is the Company's strategy to establish preferred vendor relationships with AT&T's spin-offs, Lucent Technologies, Inc. and NCR Corp. Others. The Company intends to use its business relationships and agreements with Borland International, Inc. ("Borland"), Lotus Development Corp. ("Lotus"), Microsoft Corporation ("Microsoft") and Oracle Corp. ("Oracle") to further develop core competencies in their computer products and to use them when creating a customized Composite Solution for its clients. In addition, the Company intends to continue to work with Siemens Rolm Communications Inc. ("Siemens Rolm Communications"), a call center switch technology provider, ProAmerica Systems Inc. ("ProAmerica Systems"), a developer of call center software, and Haldeman-Powell Partners, an architectural firm, to provide potential clients with one-stop shopping for all services needed to set up and operate a call center. Leverage Existing Call Management Infrastructure In 1995, the Company opened a state-of-the-art call management/help desk facility at the Dallas Infomart which will allow it to provide an end-to-end solution to its clients' call management needs. The Company believes that its ability to leverage its call management infrastructure across multiple clients will significantly reduce the cost of processing a call and further enhance the Company's competitiveness. 25 Expand Geographically The Company intends to grow both domestically and internationally. Over the past two years, the Company has made a substantial investment in developing its sales and marketing infrastructure and has opened new offices in Chicago, Los Angeles, Atlanta and Dallas. The Company plans to expand its presence in these major markets to enable it to provide elements of the Composite Solution to a larger client base. The Company intends to grow internationally by (i) expanding its relationships with U.S. based clients to provide products and services to their international divisions, particularly in Asia and Europe, (ii) establishing direct relationships with companies overseas, particularly through the marketing of the ACS Optima Software to apparel companies, and (iii) working with certain of its strategic alliance partners outside the United States to cross-sell or bundle their services. INFORMATION SYSTEMS AND SERVICES As part of its information systems and services business, the Company provides integrated solutions to the apparel, financial, entertainment and communications industries. As part of its solution to the apparel industry, the Company markets the ACS Optima Software, which is installed in hundreds of United States apparel companies as well as apparel companies in Mexico and Canada. Additionally, the Company offers a wide range of public and private technical and end user training services. ACS Optima Products and Services In order to better respond to changes in fashion trends and to remain profitable in an increasingly competitive industry, apparel manufacturers are under increasing pressure to shorten delivery time cycles and increase efficiency in all areas of their business. The ACS Optima Software package is a comprehensive, integrated business information system, specifically designed for the apparel industry. With a graphical-user-interface ("GUI") that provides "point-and-click" ease of use and an Executive Information System ("EIS") designed for senior management, ACS Optima Software allows apparel manufacturers and importers to manage all phases of the production process, from planning and design to manufacturing, inventory control, distribution and financial reporting. The ACS Optima Software emphasizes "Quick Response" and is specifically designed to shorten delivery cycles. The Company believes the ACS Optima Software provides apparel clients with a complete solution that enhances their competitive position in the marketplace. 26 Described below are selected modules of the ACS Optima Core System and additional modules to the ACS Optima Core System.
ACS OPTIMA CORE SYSTEM DESCRIPTION ---------------------- --------------------------------------------------------- ORDER MANAGEMENT AND A complete order fulfillment function that summarizes DISTRIBUTION essential statistics and helps the apparel industry executive pinpoint areas that need attention. It provides instant access to reports that contain an overview of current gross profit, order patterns, receivable allowances and inventory, shipment and manufacturing data. IMPORT A function which facilitates the purchasing and tracking MANAGEMENT/PRODUCTION of imported goods. Working with estimated costs, the system creates a purchase order and letter of credit documentation. It also tracks goods through the purchasing and production process and identifies possible delays. Once merchandise is shipped, Import Management tracks and provides the delivery status and anticipated arrival date of the merchandise. RAW MATERIAL/MODULE A function which helps estimate the material and other requirements for production and initiates a procedure to ensure that such products are available. BILL OF MATERIAL A function which establishes requirements and then ("BOM")/FABRIC compares standard costs to actual. When goods are ACTUAL MODULE produced in multiple locations, the BOM will identify the most cost effective assembly method. MATERIAL REQUIREMENTS A function which determines the earliest date on which PLANNING production can begin based on a raw materials evaluation. ADDITIONAL MODULES TO THE ACS OPTIMA CORE SYSTEM DESCRIPTION ---------------------- --------------------------------------------------------- FACTS A/P AND G/L An accounts payable and general ledger package that is integrated into the ACS Optima Software. EXECUTIVE INFORMATION An advanced client/server tool that summarizes and SYSTEM displays computer-based information in a concise, meaningful format, statistically or graphically, for the apparel industry executive, specifically in the key business areas of sales, manufacturing, finance and management. EDI/400* Communication tool which allows manufacturers to receive and send information directly to their customers. PKMS* A distribution center management system that gives the apparel industry executive complete control over all warehouse operations, including receiving, stock locating, picking, verifying, packing, manifesting and shipping. IMAGE INFO* A function which takes digital pictures of merchandise and creates and produces custom catalogs, style libraries and inventory reports with full color imaging. QUICK IMAGE* A function which displays pictures of a garment at the touch of a command key. Pictures are scanned, digitized, indexed and displayed along with other ACS Optima screens. SALES AUTOMATION* A lap-top based order system that is used by field representatives to place orders and determine inventory availability. Orders are accurately written, sized, printed for the customer and transmitted to the apparel company in minutes.
------- * Licensed to the Company. 27 As part of a turn-key system provided by the Company, the initial contract typically includes a combination of hardware, software, systems integration and maintenance. Upon expiration of the initial contract, most clients purchase an extended maintenance contract which includes yearly product upgrades and access to the Company's ACS Optima help desk. Extended maintenance contracts provide the Company with a steady source of recurring annual revenue. The Company has established the "Users Advisory Board," which is comprised of the Company's 25 largest clients utilizing the ACS Optima Software. At meetings held twice a year, the Users Advisory Board provides the Company with valuable input and direction relative to future product enhancement and development. These meetings, which are led by the Company's clients, allow the Company to anticipate and develop solutions for its clients prior to actual need. Professional Services Recognizing the changing IT requirements of its clients, the Company provides a wide range of professional services to a diverse client base focusing on companies in the financial, entertainment and communications industries, including Merrill Lynch, EMI Music and NYNEX. The Company's professional services are delivered on a project basis or, more often, through staff augmentation. The Company's professional services staff provides services to support the full life cycle of computer systems, from strategy and design to development and implementation and finally to maintenance and support, across a wide range of platforms, including mainframe, midrange (AS/400), client/server and personal computers. In addition, the Company's professional services group provides contract programming, consulting and other computer-related professional services primarily to large corporate clients. The Company's technical staff performs a wide variety of tasks to identify, analyze and solve a client's data processing and computing problems. Generally, these services are provided on- site to clients with personnel who do not have the requisite technical skills or to clients with specific projects requiring additional staffing that do not justify permanent personnel increases. The scope of the work performed by the Company ranges from specific, minor tasks of short duration to large, complex tasks that require a large number of consultants. Furthermore, the Company has extensive experience in providing network solutions to its existing client base by providing hardware, software and systems integration services. The Company has developed expertise in document imaging and voice recognition technology and employs certified Lotus, Microsoft and Novell engineers. The Company's business relationships with Borland, Lotus, Microsoft and Oracle enhance the marketability of the Composite Solution and strengthen the skills of its technical staff. In order to become a leading provider of "Year 2000" solutions, the Company has created a "Year 2000" Competency Center to proactively address the issues that its clients face in resolving these problems. The Competency Center is comprised of a select group of the Company's technical professionals who specialize in developing "Year 2000" solutions for organizations and assist clients in making their current systems "Year 2000" compliant. The Company has obtained the rights to a software tool and continually reviews and evaluates additional software tools that can assist the Company's professionals in creating "Year 2000" compliant systems for clients. In this regard, the Company has an agreement to market and utilize an AS/400-specific product that goes beyond diagnosis and is able to partially correct affected software. See "Risk Factors--Growth Through Internal Expansion and Acquisitions." Management believes that one of the most critical challenges facing organizations attempting to make their current systems "Year 2000" compliant is the hiring and retaining of technical personnel who are able to rewrite the enormous amounts of computer code in various computer languages. Through its extensive recruitment efforts of technical personnel, management believes it is well positioned to supply clients with large numbers of trained personnel to address their individual "Year 2000" challenges, either on a project or staff augmentation basis. The Company employs a number of tools to meet its clients' staffing needs, including dedicated recruiting personnel, a national proprietary database consisting of technical profiles and resumes of approximately 25,000 technology professionals, dedicated resources to conduct Internet research for qualified personnel and in addition, the Company's world wide web site which includes the "CGS Career Center" which lists and continually updates available positions with the Company and receives thousands of "hits" per month. 28 In addition, the Company maintains a personnel search engine, "Skills Finder Plus," which includes search capabilities to match potential candidates with specific project and Company requirements. Training The Company provides, through more than 350 course offerings, comprehensive technical and end user training to its clients' personnel, including programmers, system administrators, operations personnel and management. In 1995, the Company's 30 full-time and 240 adjunct instructors provided over 600 computer technology-related classes. The Company emphasizes courses covering advanced technical skills focused on a broad range of software applications and IT and help desk management skills rather than basic introductory skills. Among others, the Company offers courses in Visual Basic, PowerBuilder, Visual C++ and Sybase. The Company is a certified training provider for Borland's Delphi and Lotus Notes. Management believes that its clients are attracted by the Company's broad range of course offerings and highly qualified training professionals as well as its ability to maintain and develop customized courses in leading-edge technologies. The Company believes that because of rapid technological change which has resulted in information systems that are more complex, companies are increasingly relying on third-party providers of IT training. By offering computer technology-related classes, the Company gains access to MIS professionals and is able to introduce other components of the Composite Solution to such professionals. Although client courses are generally provided on-site at a client's facilities using the client's hardware and software, the Company also makes available to clients its New York City training facility. In order to accommodate clients who may be interested in training only a few of their employees, the Company also offers public classes which are prescheduled at selected times at the New York City training facility. These classes are also available to the general public. In addition, computer users can browse the Internet for course offerings and make reservations for classes. IT OUTSOURCING SUPPORT SERVICES To capitalize on the trend towards outsourcing IT services, the Company provides on-site and remote help desk services. In addition, the Company provides services that facilitate the entire call management process, including generic call receiving, inbound and outbound telemarketing, data collection and call overflow services. In providing these services, the Company uses sophisticated tools that enable it to act as the transparent extension of its clients' technical support infrastructures. Help Desk The Company provides on-site and remote help desk services, primarily through IBM and AT&T, to major companies that have outsourced technical support for their internal IT systems. The Company's certified technical specialists provide shrink-wrapped software product support for over 300 products, as well as process engineering which includes systems design and operating system, LAN/WAN and custom software application support. The Company has established a strategic alliance with AT&T to be a preferred provider of help desk support functions to its clients. The Company also provides help desk services to IBM through facilities located in Tampa, Chicago, Atlanta and Rochester, MN. The Company provides technical and product remote support services directly to IBM employees and to IBM customers 24 hours a day, seven days a week. As part of the ACS Optima solution, the Company also provides help desk support to approximately 90 ACS Optima clients from the Company's Atlanta facility. The Company intends to establish additional vendor relationships, such as those with AT&T and IBM, to enable it to continue the expansion of its client base. The help desk facilities operated by the Company employ current technology in PBX switches, call tracking software, telephone-computer integration, interactive voice response and relational database management systems that are 29 integrated into centrally managed LAN/WANs. The Company utilizes sophisticated call tracking software and systems to provide efficient scheduling of personnel to accommodate fluctuations in call volume. The Company's help desk systems capture and download to permanent databases a variety of information concerning each call for reporting on a daily basis to clients, including number and duration of calls (which are important for billing purposes), response time and results of the call. Summary data and complete databases are made available to the client to enable it to monitor the level of service provided by the Company, as well as to determine whether end- users of its products are encountering recurring problems that require modification. Help desk services are billed primarily on a time and material basis. Call Management In October 1995, the Company began providing call management services in order to capitalize on this significant market opportunity and simultaneously provide additional services to its client base as part of its Composite Solution. The Company provides call management services directly to its clients and through a strategic partner. Teleservices Resources ("TSR"), a division of AMR Corp., and the Company have partnered to provide and operate an extensive call management system for Ryder Truck Rental, Inc. ("Ryder"). TSR is responsible for providing basic call management services to Ryder customers, while the Company, from its facilities in the Dallas Infomart, provides the technical support necessary for over 5,000 Ryder dealerships to be fully integrated into Ryder's call management and reservation system. These services include hardware and software installation and technical support, which allow TSR to efficiently operate the call management system and to enhance the services provided to the Ryder dealerships. In addition, pursuant to an agreement that expires on December 31, 1996, the Company currently provides advanced call management services to IBM's customers and IBM from facilities in Dallas and Atlanta. The Company has been advised by IBM that effective January 1, 1997, the services provided by the Company pursuant to the foregoing agreement will be provided directly by IBM. The Company expects to recognize revenues of approximately $8.5 million for providing these services in 1996. The Company also has recently entered into an alliance with telephone switchmaker Siemens Rolm Communications, a call-center switch technology provider, ProAmerica Systems and the Dallas architectural firm of Haldeman- Powell Partners, which specializes in the design of call-center space. This alliance will allow the Company to provide its clients, as well as its partners' clients, one-stop shopping for all the services needed to set up and operate a call center. In 1996, the Company established a state-of-the-art call management facility at the Dallas Infomart which has the technology to support over 200 call technicians and process over 4.0 million calls per year for multiple clients. SALES AND MARKETING The Company markets its information systems and services and IT outsourcing support services through the efforts of 30 sales and marketing representatives operating out of its New York, Los Angeles, Dallas, Atlanta and Chicago offices. Sales and marketing representatives are highly experienced in specific areas and are knowledgeable in other areas in which the Company offers its information systems and services and IT outsourcing support services. Sales and marketing efforts utilize an overall team-oriented approach with routine interaction between representatives to effectively market all of the Company's products and services. As part of their compensation, sales and marketing representatives are paid commissions on sales in their area of expertise and additional amounts for introductions that lead to sales of other products and services that comprise the Composite Solution. Management believes that being able to offer multiple services provides the Company with a marketing advantage since it gives the Company numerous entry points to service a customer's information systems and services and IT outsourcing support needs. The Company's sales force utilizes a variety of business development and marketing techniques, including field sales, referrals, telemarketing, the Company's on-line newsletter, presentations, exhibitions, trade shows and meetings with potential clients to market the Composite Solution. The Company's sales and marketing representatives emphasize the Company's ability to offer clients a comprehensive and cost-effective solution to their IT needs. 30 The Company markets the ACS Optima Software to leading apparel manufacturers as a comprehensive, integrated business information system specifically designed for the apparel industry. The Company strategically markets the ACS Optima Software to apparel companies with revenues of $20 million and higher, and the Company uses sales of this product as an entree to provide ongoing support services as well as AS/400 sales and services. The Company markets professional services to a diverse client base, focusing on companies in the financial, entertainment and communications industries with a primary focus in New York and Los Angeles, where a large portion of such industries is located. The Company's marketing efforts for professional services target both the decision makers who are ultimately responsible for appropriating funds for a project and the systems staffs that will be responsible for the project after implementation. The Company's sales and marketing representatives promote the Company's relationships with, among others, IBM, AT&T, Borland, Lotus, Microsoft, Oracle and Siemens Rolm Communications and ProAmerica Systems, and representatives of such companies sometimes join the Company's sales representatives in making joint sales calls. In addition, the Company attempts to use its training services to provide it with insight as to potential clients who are likely to be in need of other IT products or services offered by the Company. RECRUITMENT; HUMAN RESOURCES The Company's future success will depend, in part, on its ability to hire and retain adequately trained project managers, resource managers, systems analysts, business analysts, programming staff and other technical experts who can fulfill the increasingly sophisticated needs of its clients. The Company's on-going need for technical expert resources arise from (i) increased demand for the Company's services, (ii) turnover, which is generally high in the industry, and (iii) client requests for programmers trained in the newest software technologies. The recruitment of skilled project managers and other technical experts is a critical element in the Company's success. The Company devotes significant resources to meeting its personnel requirements. The Company employs recruiters based in its New York, Chicago, Atlanta, Tampa and Los Angeles offices. The Company also maintains a national proprietary database consisting of technical profiles and resumes of approximately 25,000 technology professionals and uses a personnel search engine, "Skills Finder Plus." This database includes search capabilities which match potential candidates with specific project and Company requirements. In addition, the Company has dedicated resources to conduct Internet research for qualified personnel. The Company's world wide web site includes the "CGS Career Center," which lists and continually updates available positions with the Company. At June 30, 1996, the Company had over 900 full time employees, comprised of project and resource managers, systems analysts, business analysts, programming staff and other technical professionals and 30 sales and marketing personnel. The Company's professional personnel have a variety of educational backgrounds, including degrees in computer science, business administration, education and engineering. The Company's personnel keep abreast of technological advances and developments through a combination of on-the-job exposure to relevant technology, selected training programs, peer review and discussions and supervision by senior personnel. The Company also keeps abreast of developments by hiring professionals with expertise in technologies that are needed or can be utilized by the Company and its clients. None of the Company's employees is subject to a collective bargaining agreement. The Company believes that its relations with its employees are good. COMPETITION The industry in which the Company operates is extremely competitive, highly fragmented and subject to rapid changes. While many companies provide information systems and services and IT outsourcing support services, management believes that no one company is dominant. There are numerous and varied providers of such services, including firms specializing in call center operations, temporary staffing and personnel placement companies, general management consulting firms, divisions of large hardware and software companies and niche providers of IT services, many of which compete in only certain markets. Although the Company believes that the Company's strategic alliances and other relationships provide it with a competitive advantage, the Company competes with and faces potential competition from a number of companies that have significantly greater financial, technical and marketing resources, greater name recognition and a more established client base than the Company. In addition, many of the services offered by the Company historically have been provided, and could in the future be provided, by the in-house personnel of its clients. The Company believes that its ability to compete depends, in part, on a number of factors, 31 including the ability of the Company to hire, retain and motivate a significant number of highly skilled employees and the development by others of products and services that are competitive with the Company's products and services. The Company competes with larger organizations and smaller competitors for highly skilled professionals to fill full-time and project specific positions. Management believes that price is not the primary factor in a client's determination to purchase the ACS Optima Software and related services but that product functionality and methodology for implementation are the principle competitive considerations. The Company believes that the principal competitive factors in its professional services business include the nature of the services offered, quality of service, responsiveness to customer needs, business experience and technical expertise. With respect to its IT outsourcing support services, the Company competes primarily on the basis of quality of service and price, and the Company could be adversely affected by the price at which others offer comparable IT outsourcing support services. Many of the Company's larger clients purchase IT outsourcing support services primarily from a limited number of preferred vendors. The Company has experienced and continues to anticipate significant pricing pressure from these clients in order to remain competitive. Although the Company believes that it can meet its clients' demands for information systems and services and IT outsourcing support services, there can be no assurance that the Company will continue to compete successfully with its existing competitors or will be able to compete successfully with any new competitors. INTELLECTUAL PROPERTY RIGHTS The Company's success is dependent, in part, upon its proprietary intellectual property rights. The Company relies on contractual arrangements, such as trade secret and non-disclosure agreements, and copyright and trademark law to protect its proprietary intellectual property rights. While the Company holds registered copyrights with respect to certain modules of the ACS Optima Software, generally enters into confidentiality agreements with its employees, consultants, clients and potential clients and limits access to and distribution of its confidential and proprietary data, there can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. The Company's business includes the development of custom software applications in connection with specific engagements. Ownership of such software is generally assigned to the client. Although the Company believes that its products and services do not infringe on the intellectual property rights of others, there can be no assurance that such a claim will not be asserted against the Company in the future. FACILITIES The Company's headquarters and principal administrative, sales and marketing operations are located in approximately 21,000 square feet of leased space in New York City under leases expiring in 2005. The Company occupies an aggregate of approximately 15,000 square feet of additional space in Los Angeles, Chicago, Dallas and Atlanta under leases expiring at various times throughout the next three years. In addition, pursuant to contracts with its clients, the Company currently occupies additional space which is owned or leased by its clients in Tampa, Rochester, MN, Chicago, Dallas and Atlanta. The Company also expects to enter into leases for additional space in Tampa and Los Angeles. The Company leases three IBM midrange computers from IBM Credit Corp. These leases are considered operating leases and, therefore, are not capitalized on the Company's balance sheet. The remainder of the Company's computers and peripheral equipment are owned or leased and treated as owned for accounting purposes because the Company may acquire ownership at the end of the lease agreement upon exercise of a purchase option for a nominal amount. The Company believes that its facilities and equipment are adequate for its current needs. LEGAL PROCEEDINGS The Company is not currently a party to any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on the Company's financial condition or results of operations. 32 MANAGEMENT Directors and Executive Officers The following sets forth the names and ages, as of July 30, 1996, of the Company's directors and executive officers and the positions they hold. Within 90 days following consummation of the Offering, the Company will appoint two independent directors to the Board of Directors and within one-year following consummation of the Offering, the Company will appoint one additional independent director to the Board of Directors. Such independent directors will not be employees of the Company.
- -------------------------------------------------------------------------------- NAME AGE POSITION AND OFFICE WITH THE COMPANY - -------------------------------------------------------------------------------- Philip Friedman 47 President, Chief Executive Officer and Director Victor Fried man 41 Executive Vice President and Director Fred B. Schlossberg 39 Vice President Finance & Administration, Secretary and Director Edward 47 Senior Vice President Schroeder(1) Jay Hakami 38 Vice President, Products and Services Robert B. Stratton 60 Vice President, Remote Support Services Rhoda Cahan 53 Vice President, Training Steven J. Carter 41 Vice President, Call Management
- ------- (1) Mr. Schroeder has agreed to serve as a director of the Company upon completion of the Offering. PHILIP FRIEDMAN has been President, Chief Executive Officer and a director of the Company since April 1984. In 1995, Mr. Friedman was named New York City Entrepreneur of the Year in the area of Technology Services by the Entrepreneur of the Year Institute sponsored by Ernst & Young LLP, Inc. Magazine and Merrill Lynch. He holds a Bachelor of Science degree in Finance and Economics from the State University of Uzgorod and a Master's degree in Electronic Engineering from Lvov Polytechnical Institute, both in the Ukraine. VICTOR FRIEDMAN has been Executive Vice President and a director of the Company since October 1994. From 1981 until October 1994, Mr. Friedman was the President/CEO of Real-Time Technology, Inc., a company which he founded and which specialized in providing professional services to the financial community. He holds degrees in Liberal Arts and Education from the State University of Uzgorod in the Ukraine. FRED B. SCHLOSSBERG has been Vice President Finance & Administration, Secretary and a director of the Company since April 1992. From June 1978 to April 1992, he was employed by BDO Seidman, LLP where his last position was Senior Audit Manager. Mr. Schlossberg is a Certified Public Accountant in New York State. He holds a Bachelor of Business Administration in accounting from Bernard Baruch College where he graduated magna cum laude. EDWARD SCHROEDER has been Senior Vice President of the Company since June 1996. From 1970 to June 1996, Mr. Schroeder was employed by IBM, where his last position was Vice President, Direct Marketing. He holds a Bachelor of Science degree in Economics from Rutgers University. JAY HAKAMI has been Vice President, Products and Services since 1991. Mr. Hakami began his career with the Company in 1989 as a Manager of Sales of Products and Services. He holds a Bachelor of Arts degree in Business Administration from the New York Institute of Technology. ROBERT B. STRATTON has been Vice President, Remote Support Services since 1995. Mr. Stratton has been employed by the Company since 1991 and from 1992 until 1995 was a General Manager of Remote Support Services. He holds an Associates Degree in Liberal Arts from Pace University. RHODA CAHAN has been Vice President, Training since 1995. Ms. Cahan began her career with the Company in 1991 as a Director of Training. She holds a Bachelor of Arts degree in Mathematics from Brown University, a Master of Science degree in Operations Research and Statistics from The Wharton School, University of Pennsylvania and a APC degree in Computer Applications and Information Systems from New York University. STEVEN J. CARTER has been Vice President, Call Management since August 1995. From December 1983 to August 1995 Mr. Carter was employed by IBM, where his last position was Executive of the Strategic Business Unit of Call Management Services. In connection with consummation of the Offering, the Board of Directors will be divided into three classes. The term of the Class I directors, to be comprised initially of , expires in 1997, the term of the Class II directors, to be 33 comprised initially of , expires in 1998, and the term of the Class III directors, to be comprised initially of , expires in 1999. Directors hold office until the annual meeting of the stockholders of the Company in the year in which the term of their class expires and until their successors have been duly elected and qualified. At each meeting of stockholders of the Company, the successors to the class of directors whose term expires will be elected for a three-year term. The next annual meeting of the stockholders of the Company is expected to be held in 1997. Philip Friedman and Victor Friedman are brothers. COMMITTEES OF THE BOARD OF DIRECTORS Audit Committee. Upon consummation of the Offering, the Board of Directors will create an Audit Committee that, among other things, will make recommendations concerning the engagement of independent auditors, review the results and scope of the annual audit and other services provided by the Company's independent auditors and will review the adequacy of the Company's internal accounting controls. The Audit Committee will consist of the two independent directors to be appointed after consummation of the Offering and . Compensation Committee. Upon consummation of the Offering, the Board of Directors will create a Compensation Committee that, among other things, will make recommendations to the full Board of Directors concerning salary and bonus compensation and benefits for executive officers of the Company and will administer the Company's 1996 Long-Term Incentive Plan. The Compensation Committee will consist of one of the independent directors to be appointed after consummation of the Offering and . COMPENSATION OF THE BOARD OF DIRECTORS Directors who are employees of the Company will receive no additional compensation for their services as members of the Board of Directors or as members of Board committees. Directors who are not employees of the Company will be paid a quarterly fee of $ , as well as additional fees of $ for each meeting of the Board or of a Board committee attended by such director. The Company's directors will be reimbursed for their out-of-pocket expenses incurred in connection with their service as directors, including travel expenses. 34 COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth compensation paid by the Company during the last three years to the Company's Chief Executive Officer and to the four most highly compensated executive officers (collectively, the "Named Executive Officers"). The Company did not grant any stock options or stock awards to any of the Named Executive Officers during such years and the dollar value of perquisite and other personal benefits, if any, received by each of the Named Executive Officers in each year was less than established reporting thresholds. SUMMARY COMPENSATION TABLE ----------------------------------
OTHER ANNUAL YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1) NAME AND PRINCIPAL POSITION ---- ---------- --------- ------------------- Philip Friedman President and Chief Executive 1995 400,000 830,000 5,000 Officer 1994 310,000 2,600,000 5,000 1993 150,000 1,800,000 5,000 Victor Friedman Executive Vice President 1995 200,000 70,000 3,000 1994 50,000(2) 75,000 -- 1993 -- -- -- Fred B. Schlossberg Vice President Finance & 1995 135,000 25,000 5,000 Administration, Secretary 1994 115,000 30,000 4,000 1993 100,000 15,000 3,000 Jay Hakami Vice President, Products and 1995 279,000 -- 5,000 Services 1994 193,000 -- 5,000 1993 314,000 -- 5,000 Robert B. Stratton Vice President, Remote Support 1995 220,000 -- 1,000 Services 1994 181,000 -- -- 1993 113,000 -- --
- ------- (1) Consists of amounts contributed on behalf of such employees to the Company's 401(k) plan. (2) Victor Friedman was employed by the Company beginning in October 1994. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company has never had a Compensation Committee or other committee of the Board of Directors performing similar functions and all matters concerning executive compensation have been addressed by the entire Board of Directors. Decisions concerning compensation of executive officers of the Company were made by the Company's Board of Directors. The Board of Directors will establish a Compensation Committee upon the consummation of the Offering. EMPLOYMENT AGREEMENTS The Company does not have employment contracts with any of its executive officers or other employees. 1996 LONG-TERM INCENTIVE PLAN The 1996 Long-Term Incentive Plan (the "Plan") will be adopted by the Company's Board of Directors and approved by the Company's stockholders prior to the consummation of the Offering. The Company will reserve an amount of Common Stock equal to 10 percent of the shares of Common Stock outstanding upon consummation of the Offering for issuance and/or use as the basis for stock appreciation rights or other units of stock-based incentive compensation 35 under the Plan. Unless sooner terminated by the Board of Directors, the Plan will terminate on the date which is 10 years from the date of its adoption. The Plan will be administered by the Compensation Committee of the Board of Directors. The Committee will have the authority and discretion, subject to the provisions of the Plan, to select persons to whom options and other awards under the Plan will be granted, to designate the number of shares to be covered by awards, to specify the type of consideration to be paid to the Company and to establish all of the terms and conditions of each award. The Plan will provide for the grant of stock options and other awards to officers and other key employees of the Company and to its directors. Options granted under the Plan may be incentive stock options or nonqualified stock options. The exercise price for an incentive stock option may not be less than the fair market value of the Company's Common Stock on the date of grant and such options may not be exercisable by the employee (except in the event of death or disability or certain changes in control of the Company) prior to the completion of at least one year of employment subsequent to the grant of the award. Options granted under the Plan shall vest on certain changes in control of the Company (as defined in the Plan) unless the Compensation Committee otherwise determines prior to such change in control, and in such case, the participant will receive cash equal to the value of the option in lieu of exercise thereof. Nonqualified stock options shall have such terms as the Compensation Committee shall determine and that shall not be inconsistent with the Plan. Stock options granted under the Plan may not be transferred other than by will or the laws of descent and distribution or, in the case of nonqualified stock options, by gift. All awards under the Plan may be subject to substantial employment requirements and/or performance measurements and goals. The Compensation Committee shall establish, with respect to each performance-based award, the length of the applicable performance period (which shall be at least two years), performance objectives (which shall be based on revenues, operating income, net income, return on equity or a variation or combination of the foregoing and may vary from participant to participant) and the range of dollar values or number of shares of Common Stock (which shall be subject to maximum limitations) that may be earned by the participant. 401(K) SAVINGS PLAN The Company has adopted a 401(k) savings plan (the "401(k) Plan"). All employees of the Company are eligible to participate in the 401(k) Plan. Under the 401(k) Plan, eligible employees are permitted to defer up to 10% of their compensation, subject to certain limitations. Currently, the Company matches a discretionary amount between 0% and 50% of an employee's contribution, subject to a maximum contribution equal to 3% of such employee's annual compensation. Salary deferral contributions are fully vested. Matching contributions are fully vested after seven years of service; partial vesting begins after three years of service. Participants or their beneficiaries are entitled to payment of benefits (i) upon retirement at age 65 or early retirement at age 55, (ii) upon death or disability or (iii) upon termination of employment, if the participant elects to receive a distribution of his account balance prior to one of the events listed in (i) or (ii) above. In addition, withdrawals are available upon the participant attaining age 59.5, or for reasons of financial hardship if certain conditions are met. 36 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In October 1994, the Company acquired substantially all of the assets and assumed certain liabilities of Real-Time, a computer consulting firm which was owned by Victor Friedman. The purchase price of $252,478 was paid by the issuance of 753 shares of Company common stock to Victor Friedman. Philip Friedman has loaned the Company in the aggregate approximately $2.5 million. This loan is payable on demand and bears interest at 10.0%. The loan will be repaid with a portion of the net proceeds of the Offering. See "Use of Proceeds." In addition, Philip Friedman has guaranteed certain of the Company's obligations under the Company's revolving credit facility and term loan. These guarantees will terminate upon consummation of the Offering. Upon consummation of the Offering, the Company plans to distribute to its stockholders of record immediately prior to the consummation of the Offering the cumulative amount of its undistributed earnings for the entire period that it was an S corporation. As of June 30, 1996, the cumulative balance of such undistributed earnings was approximately $3.3 million. The difference between the undistributed earnings of $3.3 million and retained earnings of approximately $2.4 million at June 30, 1996 is principally the result of temporary timing differences between income tax bases and financial reporting. In addition, the Company's stockholders immediately prior to the consummation of the Offering will be entitled to receive from the Company, in the event of certain adjustments to the Company's federal taxable income, the amount of federal, state and local income taxes, including penalties and interest, incurred by them as a result of such adjustment. See "The Company." Pursuant to a Registration Rights Agreement to be entered into immediately prior to the consummation of the Offering, among the Company, Philip Friedman and Victor Friedman (the "Registration Rights Agreement"), the Company will, at the request of either Philip Friedman or Victor Friedman (the "Rights Holders"), prepare and file, and use its best efforts to make effective, registration statements under the Securities Act for resales of Common Stock, including underwritten offerings. In addition, pursuant to the Registration Rights Agreement, if the Company proposes to register its securities under the Securities Act, then the Rights Holders have a right (subject to quantity limitations determined by underwriters if the offering involves an underwriting) to request that the Company register such Rights Holders' Common Stock. All fees and expenses incurred in connection with any such registration will be borne by the Company, except for all underwriting discounts and commissions relating to Common Stock sold by the Rights Holders in any such offering, which will be borne by such Rights Holders. The Company has agreed to indemnify the Rights Holders against certain liabilities in connection with any registration effected pursuant to the Registration Rights Agreement, including liabilities under the Securities Act. 37 PRINCIPAL STOCKHOLDERS The following table sets forth certain information, regarding the beneficial ownership of the Common Stock, prior to and after giving effect to the Offering, by (i) the directors and four most highly compensated executive officers of the Company, (ii) each person known by the Company to own beneficially more than five percent of the outstanding shares of Common Stock and (iii) all executive officers and directors as a group.
SHARES BENEFICIALLY OWNED (1) -------------------------------- PERCENT PERCENT PRIOR TO AFTER NUMBER THE OFFERING THE OFFERING NAME(2) ------ ------------ ------------ Philip Friedman............................... 90% Victor Friedman............................... 10% Fred B. Schlossberg........................... 0% * Edward Schroeder.............................. 0% * Jay Hakami.................................... 0% * Robert B. Stratton............................ 0% * All executive officers and directors as a group (7 Persons)............................ 100%
- ------- * Less than 1% (1) The persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (2) Unless otherwise indicated, the business address of each director and executive officer is c/o Computer Generated Solutions, Inc., 1675 Broadway, New York, New York 10019. 38 DESCRIPTION OF CAPITAL STOCK After the Offering, the Company's authorized capital stock will consist of shares of Common Stock and 1,000,000 shares of Preferred Stock, the terms and provisions of which may be designated by the Board of Directors in the future. The following summary of the Company's capital stock is qualified in its entirety by reference to the Company's Certificate of Incorporation and By- Laws, each of which is filed as an exhibit to the registration statement of which this Prospectus is a part. COMMON STOCK Following the Offering, shares of Common Stock will be issued and outstanding. See "Capitalization." Each holder of Common Stock is entitled to one vote for each share held of record on each matter submitted to a vote of the Company's stockholders. The Company's Principal Stockholders are entitled to certain rights with respect to registration under the Securities Act of shares held by them. See "Certain Relationships and Related Party Transactions." All of the outstanding shares of Common Stock are, and all of the shares of Common Stock sold in the Offering will be, when issued and paid for, fully paid and nonassessable. In the event of the liquidation or dissolution of the Company, following any required distribution to the holders of outstanding shares of Preferred Stock, if any, the holders of Common Stock are entitled to share pro rata in any balance of the corporate assets available for distribution to them. The Company may pay dividends if, when and as declared by the Board of Directors from funds legally available therefor. Subject to the preferential rights of the holders of any class of Preferred Stock, holders of shares of Common Stock are entitled to receive such dividends as may be declared by the Company's Board of Directors out of funds legally available for such purpose. See "Dividend Policy." Holders of Common Stock have no preemptive rights. PREFERRED STOCK Following the Offering, no shares of Preferred Stock will be issued and outstanding. Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more classes or series. Subject to the provisions of the Company's Certificate of Incorporation and limitations prescribed by law, the Board of Directors is expressly authorized to adopt resolutions to issue the shares, to fix the number of shares and to change the number of shares constituting any series, and to provide for or change the voting powers, designations, preferences and relative participating, optional or other special rights, qualifications, limitations or restrictions thereof, including dividend rights, sinking fund provisions, redemption prices, conversion rights and liquidation preferences of the shares constituting any class or series of Preferred Stock, in each case without any further action or vote by the stockholders. The Company has no current plans to issue any shares of Preferred Stock of any class or series. One of the effects of undesignated Preferred Stock may be to enable the Board of Directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of the Company's management. In addition, the issuance of shares of Preferred Stock pursuant to the Board of Directors' authority described above may adversely affect the rights of the holders of Common Stock. For example, Preferred Stock issued by the Company may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. The issuance of shares of Preferred Stock may discourage bids for the Common Stock or may otherwise adversely affect the market price of the Common Stock. CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS AND DELAWARE LAW Certain provisions of the Company's Certificate of Incorporation and By-Laws, as well as certain provisions of Delaware law, may have an anti-takeover effect or may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in such stockholder's best interest, including those attempts that might result in a premium over the market price for the shares of Common Stock held by a stockholder. These provisions are in addition to the anti-takeover effect of the substantial ownership and voting power of the Principal Stockholders of the 39 Company. In addition, the Certificate of Incorporation and By-Laws contain certain provisions that may reduce the likelihood of a change in management or voting control of the Company without the consent of the Board of Directors. Delaware Anti-Takeover Law. Section 203 of the Delaware General Corporation Law, as amended ("Section 203"), provides that, subject to certain exceptions specified therein, a Delaware corporation shall not engage in any business combination, including any merger or consolidation with, or any transaction which results in the acquisition of additional shares of the corporation by, an "interested stockholder" for a three-year period following the time at which the stockholder became an "interested stockholder" unless (i) prior to such time, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder," (ii) upon consummation of the transaction which resulted in the stockholder becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the corporation outstanding at the time that the transaction commenced (excluding certain shares) or (iii) at or subsequent to such time, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the "interested stockholder." Except as otherwise specified in Section 203, an "interested stockholder" is defined to include any person that (i) is the owner of 15% or more of the outstanding voting stock of the corporation, (ii) is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the date on which it is sought to be determined whether such person is an "interested stockholder" or (iii) is an affiliate or associate of any person of the type identified in clause (ii) above. Section 203 defines the term "business combination" to encompass a wide variety of transactions with or caused by an "interested stockholder", including mergers, asset sales and other transactions in which the "interested stockholder" receives or could receive a benefit on other than a pro rata basis with other stockholders. The provisions of Section 203, coupled with the Board of Directors authority to issue Preferred Stock without further stockholder action and the fact that, after giving effect to the Offering, % of the outstanding shares of Common Stock will be held by the Principal Stockholders, could delay or frustrate the removal of incumbent directors or a change in control of the Company. The provisions also could discourage, impede or prevent a merger, tender offer or proxy contest, even if such event would be favorable to the interests of stockholders. The Company's stockholders, by adopting an amendment to the Certificate of Incorporation, may elect not to be governed by Section 203, which election would be effective twelve months after such adoption. Such a change in the Certificate of Incorporation could not be made without the affirmative vote of shares held by Philip Friedman. Neither the Certificate of Incorporation nor the By-Laws exclude the Company from the restrictions imposed by Section 203. These restrictions will not apply to stockholders who were interested stockholders prior to the date of the Offering. Classified Board of Directors. The Certificate of Incorporation provides for the Board of Directors to be divided into three classes of directors serving staggered three-year terms. Each class will consist, as nearly as practical, of one-third of the Board of Directors constituting the entire Board of Directors. As a result, approximately one-third of the Board of Directors will be elected each year. Holders of a majority of the outstanding shares of capital stock of the Company entitled to vote with respect to election of directors may remove directors only for cause. Vacancies on the Board of Directors may be filled only by the remaining directors and not by the stockholders. Stockholder Meetings. The Certificate of Incorporation provides that any action required or permitted to be taken by the stockholders of the Company may be effected only at an annual or special meeting of stockholders and prohibits stockholder action by written consent in lieu of a meeting. The By-Laws provide that special meetings of stockholders may be called only by the president of the Company and must be called by such officer at the request in writing of a majority of the Board of Directors. Stockholders are not permitted to call a special meeting of stockholders, to require that the president call such a special meeting or to require that the Board of Directors request the calling of a special meeting of stockholders. Advance Notice Provisions. The By-Laws establish an advance notice procedure for stockholders to make nominations of candidates for elections as directors, or to bring other business before an annual meeting of stockholders of the Company. The By-Laws provide that only persons who are nominated by, or at the direction of, the president of the Company or by a stockholder who has given timely written notice to the Secretary of the 40 Company prior to the meeting at which directors are to be elected, will be eligible for election as directors of the Company. The By-Laws also provide that at an annual meeting only such business may be conducted as has been brought before the meeting by, or at the direction of, the president of the Company, the Board of Directors or by a stockholder who has given timely written notice to the Secretary of the Company of such stockholder's intention to bring such business before such meeting. Generally, for notice of stockholder nominations to be made at an annual meeting to be timely under the By-Laws, such notice must be received by the Company not less than 70 days nor more than 90 days prior to the first anniversary of the previous year's annual meeting (or, in the case of a special meeting at which directors are to be elected, not earlier than the 90th day before such meeting and not later than the later of (x) the 70th day prior to such meeting and (y) the 10th day after public announcement of the date of such meeting is first made). Under the By- Laws, a stockholder's notice must also contain certain information specified in the By-Laws. Super majority Voting Provisions. The Certificate of Incorporation provides that certain extraordinary transactions require the approval of holders of 75% of the voting power of the outstanding capital stock of the Company entitled to vote thereon. Amendment of Certificate of Incorporation. The stockholders of the Company may not amend or repeal any of the provisions summarized above under "Classified Board of Directors," "Stockholder Meetings," "Advance Notice Provisions" or "Super majority Voting Provisions" except upon the affirmative vote of holders of not less than 75% of the outstanding shares of capital stock of the Company entitled to vote thereon. Exculpation and Indemnification. The Certificate of Incorporation provides that no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. The effect of these provisions is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. The Commission has taken the position that the foregoing provisions will have no effect on claims arising under federal securities laws. The Company's By-Laws provide that the Company will indemnify its directors and officers to the fullest extent permissible under Delaware law. These indemnification provisions require the Company to indemnify such persons against certain liabilities and expenses to which they may become subject by reason of their service as a director or officer of the Company. The provisions also set forth certain procedures, including the advancement of expenses, that apply in the event of a claim for indemnification. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is The Bank of New York. 41 SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no public market for the Common Stock. No prediction can be made as to the effect, if any, that sales of shares of Common Stock or the availability of shares of Common Stock for sale will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of Common Stock in the public market after the restrictions described below lapse could adversely affect the prevailing market price of the Common Stock and the ability of the Company to raise equity capital in the future. Upon completion of the Offering, the Company will have outstanding shares of Common Stock. See "Capitalization." Of these shares, the shares ( shares if the Underwriters' over-allotment option is exercised in full) of Common Stock sold in the Offering will be freely tradable without restriction under the Securities Act except for any shares purchased by "affiliates" (as defined in the Securities Act) of the Company. The remaining shares are "restricted securities" within the meaning of Rule 144 adopted under the Securities Act (the "Restricted Shares"). The Restricted Shares generally may not be sold unless they are registered under the Securities Act or are sold pursuant to an exemption from registration, such as the exemption provided by Rule 144. The Company and the Principal Stockholders have agreed not to offer, sell or otherwise dispose of any shares of Common Stock or any securities convertible into Common Stock, or register for sale under the Securities Act or request registration of, as the case may be, any Common Stock, for a period of 180 days after the date of this Prospectus (the "Lock-up Period") without the prior written consent of J.P. Morgan Securities Inc. on behalf of the Underwriters. See "Underwriting." Following the Lock-up Period, any shares owned prior to the Offering will not be eligible for sale in the public market without registration unless such sales meet the conditions and restrictions of Rule 144 as described below. In general, under Rule 144, as currently in effect, any person (or persons whose shares are aggregated), including an affiliate of the Company, who has beneficially owned shares for a period of at least two years (as computed under Rule 144) is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of (i) 1% of the then-outstanding shares of Common Stock (approximately shares after giving effect to the Offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks immediately preceding the date on which the notice of such sale on Form 144 is filed with the Commission. Sales under Rule 144 are also subject to certain provisions relating to notice and manner of sale and the availability of current public information about the Company. In addition, a person (or persons whose shares are aggregated) who has not been an affiliate of the Company at any time during the 90 days immediately preceding a sale, and who has beneficially owned the shares for at least three years (as computed under Rule 144), would be entitled to sell such shares under Rule 144(k) without regard to the volume limitation, manner of sale, public information or notice provisions of Rule 144. The foregoing summary of Rule 144 is not intended to be a complete description thereof. In addition, the Commission has proposed reducing the two-year and three-year periods referred to above to one and two years, respectively. Prior to the Offering, no Common Stock was subject to outstanding options or warrants to purchase, or securities convertible into, Common Stock. As soon as practicable following the consummation of the Offering, the Company intends to file a registration statement under the Securities Act to register the shares of Common Stock available for issuance upon exercise of options granted pursuant to the 1996 Long Term Incentive Plan. Shares issued upon exercise of options granted pursuant to the 1996 Long-Term Incentive Plan after the effective date of such registration statement will be available for sale in the open market, subject to the Lock-up Period and, for affiliates of the Company, subject to the conditions and restrictions of Rule 144. In addition, the Company has granted certain registration rights to Philip Friedman and Victor Friedman. See "Certain Relationships and Related Party Transactions." 42 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom J.P. Morgan Securities Inc. and Oppenheimer & Co., Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the underwriting agreement among the Company and the Representatives (the "Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the Underwriters, the respective number of shares of Common Stock set forth opposite their names below: ----------
NUMBER OF SHARES UNDERWRITERS ---------------- J.P. Morgan Securities Inc. ................................... Oppenheimer & Co., Inc. ....................................... --------- Total ....................................................... =========
The nature of the Underwriters' obligations under the Underwriting Agreement is such that all of the Common Stock being offered, excluding shares covered by the over-allotment option granted to the Underwriters, must be purchased if any are purchased. The Representatives have advised the Company that the several Underwriters propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and may offer the Common Stock to selected dealers at such price less a concession not to exceed $ per share. The Underwriters may allow, and such dealers may reallow, a concession to other dealers not in excess of $ per share. After the public offering of the Common Stock, the public offering price and other selling terms may be changed by the Representatives. The Company has granted the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to additional shares of Common Stock from the Company at the same price per share to be paid by the Underwriters for the other shares offered hereby. If the Underwriters purchase any such additional shares pursuant to the option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may exercise the option only to cover over-allotments, if any, made in connection with the distribution of Common Stock offered hereby. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in determining the initial offering price will be prevailing market conditions, the market valuations of certain publicly traded companies, revenue and earnings of the Company and comparable companies in recent periods, estimates of the business potential and prospects of the Company, the experience of the Company's management and the position of the Company in its industry. The Representatives have informed the Company that the Underwriters will not confirm, without customer authorization, sales to their customer accounts as to which they have discretionary trading power. The Company and the Principal Stockholders have agreed not to offer, sell or otherwise dispose of any shares of Common Stock or any securities convertible into Common Stock, or register for sale under the Securities Act or request registration of, as the case may be, any Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of J.P. Morgan Securities Inc. on behalf of the Underwriters. 43 The Underwriters have represented and agreed that (i) they have not offered or sold and, prior to the expiry of the period of six months from the closing of the Offering, will not offer or sell, any shares of Common Stock to persons in the United Kingdom, except persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public within the meaning of the Public Offers of Securities Regulations 1995, (ii) they have complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by them in relation to the Offering in, from or otherwise involving the United Kingdom and (iii) they have only issued or passed on, and will only issue and pass on, in the United Kingdom any document received by them in connection with the Offering to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisement) (Exemptions) Order 1995 or is a person to whom such document may otherwise lawfully be issued or passed on. Application has been made to approve the shares of Common Stock for quotation on the Nasdaq National Market under the symbol "CGSI." The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. At the Company's request, the Underwriters have reserved up to shares of Common Stock for sale at the initial public offering price to the Company's employees and other persons having business relationships with the Company. The number of shares of Common Stock available for sale to other members of the public will be reduced to the extent that these persons purchase such reserved shares. Any reserved shares not purchased will be offered by the Underwriters on the same basis as the other shares offered hereby. LEGAL MATTERS Certain legal matters with respect to the legality of the issuance of the Common Stock offered hereby will be passed upon for the Company by Chadbourne & Parke LLP, New York, New York. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York. EXPERTS The financial statements (including Schedule 16(b), which is included in the Registration Statement of which this Prospectus forms a part) of the Company at June 30, 1996 and December 31, 1995 and for the six months ended June 30, 1996 and the year ended December 31, 1995, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, and at December 31, 1994, and for each of the two years in the period ended December 31, 1994, by BDO Seidman, LLP, independent auditors, as set forth in their respective reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. CHANGE OF AUDITORS In November 1995, the Company, with the approval of the Board of Directors, dismissed BDO Seidman, LLP as its independent auditors. During the period between January 1, 1993 and the date on which BDO Seidman, LLP was dismissed, there was no (i) disagreement between the Company and BDO Seidman, LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of BDO Seidman, LLP, would have caused BDO Seidman, LLP to make reference to the subject matter of such disagreement in connection with its report on the Company's financial statements or (ii) adverse opinion or a disclaimer of opinion, or qualification or modification as to uncertainty, audit scope or accounting principles in connection with its report on the Company's financial statements. The Company engaged Ernst & Young LLP as its new independent auditors in November 1995. 44 ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement under the Securities Act (the "Registration Statement") with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement and the exhibits and schedules thereto. The statements contained in this Prospectus as to the contents of any document filed as an exhibit are of necessity brief descriptions thereof and are not necessarily complete; each such statement is qualified in its entirety by reference to such document. The Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's Regional Offices at Seven World Trade Center, 13th Fl., New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, and copies may be obtained at prescribed rates from the public reference section of the Commission, Washington, D.C. 20549. Such reports and other information can be reviewed through the Commission's Electronic Data Gathering Analysis and Retrieval System, which is publicly available through the Commission's web site (http://www.sec.gov). 45 INDEX TO FINANCIAL STATEMENTS
PAGE Reports of Independent Auditors.......................................... F-2 Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996........ F-4 Statements of Operations for Each of the Three Years in the Period Ended December 31, 1995 and the Six Month Period Ended June 30, 1996 and the Unaudited Six Month Period Ended June 30, 1995.......................... F-5 Statements of Stockholders' Equity for Each of the Three Years in the Pe- riod Ended December 31, 1995 and the Six Month Period Ended June 30, 1996.................................................................... F-6 Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 1995 and the Six Month Period Ended June 30, 1996 and the Unaudited Six Month Period Ended June 30, 1995.......................... F-7 Notes to Financial Statements............................................ F-8
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors Computer Generated Solutions, Inc. We have audited the accompanying balance sheets of Computer Generated Solutions, Inc. (the "Company") as of June 30, 1996 and December 31, 1995, and the related statements of operations, stockholders' equity and cash flows for the six months ended June 30, 1996 and the year ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Computer Generated Solutions, Inc. at June 30, 1996 and December 31, 1995, and the results of its operations and its cash flows for the six months ended June 30, 1996 and the year ended December 31, 1995 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York July 12, 1996 F-2 REPORT OF CERTIFIED PUBLIC ACCOUNTANTS Computer Generated Solutions, Inc. New York, New York We have audited the accompanying balance sheet of Computer Generated Solutions, Inc. (the "Company") as of December 31, 1994, and the related statements of income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Computer Generated Solutions, Inc. at December 31, 1994, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. BDO Seidman, LLP New York, New York February 21, 1995 F-3 COMPUTER GENERATED SOLUTIONS, INC. BALANCE SHEETS -----------------------------------
PRO FORMA DECEMBER 31, JUNE 30, JUNE 30, 1994 1995 1996 1996 --------- --------- --------- ----------- (NOTE 12) (UNAUDITED) (In Thousands, Except Share Data) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 606 $ 264 $ 432 $ 432 Accounts receivable, net of allowances of $10 in 1994, $60 in 1995 and $65 in 1996 5,452 9,177 10,338 10,338 Deferred income taxes -- -- -- 159 Prepaid expenses and other current assets 126 122 146 146 --------- --------- --------- ---------- Total current assets 6,184 9,563 10,916 11,075 Fixed assets, net 369 1,259 1,431 1,431 Cost in excess of fair value of assets purchased, net of accumulated amortization of $213 in 1994, $533 in 1995 and $693 in 1996 746 426 266 266 Deferred income taxes -- -- -- 192 Other assets 428 405 569 569 --------- --------- --------- ---------- Total assets $ 7,727 $ 11,653 $ 13,182 $ 13,533 ========= ========= ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Note payable--bank $ 1,400 $ 3,200 $ 2,200 $ 2,200 Note payable--stockholder 400 323 323 -- Accounts payable and accrued expenses 1,293 1,995 3,271 3,271 Current portion of long-term debt 472 472 267 267 Current portion of obligations under capital leases -- 93 136 136 Deferred maintenance 475 542 357 357 Accrued payroll 703 817 1,178 1,178 Sales tax payable 145 178 391 391 Due to stockholders -- -- -- 5,769 --------- --------- --------- ---------- Total current liabilities 4,888 7,620 8,123 13,569 Long-term debt 605 133 -- -- Obligations under capital leases -- 346 438 438 Subordinated debt--stockholder 1,778 2,146 2,146 -- COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, no shares authorized in 1994, 1995 and June 30, 1996, pro forma June 30, 1996, 1,000,000 shares authorized, no shares issued and outstanding -- -- -- -- Common stock, $.01 par value; Voting--10,000 shares authorized; 10,000 shares issued 1 1 1 1 Nonvoting--5,000 shares authorized; no shares issued -- -- -- -- Additional paid-in capital 228 228 228 228 Retained earnings (deficit) 369 1,321 2,388 (561) --------- --------- --------- ---------- 598 1,550 2,617 (332) Less 2,464 shares held in treasury, at cost (142) (142) (142) (142) --------- --------- --------- --------- Total stockholders' equity (deficit) 456 1,408 2,475 (474) --------- --------- --------- ---------- Total liabilities and stockholders' equity $ 7,727 $ 11,653 $ 13,182 $ 13,533 ========= ========= ========= ==========
See accompanying notes. F-4 COMPUTER GENERATED SOLUTIONS, INC. STATEMENTS OF OPERATIONS
------------------------------------------------------- SIX MONTHS YEARS ENDED DECEMBER 31, ENDED JUNE 30, 1993 1994 1995 1995 1996 --------- --------- --------- ---------- --------- (UNAUDITED) (In Thousands, Except Per Share Data) REVENUES: Services, software license and maintenance fees $ 8,514 $ 19,962 $ 31,704 $ 14,175 $ 22,906 Hardware 17,489 4,748 4,243 1,319 4,447 --------- --------- --------- --------- --------- $ 26,003 $ 24,710 $ 35,947 $ 15,494 $ 27,353 --------- --------- --------- --------- --------- DIRECT COSTS: Services, software license and maintenance fees $ 5,186 $ 12,988 $ 22,970 $ 9,850 $ 17,169 Hardware 15,796 3,882 3,007 722 3,717 --------- --------- --------- --------- --------- $ 20,982 $ 16,870 $ 25,977 $ 10,572 $ 20,886 --------- --------- --------- --------- --------- Income from direct operations 5,021 7,840 9,970 4,922 6,467 Selling, general and administrative expenses 2,916 4,725 6,690 3,007 4,504 Compensation amounts to S Corporation stockholders 1,950 3,041 1,502 201 380 Amortization of cost in excess of fair value of assets purchased -- 213 320 160 160 --------- --------- --------- --------- --------- 4,866 7,979 8,512 3,368 5,044 --------- --------- --------- --------- --------- Operating income (loss) 155 (139) 1,458 1,554 1,423 Interest expense -- 77 473 225 295 --------- --------- --------- --------- --------- Income (loss) before income taxes 155 (216) 985 1,329 1,128 Income taxes 39 60 33 60 61 --------- --------- --------- --------- --------- Net income (loss) $ 116 $ (276) $ 952 $ 1,269 $ 1,067 ========= ========= ========= ========= ========= PRO FORMA (UNAUDITED) (NOTE 12) Historical income before income taxes $ 985 $ 1,128 Pro forma provision for income taxes 396 488 ---------- ---------- Pro forma net income $ 589 $ 640 ========== ========== Pro forma net income per share $ 78.16 $ 84.93 ========== ========== Weighted average shares outstanding 7,536 7,536 ========= =========
See accompanying notes. F-5 COMPUTER GENERATED SOLUTIONS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------ ADDITIONAL NUMBER PAID-IN RETAINED TREASURY OF SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL --------- --------- ---------- --------- --------- --------- (In Thousands) Balance at December 31, 1992 7 $ 1 $ 19 $ 529 $ (185) $ 364 Net income 116 -- 116 --------- --------- --------- --------- --------- --------- Balance at December 31, 1993 7 1 19 645 (185) 480 Net loss (276) -- (276) Reissued treasury stock 3 209 -- 43 252 --------- --------- --------- --------- --------- --------- Balance at December 31, 1994 10 1 228 369 (142) 456 Net income 952 -- 952 --------- --------- --------- --------- --------- --------- Balance at December 31, 1995 10 1 228 1,321 (142) 1,408 Net income 1,067 -- 1,067 --------- --------- --------- --------- --------- --------- Balance at June 30, 1996 10 $ 1 $ 228 $ 2,388 $ (142) $ 2,475 ========= ========= ========= ========= ========= =========
See accompanying notes. F-6 COMPUTER GENERATED SOLUTIONS, INC. STATEMENTS OF CASH FLOWS
---------------------------------------------------------- SIX MONTHS YEARS ENDED DECEMBER 31, ENDED JUNE 30, 1993 1994 1995 1995 1996 --------- --------- --------- ----------- --------- (UNAUDITED) (In Thousands) OPERATING ACTIVITIES Net income (loss) $ 116 $ (276) $ 952 $ 1,269 $ 1,067 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 54 288 530 208 310 Bad debt expense 87 54 110 59 84 Write-off of leasehold improvements -- 42 -- -- -- Changes in operating assets and liabilities (net of effects in 1994 from purchase of ACS Software Products Group and Real-Time Technology Inc.): Accounts receivable (831) (1,260) (3,835) (793) (1,245) Prepaid expenses and other current assets 6 (62) 4 49 (24) Other assets (104) (173) 23 -- (164) Accounts payable and accrued expenses 3,185 (3,333) 702 (452) 1,276 Deferred maintenance -- 115 67 (60) (185) Accrued payroll 126 313 114 (91) 361 Sales taxes payable 59 (360) 33 57 214 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities 2,698 (4,652) (1,300) 246 1,694 INVESTING ACTIVITIES Purchase of net assets of ACS Software Products Group -- (800) -- -- -- Capital expenditures (119) (74) (579) (406) (141) --------- --------- --------- --------- --------- Net cash used in investing activities (119) (874) (579) (406) (141) FINANCING ACTIVITIES Proceeds from term loan -- 800 -- -- -- Repayment of term loan -- (133) (267) (133) (133) Repayment of acquisition debt -- -- (205) (205) (205) Proceeds (repayment) from note payable - bank, net (300) 1,400 1,800 400 (1,000) Proceeds of note payable and subordinated debt - stockholder, net 213 1,244 291 -- -- Principal payments under capitalized lease obligations -- -- (82) (37) (47) Repayments of loans payable - other (37) (190) -- (33) -- --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities (124) 3,121 1,537 (8) (1,385) --------- --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents 2,455 (2,405) (342) (168) 168 Cash and cash equivalents, beginning of year 556 3,011 606 606 264 --------- --------- --------- --------- --------- Cash and cash equivalents, end of year $ 3,011 $ 606 $ 264 $ 438 $ 432 ========= ========= ========= ========= =========
See accompanying notes. F-7 COMPUTER GENERATED SOLUTIONS, INC. NOTES TO FINANCIAL STATEMENTS Unaudited with respect to June 30, 1995 1. SUMMARY OF ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Computer Generated Solutions, Inc. (the "Company" or "CGS") provides a composite solution to the information processing needs of its clients through a wide range of information technology and outsourcing support services. Using a custom designed approach to satisfy each customer's particular need, the Company provides a complete range of solutions, including its proprietary ACS Optima software for the apparel industry, professional services ranging from strategic consulting to system integration, technical training classes and full service on-site and remote help desk and call management support services. The Company's customers are in various industries located throughout the United States. The interim financial statements at June 30, 1995 and for the six months then ended are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring accruals necessary for a fair presentation, have been included. Results of interim periods are not necessarily indicative of results to be expected for the entire fiscal year. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At June 30, 1996, the Company has substantially all its cash in two financial institutions. CONCENTRATION OF CREDIT RISK The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Accounts receivable are generally due within 60 days from the date of service. Credit losses have historically been consistent with management's expectations. FIXED ASSETS Fixed assets are stated at cost and depreciation is computed over the estimated useful lives of the assets by the straight-line method for financial reporting and by accelerated methods for income tax purposes. Amortization on leasehold improvements is computed by the straight-line method over the shorter of the estimated useful lives of the assets or the term of the lease. RECLASSIFICATIONS Certain items in the December 31, 1993, 1994 and 1995 and June 30, 1995 financial statements have been reclassified to conform to the June 30, 1996 presentation. DEFERRED RENT Deferred rent represents payments made at the beginning of the lease term for office space which is being amortized over the life of the respective lease. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Software License and Service Fees The Company recognizes revenue from sales of software licenses upon delivery of the software product to the customer because future obligations associated with such revenue are insignificant and collection is probable. Revenue from software installation, modifications and training services are recognized on a percentage-of-completion method with progress-to-completion measured based upon labor costs incurred or achievement of contract milestones. F-8 COMPUTER GENERATED SOLUTIONS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Services and Maintenance Fees related to professional services are recognized as revenue as time and material costs are incurred. Maintenance fees are recognized as revenues ratably over the term of the maintenance contract. Hardware and Other Computer hardware revenues are recognized when the units are shipped. Revenue recognition of completed units is sometimes delayed pending testing and installation of software. In such instances, hardware revenues are recognized when the customer has accepted the completed unit and authorizes the related billing. COMPENSATION AMOUNTS TO S CORPORATION STOCKHOLDERS For the years 1993, 1994 and 1995, compensation amounts to S Corporation stockholders consisted of annual salaries and discretionary year-end bonuses which were charged to expense. The bonuses are determined and paid at year-end and, accordingly, the interim six month period ended June 30, 1995 did not include a charge for such year-end bonuses. For the six months ended June 30, 1996, the Company has recorded compensation amounts to S Corporation stockholders to reflect the aggregate base salaries in effect during 1996. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Notes payable - bank: The carrying amounts of the Company's borrowings under its credit and term loan agreement approximates their fair values. Notes payable - stockholder: The carrying amounts of the Company's borrowings under its subordinated debt agreements approximates their fair values. Long-term debt: The carrying amounts of the Company's borrowings under its long-term debt arrangements approximates their fair values. RESEARCH AND SOFTWARE DEVELOPMENT COSTS In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes costs incurred to develop new software products upon determination that technological feasibility has been established for the product, whereas costs incurred prior to the establishment of technological feasibility are charged to expense. All research and software development costs incurred to date have been expensed by the Company and are included in direct costs. Research and software development costs amounted to $423,000, $740,000, $322,000 and $408,000 for the years ended December 31, 1994 and 1995 and for the six months ended June 30, 1995 and 1996, respectively. Research and software development costs were not material for the year ended December 31, 1993. 2. ACQUISITIONS ACS SOFTWARE PRODUCTS GROUP Effective May 5, 1994, the Company acquired substantially all of the assets and assumed certain liabilities of ACS Software Products Group ("ACS"), an apparel manufacturing and distribution software product company, for $1,210,000. The acquisition has been accounted for as a purchase and the assets of ACS have been recorded at their fair value at the date of acquisition. The excess of the total acquisition cost over the fair value of net assets acquired of $959,000 is being amortized on a straight-line basis over three years. ACS' results of operations have been included in the statements of operations since the date of acquisition. The purchase price consisted of $800,000 in cash and a promissory note in the principal amount of $410,000 (see Note 5). The note bears interest at 6.75% and provides for the payment of principal in two equal installments of $205,000 together with accrued interest. The Company paid the last installment on the note during the six months ended June 30, 1996. F-9 COMPUTER GENERATED SOLUTIONS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) REAL-TIME TECHNOLOGY INC. Effective October 1, 1994, the Company acquired substantially all of the assets and assumed certain liabilities of Real-Time Technology Inc. ("RTT"), a computer consulting firm, for $252,000 (approximating the fair value of net asset acquired, which approximated book value). Funding was provided through the issuance of 753 shares of CGS treasury stock with treasury stock credited for $43,000 and the balance of $209,000 credited to additional paid-in capital. The acquisition has been accounted for as a purchase and the assets of RTT have been recorded at their fair value at the date of acquisition which approximated cost. RTT's results of operations have been included in the statements of operations since the date of acquisition. The table below sets forth the pro forma (unaudited) results of operations for the years ended December 31, 1993 and 1994 assuming consummation of the ACS and RTT acquisitions as of January 1, 1993. The 1993 pro forma results of operations include RTT's operations for the twelve months ended October 31, 1993 and the 1994 pro forma results of operations include RTT's operations for the eleven months ended September 30, 1994.
-------------------------- YEARS ENDED DECEMBER 31, 1993 1994 ------------ ------------ (dollars in thousands, except per share data) Total revenues $ 37,390 $ 30,269 Net loss (1,061) (705) Pro forma net loss per share (see Note 13) $ (140.79) $ (93.55)
3. FIXED ASSETS Major classes of property and equipment consist of the following:
--------------------------------------------- DECEMBER 31, JUNE 30, ESTIMATED 1994 1995 1996 USEFUL LIVES --------- --------- --------- ------------ (dollars in thousands) Furniture and fixtures $ 118 $ 308 $ 486 10 years Leasehold improvements 3 261 309 Life of lease Computer equipment and software 630 1,282 1,378 3-5 years --------- --------- --------- 751 1,851 2,173 Less accumulated depreciation and amortization 382 592 742 --------- --------- --------- $ 369 $ 1,259 $ 1,431 ========= ========= =========
Furniture and fixtures, leasehold improvements, computer equipment and software include assets resulting from capitalized lease obligations totaling $521,000 and $703,000 at December 31, 1995 and June 30, 1996, respectively (see Note 7). The accumulated depreciation attributable to assets under capital leases is $52,000 and $84,000 at December 31, 1995 and June 30, 1996, respectively. 4. NOTE PAYABLE - BANK In June 1996, the Company amended its revolving credit and term loan agreement with a bank. The agreement provides for a $5,500,000 revolving line of credit expiring in May 1997. Outstanding borrowings bear interest at the bank's prime rate (8.25% at June 30, 1996). Subsequent to June 30, 1996, the revolving line of credit was increased to $7,000,000. Borrowings on the revolving line of credit, which are based on eligible accounts receivable, and the term loan are collateralized by a security interest in all accounts receivable, fixed assets and general intangibles and an assignment of key man insurance on the life of one of the stockholders in the amount of $500,000. In addition, one of the stockholders has guaranteed the obligation. Outstanding amounts, ($2.2 million at June 30, 1996), under the revolving line of credit are also supported by a 10% compensating balance arrangement. F-10 COMPUTER GENERATED SOLUTIONS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Subordinated debt - stockholder represents funds advanced to the Company by its principal stockholder. Effective January 1, 1995, the subordinated debt bears interest at 10% per annum and is payable on demand. In connection with the revolving line of credit, subordinated debt - stockholder is subordinated to the bank. 5. NOTE PAYABLE - STOCKHOLDER Note payable - stockholder, which is payable on demand, represents advances made to the Company by its principal stockholder, bearing interest at 10% per annum. 6. LONG-TERM DEBT Long-term debt consists of the following:
------------------------------- DECEMBER 31, JUNE 30, 1994 1995 1996 --------- --------- --------- (dollars in thousands) Note payable--bank (a)...................... $ 668 $ 400 $ 267 Note payable (acquisition debt) (Note 2).... 409 205 -- --------- --------- --------- Total long-term debt........................ 1,077 605 267 Less current maturities..................... 472 472 267 --------- --------- --------- $ 605 $ 133 $ -- ========= ========= =========
- ------- (a) Note payable to a bank consists of a term loan of $800,000 which is payable in 36 equal monthly installments of $22,000 with interest at 1.25% per annum above the bank's prime rate (8.25% at June 30, 1996). The term loan contains financial covenants relating to minimum tangible net worth, working capital and a maximum debt-to-equity ratio. In addition, one of the stockholders has guaranteed the obligation. 7. CAPITAL LEASES In 1995 and 1996, the Company entered into capital lease agreements for computer and telephone equipment, furniture and fixtures and leasehold improvements. The agreements provide for monthly payments of approximately $15,000 through October 2000, which include interest at rates ranging from 10% to 10.35%. The following is a schedule of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments:
(dollars in thousands) TWELVE MONTHS ENDING JUNE 30: 1997 $ 184 1998 184 1999 184 2000 127 2001 10 --------- Total minimum lease payments................................ 689 Less amount representing interest........................... 115 --------- Present value of net minimum lease payments................. $ 574 =========
F-11 COMPUTER GENERATED SOLUTIONS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 8. COMMITMENTS LEASES Total rent expense on real estate charged to operations for the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 aggregated $274,000, $321,000, $421,000, $171,000 and $373,000, respectively. The minimum annual rental commitments under noncancellable operating leases as of June 30, 1996 are as follows:
(dollars in thousands) TWELVE MONTHS ENDING JUNE 30: 1997 $ 838 1998 795 1999 729 2000 682 2001 566 Thereafter 2,352 --------- Total $ 5,962 =========
9. STATEMENTS OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
----------------------------------------------------- SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (dollars in thousands) CASH PAID DURING THE PERIOD: Income taxes $ 34 $ 47 $ 61 $ 7 $ -- Interest 16 79 488 110 175 NONCASH INVESTING AND FINANCING ACTIVITIES: Notes payable on purchase of net assets of ACS (Note 2) -- 410 -- -- -- Treasury stock issued on purchase of net assets of RTT (Note 2) -- 252 -- -- --
The Company entered into capitalized leases for approximately $521,000 in 1995 and $182,000 in 1996. 10. EMPLOYEE BENEFIT PLAN The Company has a 401(k) plan in which all eligible employees can contribute a portion of their compensation up to the maximum amount allowable pursuant to the Internal Revenue Code. The Company contributes an amount equal to 50% of each employee's contribution limited to 3% of an eligible employee's compensation. The Company contributed to the plan $53,000, $102,000, $181,000, $86,000 and $149,000 for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996, respectively. 11. MAJOR CUSTOMER One customer, with several contracts in various divisions, accounted for 21%, 33% and 37% of total revenues for the years ended December 31, 1994 and 1995 and the six months ended June 30, 1996, respectively. As of December 31, 1994 and 1995 and June 30, 1996, 19%, 35% and 27%, respectively, of accounts receivable was due from this customer. No single customer accounted for more than 10% of revenues in 1993. F-12 COMPUTER GENERATED SOLUTIONS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 12. PRO FORMA INFORMATION AND EVENTS CONCURRENT WITH THE IPO (UNAUDITED) PRO FORMA ADJUSTMENTS: STATEMENTS OF OPERATIONS The Company intends to enter into an underwriting agreement for an initial public offering ("IPO") of its common stock. If the IPO is successful, the Company will no longer be treated as an S Corporation and, accordingly, will be subjected to federal and additional state income taxes. The unaudited pro forma adjustments on the statement of operations reflect an adjustment to record a provision for income taxes on income as if the Company had not been an S Corporation. PRO FORMA NET INCOME (LOSS) PER SHARE Pro forma net income per share has been computed by dividing pro forma net income by the weighted average number of common shares outstanding during the periods. There were no common stock equivalents such as options, warrants, etc., outstanding during any of the periods presented. PRO FORMA BALANCE SHEET Subsequent to June 30, 1996, the Company intends to declare an S Corporation distribution to its then existing stockholders representing all of its previously earned and undistributed S Corporation taxable earnings through June 30, 1996. If the IPO is successful, the Company expects that the net proceeds from the IPO will be used to pay this S Corporation distribution and repay indebtedness owed to a stockholder under a promissory note and a subordinated debt agreement. The pro forma balance sheet at June 30, 1996 gives effect to these items. Amount due to stockholders on the June 30, 1996 pro forma balance sheet consists of the following:
(dollars in thousands) S Corporation distributions $ 3,300 Subordinated debt--stockholder 2,146 Note payable--stockholder 323 --------- $ 5,769 =========
The pro forma balance sheet at June 30, 1996 also gives effect to a deferred tax asset in the amount of $351,000 (see Note 13). The estimated distribution of $3,300,000 in the pro forma presentation represents undistributed taxable S Corporation earnings through June 30, 1996. The difference between the undistributed earnings of $3.3 million and retained earnings of approximately $2.4 million at June 30, 1996 is principally the result of temporary timing differences between income tax bases and financial reporting. In addition, the Company plans to distribute to its existing stockholders an amount equal to the taxable earnings of the Company from June 30, 1996 to the day prior to the S termination date. LONG-TERM INCENTIVE PLAN Immediately prior to the consummation of the IPO, the Company will adopt the 1996 Long-Term Incentive Plan (the "Plan"). The Company will reserve an amount of common stock equal to 10% of the outstanding shares of common stock outstanding upon consummation of the IPO for issuance and/or use as the basis for stock appreciation rights or other units of stock-based incentive compensation under the Plan. In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123. "Accounting for Stock- Based Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning after December 15, 1995 and prescribes accounting and reporting standards for all stock-based F-13 COMPUTER GENERATED SOLUTIONS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. It is the Company's intention to present such information in accordance with APB 25 as described in (ii) above. STOCK SPLIT Immediately prior to the consummation of the IPO, the Company will effect a stock split of its common stock. The Company has not yet determined the stock split conversion and, accordingly, the financial statements do not give effect to such intended stock split. 13. INCOME TAXES The Company, with the consent of its stockholders, has elected to be taxed as an S Corporation pursuant to the Internal Revenue Code and certain state tax laws. As such, the Company has not been subject to federal and certain state income taxes and the stockholders have included the corporation's taxable income or loss in their individual income tax returns. Income taxes in 1994, 1995 and 1996 primarily represent New York City corporate income taxes. The New York City income tax rate is approximately 9%. Deferred income taxes resulting from temporary differences are considered immaterial and, therefore, are not provided for at December 31, 1994 and 1995 and June 30, 1996. The provision for pro forma income taxes (see Note 12) on pro forma income differs from the amounts computed by applying the applicable federal statutory rates due to the following:
------------------------- % OF PRO FORMA PROFIT BEFORE INCOME TAXES SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- Federal statutory rate 34.0 % 34.0% State and local taxes, net of federal tax benefit 7.0 7.9 Nondeductible expenses 3.5 1.4 Utilization of tax credit (4.3) -- --------- --------- 40.2 % 43.3% ========= =========
If the IPO is successful, the Company will no longer be an S Corporation. Upon the change in status of the Company, under FASB Statement No. 109 "Accounting for Income Taxes", there will be a deferred income tax asset which is principally due to book amortization in excess of tax amortization related to goodwill and the timing of the deduction for certain payments to stockholders. Had the change in status occurred on June 30, 1996, the deferred tax asset that would have to be recognized would be approximately $351,000. F-14 COMPUTER GENERATED SOLUTIONS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 14. OTHER ASSETS Other assets consist of the following:
-------------------------------- DECEMBER 31, JUNE 30, 1994 1995 1996 --------- --------- --------- (dollars in thousands) Premiums receivable (a)..................... $ 310 $ 328 $ 328 Security deposits........................... 118 77 103 Deferred rent............................... -- -- 138 --------- --------- --------- $ 428 $ 405 $ 569 ========= ========= =========
- ------- (a) Amount represents premiums paid on a split-dollar life insurance policy on the principal stockholder. F-15 LOGO PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Following are the estimated expenses, other than the underwriting discounts and commissions, to be incurred in connection with the Offering of the Common Stock registered under this Registration Statement: Securities and Exchange Commission registration fee........... $ 11,896.64 NASD filing fee............................................... 3,950.00 NASDAQ listing fee............................................ 5,000.00 Blue sky qualification fees and expenses...................... 30,000.00 Printing and engraving expenses............................... Legal fees and expenses....................................... Accounting fees and expenses.................................. 150,000.00 Transfer Agent and Registrar fees and expenses................ Miscellaneous................................................. 5,000.00 ----------- Total....................................................... $ ===========
All of the above figures, except the Securities and Exchange Commission registration fee, NASD filing fee and the NASDAQ listing fee, are estimates. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company is a Delaware corporation. Reference is made to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchase or redemptions) or (iv) for any transactions from which a director derived an improper personal benefit. Reference also is made to Section 145 of the DGCL, which provides that a corporation may indemnify any persons, including officers and directors, who are parties to, or who are threatened to be made parties to, any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interest and, for criminal proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred. Article of the Certificate of Incorporation of the Company (filed as Exhibit 3.1) provides that except under certain circumstances as described above and as set forth in Section 102(b)(7) of the DGCL, directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach II-1 of fiduciary duties as directors. Article of the By-Laws of the Company (filed as Exhibit 3.2) provides for indemnification of the officers and directors of the Company to the full extent permitted by applicable law. The Underwriting Agreement, exhibit 1.1 to this Registration Statement, which will be filed by amendment, provides for indemnification by the Underwriters of the Company and its directors and certain officers, and by the Company of the Underwriters, for certain liability arising under the Securities Act of 1933, as amended. The Company intends to enter into a director and officer insurance policy that will provide for reimbursement or payments for losses arising from claims against covered directors and officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following is a summary of all securities of the Company sold within the past three years, which were not registered under the Securities Act of 1933, as amended (the "Securities Act"). In October 1994, the Company acquired substantially all of the assets and assumed certain liabilities of Real-Time Technology, Inc. ("Real-Time"), a computer consulting firm which was owned by Victor Friedman, the Company's Executive Vice President. The purchase price of $252,478 was paid by the issuance of 753 shares of Company common stock to Real Time which were then transferred to Victor Friedman in a simultaneous transaction. The above described issuance of securities was made in reliance upon Section 4(2) of the Securities Act as a transaction not involving any public offering. The Company has reason to believe that the foregoing purchaser was familiar with or had access to information concerning the operations and financial conditions of the Company, and such individual acquired the securities for investment and not with a view to the distribution thereof. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS: 1.1 Form of Underwriting Agreement.* 2.1 Asset Purchase Agreement, dated April 26, 1994, between ACS Software Products Group and Computer Generated Solutions, Inc. 2.2 Plan and Agreement of Reorganization, dated August 26, 1994, between Computer Generated Solutions, Inc. and Real-Time Technology, Inc. 3.1 Amended and Restated Certificate of Incorporation of the Company.* 3.2 Bylaws of the Company, as amended.* 4.1 Specimen certificate for the shares of Common Stock.* 4.2 Registration Rights Agreement.* 4.3 1996 Long-Term Incentive Plan.* 5.1 Opinion of Chadbourne & Parke LLP, counsel to the Company.* 10.1 Service Agreement , dated October 4, 1995, between International Business Machines Corporation and Computer Generated Solutions, Inc. 10.2 Master Agreement for Professional Services, dated June 26, 1995, between AT&T Corp. and Computer Generated Solutions, Inc. 10.3 Outsourcing Agreement, dated as of March 30, 1996, between Teleservice Resources, Inc. and Computer Generated Solutions, Inc. 10.4 Agreement, dated September 15, 1995, between Borland International, Inc. and Computer Generated Solutions, Inc. 10.5 Agreement, dated November 9, 1995, between Borland International, Inc. and Computer Generated Solutions, Inc.
II-2 10.6 Authorized Education Center Agreement, dated May 23, 1995, between Lotus Development Corporation and Computer Generated Solutions, Inc. 10.7 1996 Business Partner Agreement, dated June 1, 1996, between International Business Machines Corporation and Computer Generated Solutions, Inc. 10.8 Revolving Credit Facility, dated July 1, 1996, as amended, between Computer Generated Solutions, Inc. and Bank Leumi Trust Company of New York. 10.9 Term Loan, dated June 29, 1994, as amended, between Computer Generated Solutions, Inc. and Bank Leumi Trust Company of New York.* 11.1 Statement regarding Computation of Per Share Earnings.* Letter from BDO Seidman, LLP regarding change in certifying 16.1 accountants. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of BDO Seidman, LLP. 23.3 Consent of Chadbourne & Parke LLP.* 23.4 Consent of Edward Schroeder.** 24.1 Powers of Attorney (included in signature page hereto).** 27.1 Financial Data Schedule.**
- -------- * To be filed by amendment. ** Previously Filed. (B) FINANCIAL STATEMENT SCHEDULE: II--Valuation and Qualifying Accounts All other schedules are omitted either because they are not applicable or are not material, or the information presented therein is contained in the Financial Statements or notes thereto. ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the underwriting agreement certificates in such denomination and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons of the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (i) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (ii) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON NOVEMBER 8, 1996. COMPUTER GENERATED SOLUTIONS, INC. /s/ Philip Friedman By: _________________________________ NAME: PHILIP FRIEDMAN TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS AND BY PHILIP FRIEDMAN AS ATTORNEY-IN-FACT FOR THE SPECIFIC PERSONS IN THE CAPACITIES WITH COMPUTER GENERATED SOLUTIONS, INC. ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Philip Friedman President and Chief - ------------------------------------- Executive Officer November 8, PHILIP FRIEDMAN (Principal 1996 Executive Officer), Director * Executive Vice - ------------------------------------- President, Director November 8, VICTOR FRIEDMAN 1996 * Vice President - ------------------------------------- Finance & November 8, FRED B. SCHLOSSBERG Administration and 1996 Secretary (Principal Financial and Accounting Officer), Director /s/ Philip Friedman *By:_________________________________ PHILIP FRIEDMAN ATTORNEY-IN-FACT II-4 REPORT OF INDEPENDENT AUDITORS The Board of Directors Computer Generated Solutions, Inc. We have audited the financial statements of Computer Generated Solutions, Inc. as of June 30, 1996 and December 31, 1995, and for the six months ended June 30, 1996 and the year ended December 31, 1995, and have issued our report thereon dated July 12, 1996 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 16(b) of this Registration Statement. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein for the periods stated above. ERNST & YOUNG LLP New York, New York July 12, 1996 S-1 COMPUTER GENERATED SOLUTIONS, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (Dollars in Thousands) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------------------------------------------------------------------------------- ADDITIONS BALANCE BALANCE CHARGED AT AT BEGINNING TO COSTS AND (a) END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1994 Allowances deducted from assets to which they apply: Allowance for doubtful accounts.. $ 5 $ 54 $(49) $10 YEAR ENDED DECEMBER 31, 1995 Allowances deducted from assets to which they apply: Allowance for doubtful ac- counts........................ 10 110 (60) 60 SIX MONTHS ENDED JUNE 30, 1996 Allowances deducted from assets to which they apply: Allowance for doubtful ac- counts........................ 60 84 (79) 65
- -------- (a) Uncollectible receivables written off. Note: Valuation and qualifying accounts for the year ended December 31, 1993 were not material. S-2 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- 1.1 Form of Underwriting Agreement.* 2.1 Asset Purchase Agreement, dated April 26, 1994, between ACS Software Products Group and Computer Generated Solutions, Inc. 2.2 Plan and Agreement of Reorganization, dated August 26, 1994, between Computer Generated Solutions, Inc. and Real-Time Technology, Inc. 3.1 Amended and Restated Certificate of Incorporation of the Company.* 3.2 Bylaws of the Company, as amended.* 4.1 Specimen certificate for the shares of Common Stock.* 4.2 Registration Rights Agreement.* 4.3 1996 Long-Term Incentive Plan.* 5.1 Opinion of Chadbourne & Parke LLP, counsel to the Company.* 10.1 Service Agreement, dated October 4, 1995, between International Business Machines Corporation and Computer Generated Solutions, Inc. 10.2 Master Agreement for Professional Services, dated June 26, 1995, between AT&T Corp. and Computer Generated Solutions, Inc. 10.3 Outsourcing Agreement, dated as of March 30, 1996, between Teleservice Resources, Inc. and Computer Generated Solutions, Inc. 10.4 Agreement, dated as of September 15, 1995, between Borland International, Inc. and Computer Generated Solutions, Inc. 10.5 Agreement, dated November 9, 1995, between Borland International, Inc. and Computer Generated Solutions, Inc. 10.6 Authorized Education Center Agreement, dated May 23, 1995, between Lotus Development Corporation and Computer Generated Solutions, Inc. 10.7 1996 Business Partner Agreement, dated June 1, 1996, between International Business Machines Corporation and Computer Generated Solutions, Inc. 10.8 Revolving Credit Facility, dated July 1, 1996, as amended, between Computer Generated Solutions, Inc. and Bank Leumi Trust Company of New York. 10.9 Term Loan, dated June 29, 1994, as amended, between Computer Generated Solution, Inc. and Bank Leumi Trust Company of New York.* 11.1 Statement regarding Computation of Per Share Earnings.* 16.1 Letter from BDO Seidman, LLP regarding change in certifying accountants. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of BDO Seidman, LLP. 23.3 Consent of Chadbourne & Parke LLP.* 23.4 Consent of Edward Schroeder.** 24.1 Powers of Attorney (included in signature page hereto).** 27.1 Financial Data Schedule.**
- -------- * To be filed by amendment. ** Previously Filed. EX-2.1 2 ASSET PURCHASE AGREEMENT EXHIBIT 2.1 ----------- Asset Purchase Agreement, dated April 26, 1994, between ACS Software Products Group and Computer Generated Solutions, Inc. EXHIBIT 2.1 ASSET PURCHASE AGREEMENT AGREEMENT, made this 26th day of April, 1994, by and between ACS ---- ----- SOFTWARE PRODUCTS GROUP, a Georgia general partnership (the "Seller"), and COMPUTER GENERATED SOLUTIONS, INC., a Delaware corporation (the "Buyer"). WHEREAS, the Seller is engaged in the development, marketing, sale and license of software platforms and packages used in the apparel and related industries (the "ACS Business"); and WHEREAS, the Seller wishes to sell and assign to the Buyer, and the Buyer wishes to purchase and assume from the Seller, for the consideration and on the terms and conditions set forth herein, the assets that are used in connection with, or related to, the ACS Business and the liabilities that are related to, and arise from, the ACS Business. NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Seller and the Buyer agree as follows: Section 1. Definitions. In addition to the other terms defined herein, the ----------------------- following definitions shall apply throughout this Agreement: 1.1. Accounts Receivable. The term "Accounts Receivable" shall mean all ------------------- accounts receivable of the Seller as of the Closing Date as set forth on the schedule that the Seller shall deliver to the Buyer on the Closing Date. 1.2. Assumed Liabilities. The term "Assumed Liabilities" shall have the ------------------- meaning set forth in Section 4. 13. Closing. The term "Closing" shall have the meaning set forth in Section ------- 6.1. 1.4. Closing Date. The term "Closing Date" shall have the meaning set forth in ------------ Section 6.1. 1.5. Closing Date Balance Sheet. The term "Closing Date Balance Sheet" shall -------------------------- have the meaning set forth in Section 5.3(b). 1.6. Contracts. The term "Contracts" shall have the meaning set forth in --------- Section 7.7. 1.7. Excluded Contracts. The term "Excluded Contracts" shall have the meaning ------------------ set forth in Section 7.7.3. 1.8. Guaranteed Contracts. The term "Guaranteed Contracts" shall have the --------------------- meaning set forth in Section 7.7.4. 1.9. Financial Statements. The term "Financial Statements" shall mean the -------------------- March 26, 1994 Balance Sheet and Income Statement of the ACS Business, copies of which are attached as Exhibit A. 1.10. Intangible Property. The term "Intangible Property" shall have the ------------------- meaning set forth in Section 7.10. 1.11. Net Asset Value. The term "Net Asset Value" shall have the meaning set ---------------- forth in Section 5.3(c). 1.12. Net Receivable Value. The term "Net Receivables Value" shall have the -------------------- meaning set forth in Section 5.4(a). 1.13. Permits. The term "Permits" shall have the meaning set forth in Section ------- 7.8. 1.14. Post-Closing Adjustment. The term "Post-Closing Adjustment" shall have ----------------------- the meaning set forth in Section 5.3(c). 1.15. Purchased Assets. The term "Purchased Assets" shall have the meaning set ---------------- forth in Section 3. 1.16. Purchase Price. The term "Purchase Price" shall mean the amount set -------------- forth in Section 5.1. 1.17. Real Property Leases. The term "Real Property Leases" shall have the -------------------- meaning set forth in Section 7.6.2. 1.18. Receivables Adjustment. The term "Receivables Adjustment" shall have the ---------------------- meaning set forth in Section 5.4(c). 1.19. Tangible Personal Property. The term "Tangible Personal Property" shall ------------------------- have the meaning set forth in Section 7.9. SECTION 2. SALE AND PURCHASE OF THE PURCHASED ASSETS AND ASSUMPTION OF THE -------------------------------------------------------------------------- ASSUMED LIABILITIES. At the Closing, and subject to the terms and conditions - ------------------- of this Agreement: (a) the Seller shall sell and transfer to the Buyer, and the Buyer shall purchase and acquire from the Seller, the Purchased Assets; and (b) the Seller shall assign to the Buyer, and the Buyer shall assume from the Seller, the Assumed Liabilities. Section 3. The Purchased Assets. ------------------------------ 3.1. The Purchased Assets. The "Purchased Assets" shall mean all of the assets -------------------- that are used in connection with, or related to, the ACS Business, including without limitation, the following: (a) all Accounts Receivable; (b) all prepaid expenses and deferred charges of the Seller related to the ACS Business; (d) all Tangible Personal Property; (e) all Intangible Property; - 2 - (f) all of the Seller's right, title, and interest in, under and pursuant to the contracts, agreements, personal property leases, licenses, purchase orders, and commitments to which the Seller is a party, whether written or oral, and whether or not in the usual and ordinary course of business and which are related to the ACS Business, including without limitation, the Contracts (but excluding the Excluded Contracts); (g) all of the Seller's right, title, and interest in, under, and pursuant to the Real Property Leases; (k) all Permits; and (1) all of the records of the Seller relating solely to the ACS Business, but excluding any records relating to the partnership, its tax returns and related work papers of the Seller. 3.2. The Excluded Assets. Anything herein to the contrary notwithstanding, the ------------------- Purchased Assets shall not include the Excluded Contracts, which Excluded Contracts shall be retained by Seller. Section 4. The Assumed Liabilities. ---------------------------------- 4.1. THE ASSUMED LIABILITIES. The "Assumed Liabilities" shall mean all of the ----------------------- liabilities of the ACS Business, as of the Closing Date, which are reflected in the Closing Date Balance Sheet or otherwise disclosed in the Disclosure Schedules, including without limitation, the following: (a) all of the Seller's liabilities and obligations under and pursuant to the contracts, agreements, personal property leases, licenses, purchase orders, and commitments to which the Seller is a party, whether written or oral, and whether or not in the usual and ordinary course of business and which are related to the ACS Business, including without limitation, the Contracts (but excluding liabilities or obligations under the Excluded Contracts): and (b) all of the Seller's liabilities and obligations under and pursuant to the Real Property Leases. 4.2. Tax Liabilities Excluded. The Assumed Liabilities shall not include any ------------------------ liabilities of the Seller for income taxation that are related to, or arise from, the Seller's conduct of the ACS Business prior to the Closing Date. 4.3. Release from Guaranteed Contact. In connection with the assignment of the ------------------------------- Contracts, and as a condition to the obligations of the Seller hereunder, the partners (or, as the case may be, the parent corporations of the partners) shall be fully released from all obligations and guarantees under all of the Guaranteed Contracts, and if required by any third party to the Guaranteed Contracts, the Buyer shall assume such obligations and guarantees. - 3 - Section 5. Purchase Price. ------------------------- 5.1. Purchase Price. The purchase price (the "Purchase Price") of the -------------- Purchased Assets shall be $1,200,000.00, subject to adjustment as provided in this Section 5. 5.2. Payment of Purchase Price. At the Closing, the Purchase Price shall be ------------------------- satisfied and paid in full by the Buyer as follows: (a) In satisfaction of $800,000.00 of the Purchase Price, the Buyer shall deliver to (i) the Seller's legal counsel, as escrow agent to hold on behalf of the Seller, on signing a certified check in the amount of $400,000.00, and (ii) to the Seller, on Closing a certified check in the amount of $400,000.00; and (b) In satisfaction of the balance of the Purchase Price, the Buyer shall make and deliver to the Seller a promissory note in substantially the form of Exhibit B (the "Promissory Note") in the principal amount of $400,000.00 (subject to adjustment as provided in this Section 5, which Promissory Note shall (i) bear interest on the unpaid principal amount at a rate per annum equal to 6.75% and (ii) provide for the payment of the principal amount in two equal installments of $200,000.00 each (subject to adjustment as provided in this Section 5), together with accrued interest, said payments to be made, respectively, on the date which is one year and two years after the Closing Date. 5.3. Post-Closing Adjustment. (a) Not later than forty-five (45) days ----------------------- following the Closing, the Seller shall prepare and deliver to the Buyer a balance sheet with respect to the ACS Business as of the Closing Date (the "Closing Date Balance Sheet"). The Closing Date Balance Sheet shall be prepared in accordance with generally accepted accounting principles on a basis consistent with the Seller's past practice and financial reporting. (b) If the Buyer objects to the Closing Date Balance Sheet, it shall give notice of such objection to the Seller within fifteen (15) days following its receipt thereof. If the Buyer does not object to the Closing Date Balance Sheet within such period, the Closing Date Balance Sheet shall be final and binding upon the Buyer and the Seller. If the Buyer objects to the Closing Date Balance Sheet within such period and the Seller and the Buyer are unable to resolve such objection within fifteen (15) days, then such objection shall be submitted to a nationally recognized independent certified accounting firm jointly selected by the Seller and the Buyer. The determination of such firm shall be final and binding upon the Seller and the Buyer. The Seller and the Buyer shall each pay one-half of the fees and expenses of such firm in connection with the foregoing. (c) If the net asset value of the ACS Business ("Net Asset Value", defined to equal the current assets plus fixed assets (at book value plus other assets minus the liabilities of the ACS Business) as determined with reference to the Closing Date Balance Sheet is greater than or less than $544,632.00, and such surplus or shortfall exceeds $5,000.00, then the principal amount under the Promissory Note shall be increased by such surplus or decreased by such shortfall, as the case may be (and the two equal payment installments under such Promissory Note adjusted accordingly) (such increase or decrease, the "Post - -Closing Adjustment"). - 4 - 5.4. Receivables Adjustment. (a) For purposes of this Section 5.4, the term ---------------------- "Net Receivables Value" shall mean the amount of the Accounts Receivable of the Seller, net of any and all reserve for bad debts, as reported on the Closing Date Balance Sheet and agreed by the parties in accordance with the provisions of Section 5.3(b) above. (b) From and after the Closing Date and for a period of ninety (90) days, the Buyer shall use its best efforts to collect the Accounts Receivable. During this ninety (90) day period, subject to the provisions of Section 5.4(c) below, the Buyer shall retain all monies collected in respect of the Accounts Receivable and the Seller shall pay over to the Buyer, any and all monies received by or paid to the Seller in respect of the Accounts Receivable. At the end of such ninety (90) day period, in the event that any of the Accounts Receivable remain outstanding and not collected by the Buyer, for a period of ninety (90) days thereafter the Seller shall use its best efforts to collect such remaining, outstanding Accounts Receivable and, subject to the provisions of Section 5.4(c) below, the Seller shall pay over to the Buyer any and all monies received by or collected by the Seller in respect of such remaining, outstanding Accounts Receivable. (c) In the event that the aggregate amount of all monies collected by the Buyer and the Seller in respect of the Accounts Receivable in the 180 day period following the Closing (provided that monies collected by the Seller in such period are paid over to the Buyer) is greater than or less than the Net Receivables Value reported on the Closing Date Balance Sheet, then the principal amount under the Promissory Note shall be increased by one-half of such surplus or decreased by one-half of such shortfall, as the case may be (and the two equal payment installments under such Promissory Note adjusted accordingly) (such increase or decrease, being equal to one-half of such surplus or shortfall, the "Receivables Adjustment"). (d) Anything herein to the contrary notwithstanding, the parties understand and agree that one-half (and not all) of such shortfall shall be recoverable by the Buyer as an indemnifiable loss. Section 6. The Closing. ---------------------- 6.1. Time and Place. The consummation of the transactions contemplated in this -------------- Agreement (the "Closing") shall take place at the offices of Kurt Salmon Associates, Inc., Suite 900, 1355 Peachtree Street, Atlanta, Georgia 30309 on May 2, 1994, at 2:00 p.m. EDT or such other date and time as the Seller and the Buyer may agree; provided that if necessary to obtain all third party consents as set forth in Section 7.7.2, the parties agree that the Closing shall be extended to a date not later than May 16, 1994 (the "Closing Date"). All actions at the Closing shall be deemed to be taken simultaneously . 6.2. Actions by the Seller at the Closing. At the Closing, the Seller shall ------------------------------------ deliver to the Buyer the following: (a) a Bill of Sale to the Tangible Personal Property in substantially the form of Exhibit C: (b) such Instruments of Assignment and Transfer of all of the Seller's right, title, and interest in the Accounts Receivable, Intangible Property and the Permits as may be reasonably requested by the Buyer; - 5 - (c) an Assignment and Assumption Agreement to the Contracts in substantially the Form of Exhibit D; (d) the schedule of the Accounts Receivable; (e) all third party consents as set forth in Section 7.7.2; (f) the certificate described in Section 12.2; (g) copies of the resolutions of the Board of Managers of the Seller, certified by the Secretary of the Seller, and copies of the resolutions of the Board of Directors of the general partners of the Seller, certified by the Secretary of each such general partner, approving the transactions contemplated herein; (h) such other documents and instruments as may be reasonably requested by the Buyer; and (i) the marketing agreements described in Section 12.4. 6.3. Actions by the Buyer at the Closing. At the Closing, the Buyer shall ----------------------------------- deliver to the Seller the following: (a) the Purchase Price in accordance with the provisions of Section 5; (b) an Assignment and Assumption Agreement in substantially the form of Exhibit D; (c) the certificate of the Buyer described in Section 11.2; (d) copies, certified by the Secretary of the Buyer, of the resolutions of the Board of Directors of the Buyer approving the transactions contemplated herein; and (e) such other documents and instruments as may be reasonably requested by the Seller. Section 7. Representations and Warranties of the Seller. The Seller represents ------------------------------------------------------- and warrants to the Buyer as follows: 7.1. Partnership Organization and Authority. The Seller is a Partnership duly -------------------------------------- organized and validly existing under the laws of the State of Georgia. The Seller is duly qualified to conduct business in Georgia and New York:. The Seller has the requisite power and authority to carry on its business as it is now being conducted and to execute and deliver this Agreement and to consummuate the transactions contemplated herein. The execution and delivery of this Agreement by KSA Information Technologies, Inc. on behalf of the Seller, and the consummation by the Seller of the transactions contemplated herein, have been duly and validly approved and authorized by the Board of Directors and the general partners of the Seller. - 6 - 7.2. Validity of Agreement: No Violation. This Agreement has been duly ----------------------------------- executed and delivered by the Seller and is a valid and binding obligation of the Seller, enforceable against the Seller, in accordance with its terms. Except as set forth on Disclosure Schedule 7.2, the execution, delivery, and performance of this Agreement by the Seller and the consummation of the transactions contemplated herein, will not: (a) violate or conflict with any provision of any law, rule, regulation, order, permit, certificate, writ, judgment, injunction, decree, determination, award, or the decision of any court, governmental agency or instrumentality binding upon the Seller or to which the Seller is subject; (b) violate, conflict with, or result in the breach of or a default under any of the Contracts or the Real Property Leases; or (c) result in the creation, or imposition of, any lien, security interest, charge, or encumbrance upon, or with respect to, any of the Purchased Assets. 7.3. Absence of Undisclosed Liabilities. Except as set forth on Disclosure ---------------------------------- Schedule 7.3 or in the Financial Statements and except for the Assumed Liabilities and the Excluded Liabilities, the Seller has no liabilities or obligations, related to the ACS Business, of any nature, whether known or unknown, absolute, fixed, accrued, contingent, or otherwise and the Seller knows of no basis for the assertion against the Seller of any such liability related to the ACS Business other than liabilities or obligations incurred since the date of the Financial Statements, in the usual and ordinary course of business and consistent wifh past practices, none of which will have a material adverse effect on the assets, business, or financial condition of the Seller. 7.4. Absence of Certain Changes. Except as set forth on Disclosure Schedule -------------------------- 7.4, since the date of the Financial Statements, the Seller has conducted the ACS Business only in the usual and ordinary course consistent with past practices and there has not been: (a) any material adverse change in the financial condition, operations, assets, or liabilities of the Seller; (b) any damage, destruction, or loss, whether or not covered by insurance, materially and adversely affecting the Purchased Assets; or (c) any other event or condition of any character that materially and adversely affects the Purchased Assets or the ACS Business. 7.5. Taxes. The Seller has accurately prepared and timely filed with the ----- appropriate governmental agencies all tax returns required to be filed by it related to the ACS Business, and the Seller has paid, or made provision for the payment of, all taxes which have become due pursuant to said returns or pursuant to any assessment received by the Seller. All federal, state, city and foreign income, profits, franchise, sales, use, occupation, property, excise, payroll and other taxes due in connection with the ACS Business have been fully paid or shall be fully paid as of the date hereof or thereafter when due. 7.6. Real Property. ------------- 7.6.1. The Seller does not own any real property, in whole or in part, and (other than the property leased by the Seller pursuant to the Real Property Leases) no real property is utilized in the ACS Business. 7.6.2. Set forth on Disclosure Schedule 7.6.2 is a complete list of all leases (including all amendments and modifications thereto) of real property leased by the Seller (the "Real Property Leases"). The Real Property Leases are in full force and effect, are valid and enforceable in accordance with their terms, and no condition exists or event has occurred which, with notice or lapse of time or both, would constitute a default or a basis of force majeure or other claim of excusable delay or nonperformance thereunder. - 7 - 7.6.3. Included in the Real Property Leases are oral subleases pursuant to which the Seller subleases office space in Atlanta, Georgia and New York, New York from Microdynamics, Inc., the parent corporation of Microdynamics ACS Technologies, Inc., a general partner of Seller. The Buyer shall have the right and option (to be exercised within fifteen (15) days after Closing) to terminate the sublease for the New York office space or, alternatively the Buyer shall maintain in effect and continue to sublease such space from Microdynamics, Inc. on the same terms, and for the same rentals, as are currently provided or such other terms as the parties agree; and, the Buyer shall maintain in effect and continue to sublease the Atlanta office space for a minimum period of ninety (90) days, but after such ninety (90) day period, the Buyer shall have the right and option (to be exercised within fifteen (15) days after the end of such ninety (90) day period) to terminate the sublease for the Atlanta office space or, alternatively, the Buyer shall maintain in effect and continue to sublease such space from Microdynamics, Inc. on the same terms, and for the same rentals, as are currently provided or such other terms as the parties may agree. 7.6.4. The office lease for the Los Angeles, California office of the Seller is a tenancy at will and, to the Seller's knowledge, is cancelable by the Seller, as tenant, on thirty (30) days notice to the landlord. 7.7. Contracts and Agreements. 7.7.1. Set forth on Disclosure Schedule 7.7.1, is a list of all contracts, agreements, leases, purchase orders, and commitments, whether or not in the ordinary course of business to which the Seller is a party, which are related to the ACS Business, and which: (a) involve the performance of services or the delivery of goods by the Seller, or any other party thereto, of an amount in excess of $5,000.00; (b) involve the expenditure or receipt by the Seller of an amount in excess of $5.000.00: or (c) have a remaining term of six months or more (collectively, the "Contracts"). 7.7.2. Except as set forth on Disclosure Schedule 7.7.2, all of the Contracts are in full force and effect, are valid and enforceable in accordance with their terms, and to the knowledge of the Seller no event of default has occurred and no condition exists or event has occurred which, with notice or lapse of time or both, would constitute a default or a basis of force majeure or other claim of excusable delay or nonperformance thereunder. Except as set forth on Disclosure Schedule 7.7.2, no consent of any party to the Contracts is required to assign the Contracts, and the Seller's rights and obligations thereunder, to the Buyer. 7.7.3. Set forth on Disclosure Schedule 7.7.3 is a list of all contracts and agreements which will not be assigned by the Seller to the Buyer at the Closing and that instead will be retained by the Seller (the "Excluded Contracts"). Included within the Excluded Contracts is that certain Grid System Development Agreement dated August 12, 1991, between VF Information Technology Services, Inc. and the Seller (the "VF Development Agreement") (but not the Software License Agreement and Software Service Agreement of same date). With respect to the VF Development Agreement (but not with respect to any other Excluded Contract), which agreement is cancelable on thirty (30) days notice, the Seller shall pay (or cause to be paid) to the Buyer a commission in an amount equal to fifteen percent (15%) of all amounts invoiced to VF Information Technology Services, Inc. under that agreement in respect of work performed prior to December 31, 1994; said commission shall be paid as and when such amounts are received by the Seller (or by Kurt Salmon Associates, Inc., as the assignee of the Seller). - 8 - 7.7.4. Set forth on Disclosure Schedule 7.7.4 is a list of those Contracts for which Seller's performance has been guaranteed in full or in part by the partners of the Seller (or as the case may be, by the parent corporations of the partners, being either Kurt Salmon Associates, Inc. or Microdynamics, Inc., or both) (the "Guaranteed Contracts"). 7.7.5. The Seller will use its best efforts to assign and transfer to the Buyer, at or following the Closing, all the telephone numbers currently used by the Seller in the ACS Business. 7.8. Permits. Set forth on Disclosure Schedule 7.8 is a list of all ------- governmental licenses, permits, consents, approvals, or certificates issued to the Seller and which are related to the ACS Business (the "Permits"). Except as set forth on Disclosure Schedule 7.8: (a) the Permits are in full force and effect; (b) the Seller is not in violation of any of the Permits; and (c) no condition exists which with notice or the passage of time or both would constitute a violation of any of the Permits. 7.9. Tangible Personal Property. -------------------------- 7.9.1. Set forth on Disclosure Schedule 7.9.1 is a list of all equipment, furniture, fixtures, vehicles, and other items of tangible personal property owned by the Seller and used in connection with the ACS Business (the "Tangible Personal Property"). 7.9.2. Except as set forth on Disclosure Schedule 7.9.2, and except for such items that, individually or in the aggregate, are not material to the conduct of the ACS Business: (a) the Seller has good title to the Tangible Personal Property, free and clear of any liens, mortgages, pledges, or encumbrances; and (b) all items of Tangible Personal Property are in good operating condition and repair, reasonable wear and tear excepted, and are adequate for the uses to which they are being put and are not in need of maintenance or repair except for ordinary, routine maintenance repairs that are not material in nature or cost. 7.9.3. Subject to the provisions of Section 5.4, the Seller warrants collectibility of the Accounts Receivable to the extent of the Net Receivables Value; provided that, as set forth in Section 5.4, one-half (and not all) of any shortfall shall be recoverable by the Buyer as an indemnifiable loss. 7.10. Intangible Property. ------------------- 7.10.1. Set forth on Disclosure Schedule 7.10.1 is a list of: (a) all software programs and packages, all registered copyrights, service marks, trade names, and fictitious business names used or owned by the Seller in connection with the ACS Business (together with all trade secrets and proprietary information of the Seller utilized in the ACS Business, the "Intangible Property"); and (b) any applications for registration for any Intangible Property. Except for the software of which the Seller is the licensee as set forth in Item 2 (Attachment 2) of Disclosure Schedule 7.10.1, the Seller is the sole owner of each item shown thereon, free and clear of all liens, encumbrances, and claims. Except as set forth on Disclosure Schedule 7.10.1, all assignments of registered copyrights have been recorded at the United States Copyright Office and all assignments of federally registered service marks and trademarks have been recorded at the United States Patent and Trademark Office. Except as set forth on Disclosure Schedule 7.10.1, all federal registrations for Intangible Property are currently in compliance with all legal requirements (including payment of filing, examination, maintenance fees, and - 9 - affidavits of use and incontestability), are valid and enforceable and are not subject to any maintenance fees or taxes on actions or filings falling due within 90 days after the Closing Date. 7.10.2. Except as set forth on Disclosure 7.10.2, the Seller has not received any notice: (a) that any of the Intangible Property infringes upon or otberwise conflicts with any copyright, trademark, service mark, trade name, or trade secret of any other person; or (b) of any claim by any other person that it has any adverse right, title, claim, or interest in and to any item of Intangible Property. 7.10.3. With respect to the software licensed by the Seller to its customers, there are no copies of such software escrowed with a third party or held by the Seller pursuant to any agreement with any such customer, nor or there any such agreements requiring the escrow of such copies. 7.10.4. As part of the Intangible Property, the Seller shall transfer to the Buyer and the Buyer shall acquire from the Seller the "On Line Assistant" software and related programs which are currently in development by the Seller pursuant to contracts with Polo Ralph Lauren and Collection Clothing; provided that, as set forth in Disclosure Schedule 7.3, in connection therewith the Buyer shall assume and be responsible for all expense incurred to complete the development of the "On Line Assistant" software and to fulfill all responsibilities under such contracts. 7.11. Employees and Employee Benefits. ------------------------------- 7.11.1. Set forth on Disclosure Schedule 7.11.1 is a complete list of all employees of the Seller who are employed in connection with the ACS Business as of the date hereof, including employees on lease of absence. There is no collective bargaining or union agreement in effect with respect to any of the employees of the ACS Business. 7.11.2. Set forth on Disclosure Schedule 7.11 .2 is a complete list of all employee benefit plans and programs to which the Seller is a party with respect to the ACS Business (the "Plans and Programs"). The Seller shall be solely responsible for the maintenance, termination or wind-up of all such Plans and Programs with respect to the ACS Business, and the Buyer shall have no liability, expense or responsibility therefor. Without limiting the generality of the foregoing, the Seller shall arrange for a trustee-to-trustee transfer of all funds in the Seller's 401(K) Plan to the Buyer's 401(K) Plan. 7.11.3. To the best knowledge of the Seller and except as set forth on Disclosure Schedule 7.11.3: (a) the Seller is in substantial compliance with all federal, state, and other applicable laws regarding the maintenance and operation of such Plans and Programs; (b) the Purchased Assets are not subject to any liens or other encumbrances under the Internal Revenue Code or the Employee Retirement Income Security Act with respect to such Plans and Programs or any other plan or program maintained by any of the Seller's affiliates; and (c) there are no material liabilities with respect to all such employee benefit plans and programs which are not disclosed in the Financial Statements. 7.11.4. With respect to the employees of the ACS Business who are employed in the State of Georgia, the Seller does not have any express written contracts with any such employees which expressly obligate the Seller to employ an individual employee for a certain time. With respect to all such employees in the State of Georgia, there is no written severance policy or severance plan which expressly obligates the Seller to make severance or separation payments to employees upon - 10 - termination of employment, nor is there any statutory requirement to pay severance to such employees upon termination of their employment; provided that, excluded from this representation is any severance or post-termination obligation which may arise or may be deemed to arise by or through a claim of Seller's past practices (including but not limited to severance paid in connection with the closure of the Concord, California office). 7.12. Litigation. Except as set forth on Disclosure Schedule 7.12: (a) the ---------- Seller is not subject to any judgment, award, order, or decree or involved in any governmental action or any proceeding in which relief is sought affecting the operation of the ACS Business or which would prevent, delay, or make illegal the transactions contemplated by this Agreement; (b) there are no actions, claims, suits, proceedings, or investigations pending or, to the best knowledge of the Seller, threatened, involving or affecting the ACS Business before any court or governmental or regulatory body which individually or in the aggregate would have a material adverse effect on the condition, financial or otherwise, of the ACS Business; and (c) to the best knowledge of the Seller, no facts exist which would serve as a basis under current laws or regulations, for the institution of any actions, laws, audit investigation, claim, or procedure which might affect materially and adversely the business or financial condition of the ACS. Business. Section 8. Representations and Warranties of the Buyer. The Buyer represents ------------------------------------------------------ and warrants to the Seller as follows: 8.1. Corporate Organization and Authority. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. The Buyer has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein. The execution and delivery of this Agreement by the Buyer and the consummation by the Buyer of the transactions contemplated herein have been duly and validly approved and authorized by the Board of Directors of the Buyer. 8.2. Validity of Agreement; No Violation. This Agreement has been duly ----------------------------------- executed and delivered by the Buyer and is a valid and binding obligation of the Buyer, enforceable in accordance with its terms. The execution, delivery, and performance of this Agreement by the Buyer and the consummation of the transactions contemplated hereby will not violate or conflict with any provision of any law, rule, regulation, order, permit, certificate, writ, judgment, injunction, decree, determination, award, or other decision of any court, governmental agency or instrumentality binding upon the Buyer or to which the Buyer is subject. 83. Buyer's Due Diligence. The Buyer is a sophisticated legal entity and was --------------------- advised by knowledgeable counsel and other advisors in connection with this Agreement. Neither the Seller nor any other person has made any representation or warranty, express or implied, regarding the accuracy of completeness of any information, regarding the Seller, the ACS Business, the Purchased Assets, or the Assumed Liabilities which is not expressly set forth herein. Neither the Seller nor any other person shall have or be subject to any liability to the Buyer or any other person resulting from the Buyer's use of or reliance on such information. THE BUYER ACKNOWLEDGES AND AGREES THAT OTHER THAN THE REPRESENTATIONS AND WARRANTIES EXPRESSLY MADE BY THE SELLER HEREIN, THE SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER TO THE BUYER, AND THE SELLER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES AS TO THE MERCHANTABILITY OR FITNESS OF THE PURCHASED ASSETS FOR ANY PARTICULAR PURPOSE. - 11 - Section 9. Pre-Closing Covenants of the Seller. ---------------------------------------------- 9.1. Access. Prior to the Closing, the Seller shall provide the Buyer with ------ reasonable access to the Purchased Assets and to the Seller's employees, books and records, compensation and employee benefit plan documents, and such other information relating to the Seller and its business as the Buyer may reasonably request. The Seller shall provide the Buyer with, or allow the Buyer to make, copies, at Buyer's expense, of any requested materials. 9.2. Conduct of Business. ------------------- 9.2.1. Affirmative Covenants. Prior to the Closing, except as may be agreed ---------------------- to in writing by the Seller and the Buyer, the Seller shall: (a) conduct the ACS Business, in all material respects, according to its ordinary and usual course of business and consistent with past practice; (b) maintain in effect and fully perform all of its obligations under the Contracts and the Real Property Leases in accordance with the terms thereof; (c) give prompt written notice to the Buyer of any notice received by the Seller of any default or breach or alleged default or breach under any of the Contracts or the Real Property Leases and of any claim or threat to commence any action, suit, proceeding, or investigation against the Seller; (d) maintain the Tangible Personal Property and the Leased Real Property in good condition and working order; (e) protect and maintain in effect the Intangible Property; (f) comply, in all material respects, with all laws applicable to it in the conduct of the ACS Business; (g) preserve its business organization and use its reasonable efforts to retain the services of its present officers, employees, and agents; and (h) use its best efforts to cause all conditions to the consummation of the transactions contemplated hereby to be satisfied. 9.2.2. Negative Covenants. Prior to the Closing, except as may be agreed in ------------------ writing by the Seller and the Buyer, the Seller shall not: (a) increase in any manner the compensation payable to any of its directors, officers, or employees; (b) change or agree to change any bonus, profit-sharing, pension, retirement, deferred compensation, employment or other plan, agreement, trust, fund or arrangement for the benefit of any of its directors, officers, or employees, except as may be required by law; (c) establish, or agree to establish, pay or agree to pay any pension, profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other benefits not required by an existing employee benefit; (d) make or commit to make any capital expenditures in excess of $5,000.00; (e) enter into or agree to enter into any lease, contract, commitment, transaction or understanding of any kind, or to amend or agree to amend any of the Contracts or the Real Property Leases; (f) create, incur, or assume any liability or obligation; (g) assume, guarantee, endorse or otherwise become liable for the obligations of any other person or entity; (h) make any loans, advances or capital contributions to, or investments in, any other person or entity; (i) cause or suffer any of its property to become encumbered by any security interest, mortgage or encumbrance; or (j) waive any right or settle any claim in excess of $5.000.00. 9.3. Consents of Third Parties. The Seller shall use its best efforts to ------------------------- obtain any consents of third parties and regulatory approvals required for the consummation by the Seller of this Agreement and the transactions contemplated hereby on terms and conditions satisfactory to the Buyer. 9.4. Cooperation. The Seller shall cooperate with the Buyer to effect the ------------ consummation of the transactions contemplated herein on the Closing Date. - 12 - 9.5. Supplement to Disclosure Schedules. The Seller shall, from time to time --------------------------------- prior to or at the Closing, by notice to the Buyer, supplement or amend any Disclosure Schedule, including without limitation, one or more supplements or amendments thereto, to correct any matter which would constitute a breach of any representation or warranty set forth herein. Such supplemental or amended Disclosure Schedule shall not be deemed to cure any breach of such representation or warranty for the purposes of Section 16 hereof. If, however, the Closing occurs, such supplemental or amended Disclosure Schedule shall be effective to cure and correct for all purposes any breach of any representation or warranty that would have existed by reason of the Seller not having made such supplement or amendment. Section 10. Pre-Closing Covenants of the Buyer. ---------------------------------------------- 10.1. Cooperation. The Buyer shall cooperate with the Seller to effect the ----------- consummation of the transactions contemplated herein on the Closing Date. Section 11. Conditions Precedent to the Obligations of the Seller. The ------------------------------------------------------------------ obligations of the Seller hereunder are subject to the fulfillment of each of the following conditions prior to or at the Closing, any one of which may be waived in whole or in part by the Seller. 11.1. Performance of Obligations. The Buyer shall have performed, or complied --------------------------- with, in all respects all of its agreements and covenants hereunder. 11.2. Representations and Warranties. The representations and warranties of ------------------------------ the Buyer made herein shall be deemed to have been made again at and as of the Closing Date and shall then be true, and Buyer shall deliver to the Seller a Certificate of an officer of the Buyer, dated as of the Closing Date, certifying to that effect. 11.3. Consents of Third Parties. The Seller and the Buyer shall have received -------------------------- the consent of third parties to the assignment of the Contracts, and the assumption by the Buyer of the Seller's rights and obligations thereunder, in each case where the failure to obtain such consent would have a material adverse effect on the ACS Business. 11.4. Release from Guaranteed Contracts. The partners (or as the case may be, ---------------------------------- the parent corporations of the partners) shall have been fully released from all guarantees and obligations under the Guaranteed Contracts. Section 12. Conditions Precedent to the Obligations of the Buyer. The ---------------------------------------------------------------- obligations of the Buyer hereunder are subject to the fulfillment of each of the following conditions prior to or at the Closing, any one of which may be waived in whole or in part by the Buyer: 12.1. Performance of Obligations. The Seller shall have performed, or complied -------------------------- with, in all respects all of its agreements and covenants hereunder. 12.2. Representations and Warranties. The representations and warranties of ------------------------------ the Seller made herein shall be deemed to have been made again at and as of the Closing Date and shall then be true, and Seller shall deliver to the Buyer a Certificate of an officer of the Seller, dated as of the Closing Date, certifying to that effect. - 13 - 12.3. Consents of Third Parties. The Seller and the Buyer shall have received ------------------------- the consent of the third parties to the assignment of the Contracts, and the assumption by the Buyer of the Seller's rights and obligations thereunder, in each case where the failure to obtain such consent would have a material adverse effect on the ACS Business. 12.4. Marketing Agreements. The Buyer shall have entered into one or more -------------------- agreements with Kurt Salmon Associates, Inc. pursuant to which Buyer, as the new owner of the ACS Business, for; a period of three (3) years from Closing shall have a non-exclusive right to market (i) DCMS/R/ and DCMS/R/ Jr. and (ii) Next Generation Software (if, and as and when developed by Kurt Salmon Associates, Inc.); such agreement(s) shall be on substantially the same terms as the existing agreement between the Seller and Kurt Salmon Associates, Inc. regarding DCMS/R/ and DCMS/R/ Jr. Section 13. The Seller's Confidential Information. ------------------------------------------------- 13.1. Terms of this Agreement. The Seller and the Buyer hereby agree that the ------------------------ terms of this Agreement shall be held by them in the strictest of confidence, and that neither the Seller nor the Buyer, shall, at any time, without the consent of the other, provide or disclose to others any copies of this Agreement or any of the provisions hereof or any material information with respect to the transactions contemplated herein. 13.2. The Seller's Confidential Information. ------------------------------------- 13.2.1. For purposes of this Agreement, the term "Seller's Confidential Information" shall mean: (a) all data or information, whether in written or unwritten form, or in a form produced or stored by any magnetic, electrical, or mechanical means or process, that is disclosed divulged, delivered, or otherwise made available to the Buyer by the Seller; and (b) all summaries, notes, abstracts, or other compilations or derivations (whether in written or unwritten form, or in a form produced or stored by any magnetic, electrical, or mechanical means or process) of the data or information described in (a) above. Notwithstanding the foregoing, the term "Seller's Confidential Information" shall not include any data or information that is: (a) previously known to the Buyer; (b) generally known or readily available from public or trade sources; (c) obtained by the Buyer from a third party; or (d) independently developed or discovered by the Buyer. 13.2.2. The Buyer hereby agrees that prior to the Closing it shall use the Seller's Confidential Information solely in connection with, and in furtherance of, the consummation of the transactions contemplated in this Agreement and for no other purpose whatsoever. 13.2.3. The Buyer hereby agrees that prior to the Closing and at all times following the termination of this Agreement, it shall not disclose or divulge the Seller's Confidential Information to any individual or entity other than to employees of the Buyer on a need-to-know basis. The Seller hereby further agrees that it and all such employees shall hold, maintain, and treat the Seller's Confidential Information in the strictest confidence. 13.2.4. The Buyer hereby agrees that prior to the Closing and at all times following the termination of this Agreement, it shall not copy or reproduce, in whole or in part, or permit any other individual or entity, to copy or reproduce, in whole or in part, any of the Seller's Confidential Information without the prior written consent of the Seller. - 14 - 13.2.5. The Buyer hereby agrees that prior to the Closing and at all times following the termination of this Agreement, it shall use its best efforts to: (a) maintain and protect the confidential and proprietary nature of the Seller's Confidential Information; (b) prevent the unauthorized or improper use of the Seller's Confidential Information; (c) prevent the unauthorized disclosure of the Seller's Confidential Information; and (d) prevent the unauthorized copying or reproduction of the Seller's Confidential Information. 13.2.6. Upon the termination of this Agreement as provided in Section 16, the Buyer shall immediately: (a) return to the Seller all of the Seller's Confidential Information including without limitation, all copies, abstracts, or extracts thereof; (b) destroy all analyses, compilations, studies, or other documents based upon or including the Seller's Confidential Information; (c) cease using the Seller's Confidential Information for any purpose whatsoever; and (d) deliver to the Seller a certificate of an authorized officer of the Buyer certifying the foregoing. 13.3. The Buyer's Confidential Information. ----------------------------------- 13.3.1. For purposes of this Agreement, the term "Buyer's Confidential Information" shall mean: (a) all data or information, whether in written or unwritten form, or in a form produced or stored by any magnetic, electrical, or mechanical means or process, that is disclosed, divulged, delivered, or otherwise made available to the Seller by the Buyer hereunder; and (b) all summaries, notes, abstracts, or other compilations or derivations (whether in written or unwritten form, or in a form produced or stored by any magnetic, electical, or mechanical means or process) of the data or information described in (a) above. Notwithstanding the foregoing, the term "Buyer's Confidential Information" shall not include any data or information that is: (a) previously known to the Seller; (b) generally known or readily available from public or trade sources; (c) obtained by the Seller from a third party; or (d) independently developed or discovered by the Seller. 13.3.2. The Seller hereby agrees to use the Buyer's Confidential Information solely in connection with, and in furtherance of, the consummation of the transactions contemplated in this Agreement and for no other purpose whatsoever. 13.3.3. The Seller hereby agrees that prior to the Closing and at all times thereafter, it shall not disclose or divulge the Buyer's Confidential Information to any individual or entity other than to employees of the Seller on a need-to-know basis. The Seller hereby further agrees that it and all such employees shall hold, maintain, and treat the Buyer's Confidential Information in the strictest confidence. 13.3.4. The Seller hereby agrees that prior to the Closing and at all times thereafter, it shall not copy or reproduce, in whole or in part, or permit any other individual or entity, to copy or reproduce, in whole or in part, any of the Buyer's Confidential Information without the prior written consent of the Buyer. 13.3.5. The Seller hereby agrees that prior to the Closing and at all times thereafter, it shall use its best efforts to: (a) maintain and protect the confidential and proprietary nature of the Buyer's Confidential Information; (b) prevent the unauthorized or improper use of the Buyer's Confidential Information; (c) prevent the unauthorized disclosure of the Buyer's Confidential Information; and (d) prevent the unauthorized copying or reproduction of the Buyer's Confidential Information. - 15 - 13.3.6. Upon the termination of this Agreement as provided in Section 16, the Seller shall immediately: (a) return to the Buyer all of the Buyer's Confidential Information, including without limitation, all copies, abstracts, or extracts thereof; (b) destroy all analyses, compilations, studies, or other documents based upon or including the Buyer's Confidential Information; (c) cease using the Buyer's Confidential Information for any purpose whatsoever; and (d) deliver to the Buyer a certificate of an authorized officer of the Seller certifying the foregoing. 13.4. Survival of Common Law and Statutory Rights. Nothing in this Agreement ------------------------------------------- shall be deemed to limit, in any manner, any of the Seller's or the Buyer's common law or statutory rights with respect to the Seller's Confidential Information and the Buyer's Confidential Information, as the case may be. 13.5. Equitable Remedies. The parties acknowledge and agree that in the event ------------------ of a default or breach of or threatened default or breach by either party of the provisions of this Section 13, the other party shall sustain irreparable injury and damages, the amount and extent of which cannot be measured in money and for which there does not and shall not exist any adequate remedy at law. Accordingly, each of the parties hereby agrees that in the event of a default or breach or of a threatened default or breach by either party of the provisions of this Section 13, the other party shall be entitled to immediate injunctive relief and to specific performance and that in any legal action or proceeding for injunctive relief and specific performance the party against whom such action or proceeding is instituted shall be deemed to have hereby been waived, and shall not assert in such action or proceeding, the defense or claim that the party instituting such action or proceeding has an adequate remedy at law or that an adequate remedy at law exists. The foregoing shall not, however, be deemed to limit or restrict the remedies at law or in equity of either party for any default or breach or any threatened default or breach of the provisions of this Section 13. Section 14. Post-Closing and Other Matters. ------------------------------------------ 14.1. Use of ACS Name. As soon as may be practicable after the Closing, the --------------- Seller shall take all action necessary to amend its Certificate of Partnership and related documents to change the name of the Seller to delete the words "ACS". Thereafter, the Seller shall not conduct any business as "ACS" or "ACS Software Products Group". 14.2. Allocation of Purchase Price. The Seller and the Buyer shall allocate ---------------------------- the Purchase Price among the Purchased Assets and the Assumed Liabilities as set forth on Exhibit E. As soon as may be practicable after the Closing, the Seller and the Buyer shall amend Exhibit E to reflect any adjustments to the Purchase Price made pursuant to Section 5. As soon as practicable after the Closing and prior to filing any tax return which includes information related to the transactions contemplated in this Agreement, the Seller and the Buyer shall prepare mutually acceptable IRS Forms 8594 which they shall use to report the transactions contemplated in this Agreement to the Internal Revenue Service and to all other taxing authorities. 14.3. Additional Documents. From and after the Closing Date, each of the -------------------- parties shall, at the request of the other, prepare, execute, and deliver to the other such additional documents and instruments and take such action as the other may deem reasonably necessary to further evidence or effect any of the transactions contemplated herein. All costs and expenses reasonably and necessarily incurred by either party in connection with the preparation of any such other documents and instruments or the taking of any such other action shall be borne and paid by the party requesting the same. - 16 - Section 15. Indemnification. --------------------------- 15.1. Survival. Each of the covenants, agreements, indemnities and -------- representations and warranties of the Seller and the Buyer herein shall survive the Closing until 5:00 p.m. Eastern Time on that date which is twelve months after the Closing Date (the "Survival Period") at which time, such covenants, agreements, indemnities, representations and warranties shall expire and terminate. 15.2. Indemnification by the Seller. Subject to the provisions of Sections ----------------------------- 15.3, 15.5, and 15.6, the Seller shall indemnify and hold harmless the Buyer against and in respect of all losses, costs, and expenses suffered or incurred by the Buyer as a result of: (a) the breach by the Seller of any representation and warranty made by the Seller to the Buyer in Section 7 hereof; (b) the nonfulfillment by the Seller of any agreement or covenant of the Seller contained herein; and (c) the failure of the Seller to discharge, when due, the liabilities and obligations of the Seller that are not assumed by the Buyer herein. 15.3. Limitations on Indemnification by the Seller. Notwithstanding the -------------------------------------------- provisions of Section 15.2, the Seller shall indemnify the Buyer for the Buyer's indemnifiable losses up to a maximum amount of $200,000.00; and the Seller shall have no liability to indemnify the Buyer hereunder for indemnifiable losses to the extent such losses exceed $200,000.00. 15.4. Indemnification by the Buyer. Subject to the provisions of Sections 15.5 ---------------------------- and 15.6, the Buyer shall indemnify and hold harmless the Seller against and in respect of all losses, costs, and expenses suffered or incurred by the Seller as a result of: (a) the breach by the Buyer of any representation and warranty made by the Buyer to the Seller in Section 8 hereof; (b) the nonfulfillment by the Buyer of any agreement or covenant of the Buyer contained herein; (c) the failure of the Buyer to discharge, when due, the Assumed Liabilities; and (d) the operations by the Buyer after the Closing of the ACS Business. 15.5. Procedures for Indemnification. ------------------------------ 15.5.1. If a party hereto (the "Claiming Party") seeks indemnification from the other party (the "Indemnitor") for indemnifiable losses, the Claiming Party shall give notice to the Indemnitor of such loss (the "Notice of Loss"). If, within thirty days after the date on which the Indemnitor receives the Notice of Loss, the Indemnitor has not delivered to the Claiming Party a notice of objecting to all or any portion of the claimed loss and setting forth the amount of such claimed loss objected to and the reasons for such objection, the Claiming Party shall be entitled to indemnification for such loss and the Indemnitor shall promptly pay such loss. If, within thirty days after the date on which the Indemnitor receives a Notice of Loss, the Indemnitor delivers to the Claiming Party an objection to all or any portion of the claimed loss, setting forth the amount of such loss objected to and the reasons for such objections, the Claiming Party shall be entitled to reimbursement for the portion of such loss not objected to by the Indemnitor and the Indemnitor shall promptly pay such amount. The Claiming Party shall be entitled to indemnification for the portion of such claimed loss to which the Indemnitor objected to upon the earlier of: (a) the Indemnitor's and the Claiming Party's written agreement with respect to the indemnification of such loss; or (b) a final judgment or award of a court of competent jurisdiction with respect to such loss. 15.5.2. Notwithstanding any other provisions of this Agreement, neither the Seller nor the Buyer shall be entitled to indemnification hereunder with respect to any claim, obligation, - 17 - or liability asserted against them by any third party unless they shall have notified the other party of the assertion of the same and afforded such party an opportunity to participate in the defense or settlement thereof. l5.5.3. Notwithstanding any other provisions of this Agreement, neither the Seller or the Buyer shall have any claim for indemnification hereunder unless such claim is asserted, as provided herein, against the other within the Survival Period (in which event the party's right to indemnification for such matters shall continue until liability is finally determined). 15.5.4. The Buyer shall obtain payment of all indemnified losses to which the Buyer is entitled hereunder, and otherwise satisfy all claims for indemnification hereunder, solely and exclusively by way of set-off against and reduction in payment of amounts due under the Promissory Note otherwise payable by the Buyer to the Seller, at such times and as and when payments become due and payable under the Promissory Note. 15.6. Computation of Losses. In determining the amount of any indemnifiable --------------------- Loss hereunder, the aggregate amount of any insurance proceeds received by or benefiting the indemnified party in connection with the facts giving rise to the right to indemnification shall be deducted from the amount to be paid by the indemnifying party. If, with respect to any indemnifiable loss paid by an indemnifying party, the indemnified party subsequently receives insurance proceeds, the indemnified party shall, as soon as may be practicable, pay to the indemnifying party an amount equal to such insurance proceeds. Section 16. Termination. ------------------------ 16.1. Procedure for Termination. This Agreement may be terminated at any time -------------------------- on or before the Closing Date as follows: (a) by the mutual agreement of the Seller and the Buyer; (b) by the Seller: (i) if the Seller reasonably determines that the transactions contemplated hereby cannot be consummated because of any nonfulfillment of any condition set forth in Section 10 hereof which cannot be cured or rectified on or before the Closing and such nonfulfilled conditions has a material adverse effect on the Seller; or (ii) if the Buyer breaches any representation or warranty made by the Buyer in this Agreement and such breach has a material adverse effect on the Seller; and (c) by the Buyer: (i) if the Buyer reasonably determines that the transactions contemplated hereby cannot be consummated because of any nonfulfillment of any condition set forth in Section 11 hereof which cannot be cured or rectified on or before the Closing Date and such non fulfilled conditions has a material adverse effect on the ACS Business. and/or the Buyer; or (ii) if the Seller breaches any representation or warranty made by the Seller in this Agreement and such breach has a material adverse effect on the ACS Business and/or the Buyer. - 18 - 16.2. Effect of Termination. If this Agreement is terminated as provided in ----------------------- Section 16.1, the obligations of the parties hereunder shall terminate; provided however, that if this Agreement is terminated by a party as a result of the other party's willful failure to comply with its agreements or covenants hereunder, the party that terminated this Agreement shall have the right to pursue all legal and equitable remedies available to it. The provisions of Section 13 shall survive any termination of this Agreement Section 17. Bulk Transfer Laws, Expenses, and Taxes. ------------------------------------------------ 17.1. Bulk Transfer Laws. The Seller and the Buyer hereby waive compliance ------------------ with the provisions of any applicable Bulk Transfer Laws, or any other similar laws. The Seller agrees to pay and to indemnify the Buyer against all claims made by the creditors of the Seller, other than the Assumed Liabilities to which this sale is subject. 17.2. Costs and Expenses. All costs and expenses incurred by or on behalf of ------------------- the Seller and the Buyer, including, without limitation, all fees and expenses of agents, representatives, counsel, and accountants employed in connection with the authorization, preparation, execution, and performance of this Agreement or other matters relating thereto shall be borne solely by the party that incurred the same and the other party shall have no liability with respect thereof. 17.3 Transfer Taxes. All sales, use, and transfer taxes and recording, filing, --------------- title, and registration fees or other charges imposed upon or incurred in connection with or as a result of the transfer of the Purchased Assets to the Buyer and the consummation of the transactions contemplated herein shall be borne and paid by the Seller. 17.4. UTILITIES AND OTHER CHARGES. All charges for electricity, water, gas, ---------------------------- and other utilities and for telephone services related to the Purchased Assets as of or for the calendar month in which the closing occurs shall be prorated as of the Closing Date. All payments under the Contracts and the Real Property Leases as of or for the calendar month in which the Closing occurs shall be prorated as of the Closing Date. Section 18. Miscellaneous. ------------------------- 18.1. Entire Agreement. This Agreement, together with the Disclosure Schedules ---------------- and the Exhibits hereto, constitutes the entire agreement between the parties with respect to the matters set forth herein and supersedes all prior agreements, arrangements, and understandings between the parties with respect to the same. 18.2. Modification. No provision of this Agreement, including the provisions ------------ of this Section, may be modified, deleted, or amended in any manner except by an agreement in writing executed by the Seller and the Buyer. 18.3. Notices. All notices, requests, consents, and other communications to, -------- upon, or between the parties shall be in writing and shall be deemed to have been given, delivered, or made when personally delivered or when sent or mailed by certified mail, postage prepaid and return receipt requested to the parties at the address set forth below or to such other address as any party may specify by notice to the other party: - 19 - If to the Seller: ACS Software Products Group Suite 900 1355 Peachtree Street Atlanta, Georgia 30309 Attn: President If to the Buyer: Computer Generated Solutions, Inc. 1250 Broadway New York, New York 10001 Attn: President 18.4. Severability. The invalidity or unenforceability of any provision of ------------ this Agreement shall not affect the validity or enforceability of any other provision. 18.5. No Assignment. Neither this Agreement nor any interest herein may be ------------- assigned by either party without the consent of the other party. 18.6. Benefit. This Agreement shall be binding on and inure to the respective ------- benefit of the Buyer and the Seller and their respective successors and assigns. 18.7. Construction. This Agreement shall be construed and enforced in ------------ accordance with the laws of the State of Georgia, other than its rules with respect to choice of laws. 18.8. Counterparts. This Agreement may be executed in more than one ------------- counterpart, each of which shall be deemed an original. 18.9. Headings. The underlined headings provided herein are for convenience -------- only and shall not affect the interpretation of this Agreement. IN WITNESS WHEREOF, the Seller and the Buyer have duly executed this Agreement as of the date first above written. ACS SOFTWARE PRODUCTS GROUP By: KSA INFORMATION TECHNOLOGIES, INC., its (General Partner By: /s/ David A. Cole ---------------------- Name: David A. Cole -------------------- Title: Vice President -------------------- [SIGNATURES CONTINUED ON FOLLOWING PAGE] - 20 - [SIGNATURES CONTINUED FROM PREVIOUS PAGE] COMPUTER GENERATED SOLUTIONS, INC. By: /s/ Phil Friedman ------------------------- Name: Phil Friedman ----------------------- Title: President ---------------------- - 21 - EX-2.2 3 PLAN AND AGREEMENT OF REORGANIZATION EXHIBIT 2.2 ----------- Plan and Agreement of Reorganization, dated August 26, 1994, between Computer Generated Solutions, Inc. and Real-Time Technology, Inc. EXHIBIT 2.2 PLAN AND AGREEMENT OF REORGANIZATION between Computer Generated Solutions, Inc. (a Delaware corporation) and Real Time Technology, Inc. (a New York corporation). ______________ For the Acquisition of all of the assets of Real Time Technology, Inc. in exchange for stock of Computer Generated Solutions, Inc. PLAN AND AGREEMENT OF REORGANIZATION, dated August 26, 1994, between COMPUTER GENERATED SOLUTIONS, INC., a Delaware corporation (hereinafter called CGS), and REAL-TIME TECHNOLOGY, INC., a New York corporation (hereinafter called RTT). 1. CGS desires to acquire, and RTT desires to transfer to CGS, all the assets, properties, business, and good will of RTT in exchange for the issue and delivery by CGS to RTT of shares of Voting Common Stock, par value $.01 per share of CGS, said shares of Voting Common Stock of CGS to be in turn distributed to the stockholders of RTT in exchange for their stock in RTT, all upon the terms and conditions hereinafter set forth and for the purpose of carrying out a tax-free reorganization within the meaning of the Internal Revenue Code of 1986, as amended. 2. RTT desires to provide for the winding up and settling of its affairs in voluntary dissolution and for the distribution to 1 its stockholders of such shares of Common Stock, par value $.01 per share, of CGS, as hereinafter provided, in complete liquidation and complete cancellation or redemption of its stock. 3. RTT hereby represents and warrants to CGS as follows: (a) RTT is a corporation duly organized and existing and in good standing under the laws of the State of New York, and it is entitled to own or lease its properties and to carry on its business at and in the place where such properties are now owned, leased, or operated or such business is now conducted. (b) The authorized capital stock of RTT consists of 200 shares of Common Stock, no par value per share (hereinafter called Common Stock of RTT), of which 10 shares have been validly issued and are now outstanding. (c) RTT does not have any subsidiaries. (d) Annexed hereto as Exhibit A are balance sheets of RTT as of December 31, 1989, December 31, 1990, December 31, 1991, December 31, 1992, December 31, 1993, June 30, 1994 and related statements of income for the five years ended December 31, 1993, and the six months ended June 30, 1994 as reviewed by independent public accountants. RTT will provide a balance sheet and related statement of income and expense for the nine months ended September 30, 1994, certified by independent public accountants. All such statements are correct and complete and present fairly the financial condition of 2 RTT as of the respective dates of said balance sheets and the results of operations of RTT for the periods indicated in said statements of income in conformity with generally accepted accounting principles applied on a consistent basis. (e) At June 30, 1994, RTT had no liabilities, absolute or contingent, which are not shown or provided for on the balance sheets of RTT as of June 30, 1994 (Exhibit A, annexed hereto). (f) Since June 30, 1994 there has been no material change in the condition, financial or otherwise, of RTT as shown in the balance sheet of RTT as of June 30, 1994 (Exhibit A annexed hereto), other than changes occurring in the ordinary course of business, which changes have not materially adversely affected its business, properties, or financial condition. (g) The accounts receivable of RTT shown on said balance sheet of RTT as of June 30, 1994 (Exhibit A annexed hereto), or thereafter acquired by it prior to the date hereof, have been collected or are collectible in amounts not less than 96 percent of book amounts thereof. (h) The amounts set up as provisions for taxes on the balance sheet of RTT as of June 30, 1994 (Exhibit A annexed hereto), are sufficient for the payment of all accrued and unpaid federal, state, county, and local 3 taxes of RTT, whether or not disputed, for the fiscal year ended on said date and for all fiscal years prior thereto. All deficiencies proposed as a result of examinations of Federal income tax returns by the Internal Revenue Service for past fiscal years through the fiscal year ended December 31, 1993, of RTT have been paid and settled. (i) Annexed hereto as Exhibit B is a brief description of all real properties leased to RTT, and of the equipment it owns located at such leased premises. RTT owns outright all the equipment in the premises referred to in said Exhibit B, all other assets and properties used in its business, and all assets and properties reflected in the balance sheet of RTT, as of June 30, 1994 (Exhibit A annexed hereto), or acquired by it after said date, other than such assets or properties sold or otherwise disposed of in the ordinary course of business subsequent to said date, in each case free and clear of all mortgages, liens, charges, or encumbrances of any nature whatsoever, except as stated in said Exhibit B. (j) Annexed hereto as Exhibit C is a list and brief description of all patents, patent applications, and trade-mark registrations owned by or registered in the name of RTT or in which it has any rights, and in each case a brief description of the nature of such rights. 4 RTT is not a licensor in respect of any patents, trademarks, trade names, copyrights, or applications therefor. RTT owns, or possesses adequate licenses or other rights to use, all patents,-trade-marks, trade names, and copyrights necessary to conduct its business as now operated by it and has not received any notice of conflict with the asserted rights of others. (k) Annexed hereto as Exhibit D is a list and brief description of all policies of fire, liability, and other forms of insurance held by RTT. Such policies are in amounts deemed by the management of RTT to be sufficient, and valid policies in such amounts will be outstanding and duly in force to the Closing Date, at which time such policies will be assigned to CGS in accordance herewith. (l) Annexed hereto as Exhibit E is a list of certain contracts to which RTT is a party. Except only as listed in said Exhibit, RTT is not a party to any written or oral (1) contract not made in the ordinary course of business; (2) employment contract which is not terminable without cost or other liability to RTT, or any successor, upon notice of 30 days or less; (3) contract with any labor union; (4) bonus, pension, profit sharing, retirement, stock purchase, hospitalization, insurance or similar plan providing employee benefits; (5) lease with respect to any property, real or personal, whether as lessor or lessee; (6) continuinq contract for the future 5 purchase of materials, supplies or equipment in excess of the requirements of the business of RTT now booked or for normal operating inventories; or (7) contract continuing over a period of more than one year from its date. RTT has in all material respects performed all obligations required to be performed by it to date and is not in default in any material respect under any agreement, lease or other document to which it is a party. (m) There are no actions, suits or proceedings pending, or, to the knowledge of RTT, threatened against or affecting RTT. RTT is not in default with respect to any judgment, order, writ, injunction, decree, or similar command of any court or of any federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting it. (n) To the best of the knowledge, information, and belief of its officers, RTT has complied with all laws, regulations, and orders applicable to its business. (o) Since June 30, 1994 RTT has not (1) issued any stock, bonds or other corporate securities; (2) incurred any obligation or liability (absolute or contingent) except current liabilities incurred, and obligations under contracts entered into, in the ordinary course of business; (3) discharged or satisfied any lien or encumbrance or paid any obligation or liability (absolute 6 or contingent) other than current liabilities shown on the balance sheet of RTT as of June 30, 1994 (Exhibit A hereto), and current liabilities incurred since that date in the ordinary course of business; (4) declared or made any payment or distribution to stockholders, or purchased or redeemed any shares of its capital stock; (5) mortgaged, pledged, or subjected to lien, charge, or any other encumbrance, any of its assets, tangible or intangible; (6) sold or transferred any of its tangible assets or cancelled any debts or claims, except in each case in the ordinary course of business; (7) sold, assigned, or transferred any patents, trademarks, trade names, copyrights, or other intangible assets; (8) suffered any extraordinary losses or waived any rights of substantial value; or (9) entered into any transaction other than in the ordinary course of business. (p) The Board of Directors of RTT has duly approved this Plan and Agreement of Reorganization and the transactions contemplated herein, subject to the approval thereof by the stockholders of RTT as required under the laws of the State of New York, and has authorized the execution and delivery hereof by RTT. 4. CGS represents and warrants to RTT as follows: (a) CGS is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 7 (b) The authorized capital stock of CGS consists of 10,000 shares of Voting Common Stock, par value $.01 per share (hereinafter called Voting Common Stock of CGS), of which 6,783 shares have been validly issued and are now outstanding and 5,000 shares of Nonvoting Common Stock, none of which are issued. (c) Annexed hereto as exhibit F is a balance sheet of CGS as of June 30, 1994, and statements of income and surplus for the six months then ended, reviewed by B.D.O. Siedman & Co., independent certified public accountants. Such statements are correct and complete and present fairly the financial condition of CGS as of June 30, 1994, and the results of operations of CGS for the six months then ended. All said financial statements have been prepared in conformity with generally accepted accounting principles. (d) There has been no material change in the condition, financial or otherwise, of CGS as shown in the balance sheet of CGS as of June 30, 1994 (Exhibit F annexed hereto), other than changes occurring in the ordinary course of business, which changes have not materially adversely affected its business, properties, or financial condition. (e) The shares of Common Stock of CGS deliverable pursuant hereto, when issued and delivered as herein provided: will be validly issued and outstanding shares 8 of Common Stock of CGS, fully paid and non-assessable. (f) The Board of Directors of CGS has approved this Plan and Agreement of Reorganization and the transactions contemplated herein and has authorized the execution and delivery hereof by CGS. NOW, THEREFORE, in consideration of the premises and of the respective representations and warranties hereinabove set forth, and of the covenants and agreements herein contained, CGS and RTT hereby agree as follows: 1. (a) On the terms and subject to the conditions herein set forth, RTT hereby agrees to convey, transfer, assign and deliver to CGS, and CGS agrees to acquire and accept as hereinafter provided, all the assets, properties, business and good will of RTT of every kind and description, wherever located, including without limitation, all property, tangible or intangible, real, personal, or mixed, accounts receivable, bank accounts, cash and securities, claims and rights under contracts of RTT, rights to use its corporate name and all other names or slogans used by RTT in connection with its business or products and all books and records of RTT relating to its business, all as the same shall exist at the time of closing referred to in Section 4 hereof (hereinafter called the Closing Date). The assets and property to be conveyed, transferred, assigned and delivered to CGS on the Closing Date as herein provided shall, without 9 limitation, include all assets and properties of RTT shown on the balance sheet of RTT as of June 30, 1994 (Exhibit A annexed hereto), and all assets and property thereafter acquired by RTT prior to the Closing Date, except such assets and property of RTT as: (1) may have been disposed of prior to the Closing Date in the ordinary course of business; (2) may have been otherwise disposed of prior to the Closing Date at the request or with the consent in writing of CGS; or (3) are listed on Exhibit A-1 annexed hereto. (b) Subject to the conditions herein set forth, from and after the Closing Date, CGS shall assume and agrees to pay, perform, and discharge all those debts, obligations, contracts and liabilities of RTT as set forth on Exhibit G, all as the same shall exist at the Closing Date, and all debts, obligations, and liabilities of RTT arising thereafter in connection with the distribution to the stockholders of RTT of the shares of Common Stock of CGS to be issued and delivered to RTT hereunder and in connection with the liquidation and dissolution of RTT; provided, however, that CGS shall assume the obligation of RTT to distribute to its stockholders such shares of Common Stock of CGS. All other contingent or absolute liabilities of RTT, including but not limited to those listed below, shall remain the liability of RTT and shall not be assumed by 10 CGS: (i) All liability of RTT for federal, state, county, and local taxes for any period prior or subsequent to the closing date; (ii) All taxes (federal, state, county, and local), expenses and costs of RTT incident to or arising out of this agreement (including legal and accounting fees); (iii) All liabilities under any leases, labor union agreements or other contracts to which RTT is a party except those specifically assumed by CGS; and (iv) All liabilities of any kind connected with RTT's operation. (c) The conveyance, transfer, assignment, and delivery of the assets and property of RTT to CGS, as herein provided, shall be effected by deeds, bills of sale, endorsements, assignments, drafts, checks, and other instruments of transfer and conveyance in such form as CGS shall reasonably request. (d) RTT agrees that it will, at any time and from time to time after the Closing Date, upon request of CGS, do, execute, acknowledge, and deliver, or will cause to be done, executed, acknowledged, and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney, and assurances as may be required for 11 the better assigning, transferring, granting, conveying, assuring, and confirming to CGS, or to its successors and assigns, or for aiding and assisting in collecting and reducing to possession, any or all of the assets or property to be assigned to CGS as provided herein and any or all obligations of RTT hereunder. 2. On the terms and subject to the conditions herein set forth, CGS will issue and deliver to RTT on the Closing Date definitive stock certificates, in such authorized denominations and registered in the name of RTT or its nominee or such other names as RTT shall specify in writing, aggregating 753 shares of Common Stock of CGS. 3. From and after the date hereof, RTT shall afford to the officers and accredited representatives of CGS free access to the offices, properties and records of RTT in order that CGS may have full opportunity to make such investigation as it shall desire of the affairs of RTT. 4. The closing under this Plan and Agreement of Reorganization shall take place at 10:00 o'clock A.M., Eastern Daylight Time, on October 1, 1994, at the law offices of Ira Z. Kevelson, 635 Madison Avenue, New York, NY 10022, or at such other time and place as the parties hereto shall agree upon. 5. (a) To the extent that the assignment of any contract, license, lease, commitment, sales order, or 12 purchase order to be assigned to CGS as provided herein shall require the consent of the other party thereto, this Plan and Agreement of Reorganization shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof. RTT agrees that it will use its best efforts to obtain the consent of the other parties to all such contracts, licenses, leases commitments, sales orders, or purchase orders of RTT to the assignment thereof to CGS. If such consent is not obtained, RTT will cooperate with CGS in any reasonable arrangement designed to provide for CGS the benefits under any such contracts, licenses, leases, commitments, sales orders, or purchase orders, including enforcement, at the cost and for the benefit of CGS, of any and all rights of RTT against the party thereto arising out of the breach or cancellation by such other party or otherwise. (b) RTT agrees that CGS shall have the right and authority to collect, for account of CGS, all receivables and other items which shall be transferred to CGS as provided herein, and to endorse with the name of RTT any checks received on account of any such receivables or other items. RTT agrees that it will transfer and deliver to CGS any cash or other property that RTT may receive in respect of such receivables or other items. 6. (a) RTT will call a meeting of its 13 stockholders to be held on September 1, 1994, for the purpose of authorizing (1) the conveyance, assignment, transfer, and delivery of all the assets, properties, business, and good will of RTT to CGS upon the terms and conditions provided herein; and (2) the voluntary dissolution of RTT. (b) RTT agrees that, promptly upon receipt by it of the stock certificates for the shares of Common Stock of CGS to be received by RTT as provided in Section 2 hereof, and in any event on or before December 31, 1994, RTT will distribute all such shares to its stockholders in complete winding up and liquidation of RTT, and that it will not otherwise dispose of any of such shares. (c) From and after the Closing Date, RTT will not engage in any business or other activity except as required to complete the liquidation and dissolution of RTT as provided herein. 7, The obligations of CGS hereunder are, at the option of CGS, subject to the conditions that, on or before the Closing Date: (a) At the meeting of the stockholders of RTT provided for in Section 6 (a) hereof, the holders of at least a majority of the outstanding shares of RTT entitled to vote thereat shall have voted in favor of the matter specified in clause (l) of said Section 6 (a) and the holders of at least two-thirds of such outstanding 14 shares shall have voted in favor of the matter specified in clause (2) of said Section 6 (a). (b) All actions, proceedings, instruments and documents required to carry out this Plan and Agreement of Reorganization, or incidental thereto, and all other related legal matters, shall have been approved by counsel for CGS. (c) CGS shall have received an opinion of counsel for RTT, dated the Closing Date, in form and substance satisfactory to CGS, to the effect that (1) RTT is a corporation duly organized and existing and in good standing under the laws of the State of New York and is entitled to own or lease its properties and to carry on its business at and in the places where such properties are now owned, leased, or operated or such business is now conducted; (2) RTT has full power and authority to convey, assign, transfer, and deliver its assets, properties, business, and good will to CGS as herein provided; (3) all corporate and other proceedings required to be taken by or on the part of RTT to authorize it to carry out this Plan and Agreement or Reorganization and so to convey, assign, transfer, and deliver its assets, properties, business, and good will have been duly and properly taken; and (4) the vote of the stockholders of RTT taken at the meeting provided for in Section 6 (a) hereof operates (except for directors' 15 action), so far as RTT is concerned, to authorize the conveyance, transfer, assignment and delivery of all the assets, properties,business and good will of RTT to CGS in exchange for shares of Common Stock of CGS upon the terms and conditions provided herein and to bind all stockholders of RTT thereto. (d) RTT shall have furnished to CGS legal opinions or other evidence, in form and substance satisfactory to CGS, covering the good and marketable title of RTT in its properties, free and clear of all mortgages, liens, charges or encumbrances of any nature whatsoever, except as stated in Exhibit B annexed hereto. (e) CGS shall not have discovered any material error, misstatement, or omission in the representations and warranties made by RTT herein, and all the terms and conditions of this Plan and Agreement of Reorganization to be complied with and performed by RTT on or before the Closing Date shall have been complied with and performed. (f) The representations and warranties made by RTT herein shall be correct, on and as of the Closing Date, with the same force and effect (except as to transactions contemplated herein and to changes occurring in the ordinary course of business after the date hereof and not materially adversely affecting the business, properties or financial condition of RTT,) as though such representations and warranties had been made on and as of 16 the Closing Date, and RTT shall have delivered to CGS a certificate, signed by a duly authorized officer of RTT, to such effect and also as to the compliance by RTT, as of the Closing Date with the terms and conditions hereof. 8. The obligations of RTT hereunder are, at the option of RTT, subject to the conditions that, on or before the Closing Date: (a) All actions, proceedings, instruments and documents required to carry out this Plan and Agreement of Reorganization, or incidental thereto, shall have been approved by counsel for RTT. (b) RTT shall have received an opinion of counsel for CGS, dated the Closing Date, in form and substance satisfactory to RTT, to the effect that (1) CGS is a corporation duly organized and existing and in good standing under the laws of the State of Delaware; (2) all corporate and other proceedings required to be taken by or on the part of CGS to authorize it to carry out this Plan and Agreement of Reorganization and to issue and deliver the shares of Common Stock of CGS deliverable pursuant hereto as provided herein have been duly and properly taken; and (3) said shares of Common Stock of CGS will, on delivery thereof to RTT in accordance with the terms hereof, be duly and validly issued, fully paid and non-assessable. 17 (c) RTT shall not have discovered any material error, misstatement or omission in the representations and warranties made by CGS herein, and all the terms and conditions of this Plan and Agreement of Reorganization to be complied with and performed by CGS on or before the Closing Date shall have been complied with and performed. (d) RTT shall have obtained an opinion from counsel for CGS to the effect that the exchange by RTT of its assets, properties, business and good will for shares of Common Stock of CGS and the assumption of the obligations and liabilities of RTT by CGS, all in the manner and by the circumstances in which or under which the same shall be carried out pursuant hereto, will result in a reorganization within the meaning of the Internal Revenue Code of 1986 as amended and will not result in taxable income to RTT; and that stockholders of RTT who shall receive shares of Common Stock of CGS in exchange for their stock in RTT on the liquidation of RTT pursuant to such reorganization will not have any taxable gain or deductible loss. (e) The representations and warranties made by CGS herein shall be correct, on and as of the Closing Date, with the same force and effect (except as to transactions contemplated herein and to changes occurring in the ordinary course of business after the date hereof and not materially adversely affecting the business, properties 18 or financial condition of CGS) as though such representations and warranties had been made on and as of the Closing Date, and CGS shall have delivered to RTT a certificate, signed by a duly authorized officer of CGS, as of the Closing Date with the terms and conditions hereof. 9. CGS and RTT agree that the representations and warranties contained herein or made hereunder shall expire with the closing hereunder, such closing to be conclusive evidence that each party is fully satisfied with the facts constituting the basis of the representations and warranties of the other party. 10. RTT agrees that, between the date hereof and the Closing Date, it will not, except with the prior written consent of CGs, declare or pay any dividends. 11. CGS agrees that, between the date hereof and the Closing Date, it will not, except with the prior written consent of RTT, (1) declare or pay any dividends, or (2) authorize or make any split-up of its capital stock. 12. If the transactions contemplated hereby shall not be consummated, each party hereto shall pay its own expenses incident to preparation for carrying this Plan and Agreement of Reorganization into effect and consummating said transactions. 13. CGS hereby waives compliance by RTT with the 19 provisions of any applicable bulk sales law. 14. This Plan and Agreement of Reorganization shall not be assignable by either party, except with the written consent of the other. Nothing in this Plan or Agreement of Reorganization, expressed or implied, is intended to confer upon any person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Plan and Agreement of Reorganization. 15. Any notice, request, instruction or other document to be given hereunder by either party hereto to the other shall be in writing and delivered personally or sent by registered mail, postage prepaid, if to CGS, addressed to CGS at 1250 Broadway, New York, NY, and if to RTT, addressed to RTT, One Penn Plaza, New York, NY. 16. This instrument contains the entire agreement between the parties hereto with respect to the transactions contemplated herein. 20 IN WITNESS WHEREOF, the parties hereto have caused this Plan and Agreement of Reorganization to be duly executed as of the day and year first above written. Attest: COMPUTER GENERATED SOLUTIONS, INC. /s/ /s/ Philip Friedman _________________________ By ___________________________________ Secretary Philip Friedman, President Attest: REAL TIME TECHNOLOGY, INC. _________________________ /s/ Victor Friedman Secretary By ___________________________________ Victor Friedman, President 21 EX-10.1 4 SERVICE AGREEMENT BETWEEN IBM AND CGS *EXHIBIT 10.1 ------------- Service Agreement dated October 4, 1995 between International Business Machines Corporation and Computer Generated Solutions, Inc. * Confidential treatment is being requested with respect to portions of this exhibit Service Agreement Between International Business Machines Corporation and Computer Generated Solutions, Inc. October 04, 1995 Contact: Nancy Hiatt [ARTWORK] 303-924-5396 IBM Integrated Procurement Solutions 6300 Diagonal Highway P.O. Box 1900 Boulder, Colorado 80301-9191 Department: PRB1 Building: 001H Service Agreement Number 2165
Contents 1.0 SERVICE AGREEMENT............................... 1 1.1 Statement of Work............................... 1 1.2 Definitions..................................... 1 1.3 Subcontracting.................................. 2 1.4 Delegations and Assignments..................... 2 1.5 Payment and Records............................. 2 1.6 Confidential Information........................ 3 1.7 Information Asset Security Requirements 3 1.8 IBM Furnished Materials......................... 4 1.9 Rights In Data.................................. 4 1.10 Invention Rights............................... 5 1.11 Contractor's Employees......................... 5 1.12 IBM Regulations & Policies..................... 6 1.13 Former IBM Employees.......................... 7 1.14 Insurance...................................... 7 1.14.1 General Requirements......................... 7 1.14.2 Minimum Limits of Coverage................... 7 1.15 Contractor Safety on Premise................... 7 1.16 Indemnification................................ 8 1.17 Environment................................... 9 1.18 Compliance with Laws........................... 9 1.19 Trademark ..................................... 10 1.20 Monthly Report................................. 10 1.21 Electronic Data Interchange/Electronic Funds Transfer...................................... 10 1.22 Utilization of Minority Owned Businesses........ 11 1.23 Taxes.......................................... 11 1.24 Gifts and Gratuities........................... 11 1.25 Representations And Warranties................. 11 1.26 Quality And Acceptance ........................ 12 1.27 Cost Reduction................................. 13 1.28 General Provisions............................. 13 1.29 Notices........................................ 14 1.30 Modifications.................................. 14 1.31 Authority...................................... 14 1.32 Rate Schedule.................................. 14 1.33 Delivery Schedule ............................. 14 1.34 Term.......................................... 14 1.35 Termination and Cancellation.................. 14 1.36 Entire Agreement............................... 15 1.37 Order of Precedence............................ 15 2.0 SIGNATURES ..................................... 17 3.0 ATTACHMENT A: STATEMENT OF WORK................ 19 3.1 Project Description............................. 19 3.2 Manpower........................................ 19 3.3 Work Schedules.................................. 20 3.4 Skill Requirements.............................. 20 3.5 Job Descriptions................................ 21 3.6 Training....................................... 25 3.7 Transitional Training........................... 25 3.8 Measurements.................................... 25 3.9 Acceptance Criteria............................. 26 3.10 IBM Responsibilities........................... 26 3.11 Contractor Responsibilities.................... 27 3.12 Rate Schedule.................................. 27 3.13 Glossary of Terms............................. 29 4.0 TRAVEL EXPENSE GUIDELINES....................... 31 4.1.1 Expense Account Details..................... 31 4.1.2 Receipts.................................... 31 4.1.3 Transportation.............................. 31 4.1.4 Lodging and Meals .......................... 31 4.1.5 Personal Expenses........................... 32
1.0 SERVICE AGREEMENT This is a service agreement numbered 2165, made by and between International Business Machines Corporation (IBM), a corporation of the state of New York, having an office at 6300 Diagonal Highway, Boulder, Colorado 80301-9191, (hereinafter referred to as IBM), and Computer Generated Solutions, Inc., a corporation of the state of Delaware, having an office at 1675 Broadway, 31st Floor, New York, NY 10019 (hereinafter referred to as Contractor). 1.1 STATEMENT OF WORK Contractor shall provide IBM with call center and associated services as specified in the Statement of Work attachment(s) and in purchase orders issued by IBM and accepted by the Contractor. The Statement of Work shall be more fully described in the alphabetical attachments beginning with "A," appended to and made part of this Agreement. All Deliverables shall be performed in accordance with the terms and conditions of this Agreement and with the terms and conditions on the front and back of purchase orders issued from time to time by IBM and accepted by Contractor. Such purchase orders shall constitute the only authorization for Contractor to take any action or to expend any money for services hereunder. IBM will pay only the amount specified in purchase orders for such work. Contractor's services may include collaboration with and assistance to IBM personnel or others retained by IBM. In the event of any conflict between the terms and conditions of this Agreement and those of purchase orders issued hereunder, the terms and conditions of this Agreement shall prevail. IBM shall appoint a coordinator for each purchase order issued by IBM under this Agreement. This coordinator shall be responsible for maintaining technical liaison with Contractor's on-site supervisor and for determining for IBM the adequacy, acceptability, and fitness of the services performed by Contractor under such purchase orders. When work is done on IBM's premises, Contractor shall at all times provide on such IBM premises supervisory personnel acceptable to IBM to supervise Contractor's employees. Contractor shall notify IBM of the name of the supervisor responsible for the work. The supervisor shall have authority to act as agent for Contractor in Contractor's absence. 1.2 DEFINITIONS 1. "Deliverables" means all the items, material, or services prepared or performed for or submitted to IBM under this Agreement. 2. "Confidential Information" means oral or written information which relates to the past, present, or future research, development, or business activities of IBM or its direct or indirect subsidiaries whether or not identified as IBM Confidential Information, including the names, addresses, phone numbers, and requirements of IBM's contractors, customers, and prospective customers. The contents of any reports prepared by Contractor hereunder shall be treated as Confidential Information. No obligation of confidentiality applies to any information that the Contractor: (a) already possesses without obligation of confidentiality; (b) develops independently; or (c) rightfully receives without obligation of confidentiality from a third party. No obligation of confidentiality applies to information that is, or becomes, publicly available without breach of this Agreement. 3. "Invention" means any idea, design, concept, technique, invention, discovery, or improvement, whether or not patentable, made solely or jointly by Contractor or Contractor's employees with one or more employees of IBM during the term of this Agreement and in the performance of services hereunder, provided that either the conception or first actual reduction to practice occurs during the term of this Agreement and in the performance of services hereunder. 4. "Preexisting Materials" means any materials included in the Deliverables necessary for effective utilization thereof but which were developed outside the scope of work encompassed by this Agreement. 5. The term "Subsidiary" means a corporation, company, or other entity more than fifty percent (50%) of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are; or which does not have outstanding shares or securities, as may be the case in a partnership, joint venture, or unincorporated association, but more than fifty percent (50%) of whose ownership interest (representing the right to make the decisions for such corporation, company, or other entity) is; now or hereafter, owned or controlled, directly or indirectly, by a party hereto, but such corporation, company, or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists. 6. "Subcontractor On Premise" (SCOP) is defined as employees of another company specializing in selling services and providing personnel for short term projects. SCOPs typically are integrated with the IBM work force, possess skills similar to IBM employees, receive technical direction from IBM management and personnel management from their parent company, and are subcontracted for time and workload. 7. "Vendors On Premise" (VOP) is defined as employees of another company who have been selected by that company to accomplish a defined scope of work. The work performed will normally require at least four or more contractor personnel for an initial period of at least six months. Work direction and technical information required shall be provided by the contractor supervisor. The contractor supervisor shall be responsible to provide supervision and control over the work of the contractor's personnel. Office space provided by IBM shall minimize casual commingling between IBM employees and the contractor personnel. 1.3 SUBCONTRACTING Contractor shall not subcontract the work to be performed under this Agreement without IBM's consent in writing, but Contractor may purchase goods it normally purchases to perform the work. 1.4 DELEGATIONS AND ASSIGNMENTS Contractor shall not delegate any duties under this Agreement without IBM's prior written consent. Contractor shall inform IBM prior to any assignments of rights to moneys due or to become due under this Agreement. 1.5 PAYMENT AND RECORDS 1. IBM will pay Contractor for services under this Agreement in accordance with the Statement of Work and as specified on the purchase orders issued hereunder by IBM. 2. Invoices are to be sent to IBM Corporation, National Accounts Payable Services, P.O. Box 9001, Endicott, NY 13761-9001. The purchase order number and the terms of payment shall be stated on the invoices. 3. The date used for calculation of terms of payment shall be the date IBM receives an acceptable invoice. 4. Contractor shall maintain complete and accurate accounting records in a form according to sound accounting practices to substantiate Contractor's charges. Such records shall include payroll records, job cards, attendance cards, and job summaries. Contractor shall retain such records for one (1) year from the date of final payment hereunder. 5. IBM shall have access to such records for purposes of audit during normal business hours during the term of this Agreement and during the respective periods in which Contractor is required to maintain such records as herein provided. 6. No overtime or premium rate will be paid without the prior approval of the IBM Purchasing Contract Administrator/Buyer. - -------------------------------------------------- 1.6 CONFIDENTIAL INFORMATION Contractor and its employees will have access to IBM Confidential Information and the following terms shall govern all disclosures of Confidential Information to Contractor and its employees regardless of whether such Confidential Information is removed from IBM's premises. 1. Contractor shall hold all Confidential Information in confidence for IBM and shall not use Confidential Information or disclose it by publication or otherwise to any other person during the term of this Agreement and for a period of two (2) years thereafter other than those persons whose services Contractor requires and who have a need to know such Confidential Information for purposes of carrying out the terms of this Agreement and who agree in writing to be bound by and to comply with the provisions of this Section. 2. Upon termination or expiration of this Agreement, Contractor shall return to IBM all written or descriptive matter including but not limited to drawings, blueprints, descriptions, or other papers, documents, tapes, or any other media which contain any Confidential Information. In the event of a loss at any time of any item containing Confidential Information, Contractor shall promptly notify IBM in writing. 3. Contractor shall not make any copies of any writings, documents, or other media containing Confidential Information provided by IBM. If copies of such writings, documents, or other media are necessary for performing services under this Agreement, they will be provided by IBM upon Contractor's written request. 4. Contractor shall secure all writings, documents, and other media containing Confidential Information in locked files at all times when not in use to prevent its loss or unauthorized disclosure and segregate Confidential Information at all times from the material of others. IBM agrees to pay all reasonable costs incurred in accomplishing the foregoing. All such costs must be agreed to in writing by IBM prior to any expenditure by Contractor. 5. Contractor will not disclose any information Contractor's company deems Confidential or proprietary without an IBM Agreement for Exchange of Confidential Information (AECI) that both parties have signed. - -------------------------------------------------- 1.7 INFORMATION ASSET SECURITY REQUIREMENTS IBM information asset equipment utilized by the Contractor is intended for the exclusive use of supporting IBM business requirements as defined in this Agreement. The Contractor will adhere to the following requirements for the purpose of protecting IBM information assets: 1. Computing installations and support facilities are to be administered as areas of restricted physical access when information classified IBM Confidential or higher is stored on-line. 2. Access to IBM's information assets are to be restricted to authorized individuals only. The Contractor must communicate the names and telephone number of those authorized individuals to IBM. The Contractor will maintain a list of users, including the name and IBM user ID. 3. Access passwords to IBM networks and IBM application systems are considered IBM Confidential data. 4. Access passwords to IBM networks and IBM application systems will be issued by IBM to the Contractor. An access password must not be used by any individual other than the individual to whom the access password was issued. 5. The Contractor shall notify IBM when Contractor personnel changes result in a required discontinuance of access to IBM networks or application systems. 6. The Contractor shall immediately notify IBM of any suspected compromise of IBM password confidentiality. 7. The Contractor shall ensure that IBM equipment is connected only to IBM via an authorized IBM network or other approved connection. 8. The Contractor shall ensure that IBM terminals in use are attended while in use to protect against unauthorized access. 9. The Contractor shall notify IBM when invoking a backup telecommunications link via dial-up over a public telecommunications network. Use of dial-up telecommunications over a public network is restricted to those instances when direct line link is unavailable or when IBM specifically instructs the Contractor to use dial up telecommunications. 10. Screen access is controlled by IBM. If access is achieved by the Contractor that is not related to this Agreement, the Contractor will advise IBM immediately. - -------------------------------------------------- 1.8 IBM FURNISHED MATERIALS Unless otherwise agreed in writing, Contractor will supply all materials, equipment, tools, and facilities required to perform this Agreement. All materials, equipment, and tools furnished to Contractor by IBM or specifically paid for by IBM ("Materials"), and any replacement thereof, or any materials affixed or attached thereto, shall be and remain the property of, with the right of possession in, IBM. Contractor shall use the Materials only in performing work for IBM and not otherwise. Contractor shall, at its expense, maintain all Materials in good condition and repair, replacing any such Materials if necessary. While in Contractor's custody or control, all Materials shall be kept and insured by the Contractor at its expense against loss and/or damage in an amount equal to their replacement cost and shall be subject to removal at IBM's written request, in which event Contractor at its expense shall prepare such Materials for shipment and shall deliver them to IBM in the same condition as originally received by Contractor. Contractor shall promptly notify IBM of the location of any Materials not located at Contractor's address as specified in this Agreement. Contractor shall maintain accountability and property control records of all Materials in accordance uith sound commercial practice. IBM reserves the right to review such records and to take its own inventory as often as IBM deems necessary. Contractor agrees to count and provide written confirmation of receipts from IBM of any IBM furnished Materials. Upon completion or termination of this Agreement, Contractor shall obtain from IBM shipping instructions or other authorization instructions prior to returning any Materials to IBM. - -------------------------------------------------- 1.9 RIGHTS IN DATA 1. All of the "Deliverables" except preexisting materials shall belong exclusively to IBM and shall be deemed to be works made for hire. 2. To the extent that any of the Deliverables may not, by operation of law, be works made for hire, Contractor hereby assigns to IBM the ownership of all rights in such part of the Deliverables and IBM shall have the right to obtain and to hold in its own name copyrights, registrations, and whatever protection which may be available in the Deliverables. Contractor agrees to give IBM or its designees all assistance reasonably required to perfect such rights. 3. To the extent that any preexisting materials of Contractor are contained in the Deliverables, Contractor hereby grants to IBM an irrevocable, non-exclusive, worldwide, royalty-free license to: use, execute, reproduce, display, perform, distribute (internally or externally) copies of, and prepare derivative works based upon such preexisting materials and derivative works thereof; and, authorize others to do any, some, or all of the foregoing. Contractor shall obtain IBM's prior written approval before incorporating any of Contractor's preexisting materials in the Deliverables. 4. Should Contractor and IBM mutually agree that there is a requirement to include in the Deliverables the materials of a third party, Contractor agrees to obtain all necessary rights and or licenses from such third party at Contractor's expense. The terms and conditions of such rights and licenses are subject to IBM's approval and must, at a minimum, enable IBM to l) use, execute, reproduce, display, perform, distribute (internally and externally) copies of, and prepare derivative works based upon, such materials of a third party and derivative works thereof; 2) authorize others to do any, some or all of the foregoing. Upon IBM's request, Contractor shall deliver to IBM a complete copy of every agreement, license, or other arrangement from which Contractor derives authority to grant IBM rights and licenses granted under this Agreement. Contractor shall obtain IBM's prior written approval before incorporating the materials of a third party in the Deliverables. 5. No license or right is granted to Contractor either expressly or by implication, estoppel, or otherwise to publish, reproduce, prepare derivative works of, distribute copies of, publicly display or perform any of the Deliverables except preexisting materials of Contractor, either during or after the term of this Agreement. 6. The Contractor shall satisfactorily complete and return to IBM, when required, a Vendor Certificate of Originality, as specified in Exhibit 1 of this Agreement. This pertains to all programming software work at the completion of such software work or earlier if so requested by IBM. The acceptance of the properly completed certificate is a condition of final payment by IBM for the finished material. - -------------------------------------------------- 1.10 INVENTION RIGHTS 1. Contractor shall promptly make a complete written disclosure to IBM of each Invention, specifically pointing out the features or concepts which Contractor believes to be new or different. 2. Contractor hereby assigns to IBM, its successors, and assigns, any Invention together with the right to seek protection by obtaining patent rights therein, and to claim all rights of priority thereunder, and the same shall become and remain IBM's property whether or not such protection is sought. 3. Contractor shall, upon IBM's request and at IBM's expense, cause patent applications to be filed on any Invention, through solicitors designated by IBM and forthwith assign all such applications to IBM, its successors and assigns. Contractor shall give IBM and its solicitors all reasonable assistance in connection with the preparation and prosecution of any such patent applications and shall cause to be executed all such assignments and other instruments and documents as IBM may consider necessary or appropriate to carry out the intent of this Section. 4. To the extent that IBM has the right to do so, IBM hereby grants to Contractor an irrevocable, nonexclusive, nontransferable, and fully paid-up license throughout the world under any Inventions assigned to IBM pursuant to this Section and under any patents throughout the world issuing thereon including reissues, extensions, divisions, and continuations thereof; provided, however, that such license is not applicable to any Inventions, patent applications, or patents related to appearance designs. 5. Nothing contained in this Agreement shall be deemed to grant either directly or by implication, estoppel, or otherwise, any license under any patents or patent applications arising out of any other inventions of either party. - -------------------------------------------------- 1.11 CONTRACTOR'S EMPLOYEES 1. Contractor shall have an appropriate agreement with each of its employees or others whose services Contractor may secure to perform hereunder, sufficient to enable it to comply with all of the terms of this Agreement including this section. 2. Contractor agrees to take appropriate preventive steps before the assignment of any of its employees to perform work under this Agreement that it reasonably believes will ensure that its employees and its subcontractors' employees at any level will not engage in inappropriate conduct while on IBM premises. Inappropriate conduct shall include but is not limited to: being under the influence of or affected by alcohol, illegal drugs, or controlled substances; the manufacture, use, distribution, sale/or possession of alcohol, illegal drugs, or any other controlled substance except for approved medical purposes; the possession of a weapon of any sort; or harassment, threats/or violent behavior. Violation of this provision may result in termination of this Agreement and any other remedy available to IBM at law or in equity. 3. Contractor agrees to distribute the following notice concerning sexual harassment to any of its employees who are assigned to work on IBM premises: "IBM is committed to providing a work environment free from sexual harassment. Sexual harassment is unwelcome sexual conduct which has the purpose or effect of unreasonably interfering with an individual's work performance or which creates an offensive or hostile work environment. If you believe that you have been the victim of sexual harassment while working on IBM premises, you are encouraged to report such incidents directly to your employer and directly to IBM by calling IBM Corporate Security at 8/251-4885 or (914) 765-4885 between 8:30 a.m. and 5:00 p.m. Eastern time. If you are calling long distance from outside IBM, you may call this number collect. All complaints to IBM of such conduct will be investigated promptly and dealt with appropriately." 4. IBM shall have access to the documentation necessary to verify compliance with Contractor's commitment in this entire section. 5. IBM may, at its sole discretion, request that Contractor remove any specified employees of Contractor from IBM's premises and that they not be reassigned to any IBM premises under this Agreement. No reason is required of IBM for such request. Contractor hereby agrees to take action immediately to remove such specified employees and to ensure that such reassignment does not occur. 6. Personnel supplied by Contractor shall be deemed employees of Contractor and shall not for any purpose be considered employees or agents of IBM. Contractor assumes full responsibility for the actions of such personnel while performing services pursuant to any purchase order issued hereunder and shall be solely responsible for their supervision, daily direction and control, payment of salary (including withholding of income taxes and social security), worker's compensation, disability benefits, and the like. 7. Except as specified in attachment A: Statement of Work, Section 3.6, all training of Contractor's employees shall be conducted by the Contractor. In the event that IBM conducts such training of Contractor's employees, Contractor shall reimburse IBM for such training at a price not less than the Training Specialist bill rate specified in Section 3.12. 8. Contractor shall not conduct non-production meetings, hold perspective employee interviews, or terminate employees on IBM premises. 9. In the event of cancellation, termination or expiration of this Agreement, Contractor shall not prohibit its employees assigned to work under this Agreement from seeking immediate employment with IBM or another third party employer. The management and teamleader positions are excluded from this provision. - -------------------------------------------------- 1.12 IBM REGULATIONS & POLICIES Contractor personnel are not eligible to use or to participate in the following: IBM Credit Union IBM Club recreational or social activities Voluntary education programs IBM Suggestion Program Any IBM awards program Cashier Contractor personnel shall not make personal use of: IBM tools, test equipment, etc. IBM bulletin boards Telephones Copiers Internal computing systems Contractor personnel shall: Wear badges at all times and comply with all IBM security procedures Not remove any IBM property nor take any work off IBM premises Comply with Confidential Information Section of this Agreement While working at IBM, contractor personnel shall observe the following rules: No liquor or drug abuse No fighting, horseplay, etc. No dishonesty No firearms, knives, or other weapons No foul language No gambling No promiscuous conduct No solicitation No ethnic or racial or sexual jokes or slurs No sexual harassment No threats No misuse of IBM assets including copiers, systems, or facsimiles - -------------------------------------------------------------------------------- 1.13 Former IBM Employees 1. Contractor shall inform IBM Purchasing when Contractor plans to assign a former IBM employee to perform work under this Agreement whether or not on IBM premises. IBM reserves the right to approve or to disapprove the assignment. 2. Nothing contained in this Agreement shall be construed as granting to Contractor or any employee of Contractor rights under any IBM employee benefit plan. - -------------------------------------------------------------------------------- 1.14 Insurance 1.14.1 General Requirements Supplier shall, at its own expense, provide and keep in full force and effect during the term of the Agreement at least the following kinds and minimum amounts of insurance covering its services in the state(s) in which the work is to be performed. 1. Worker's Compensation Insurance and Employer's Liability Insurance. 2. Commercial General Liability Insurance including personal and advertising injury with the following extensions of coverage: 2.1. "Premises Operations" 2.2. "Products and Completed Operations" for two years following expiration or termination of the Agreement.+ 2.3. "Contractual Liability" for the liability assumed by Supplier under the Section entitled "Indemnification" General Liability Insurance requirements for sole proprietors operating as IBM suppliers will be satisfied by procuring a Business Owners Policy with a $1,000,000 limit of liability. 3. Comprehensive Automobile Liability Insurance for personal injury and property damage for owned and non-owned, and hired vehicles used by Supplier while performing service in connection with the Agreement. 4. Supplier shall provide IBM with a Certificate of Insurance upon request evidencing the insurance specified in this Section. 5. Insurance coverage must include the following requirements: 5.1. IBM named as Certificate holder. 5.2. Minimum of 30 days notice of any changes or cancellations to policy 5.3. IBM named as an additional insured under 2 and 3 above. +Note: Products and Completed Operations Coverage not required of suppliers who are not at all involved in the manufacturing or sales process related to products (i.e.: consultants, maintenance). 1.14.2 Minimum Limits of Coverage COVERAGE MINIMUM LIMITS - -------------------------------------------------------------------------------- Worker's Compensation ... Statutory requirements of the state of which the work is to be done. Employer's Liability ... Not less than $100,000 Commercial General Liability++ A. Bodily Injury ... $1,000,000 each occurrence B. Property Damage ... $1,000,000 each occurrence $1,000,000 combined single limit acceptable for A&B. ++Includes Premises Operations, Products and Completed Operations, and Contractual Liability. Comprehensive Automobile Liability (owned, non-owned and hired) A. Bodily Injury ... $250,000 each person ... $500,000 each occurrence B. Property Damage ... $200,000 each occurrence - -------------------------------------------------------------------------------- 1.15 Contractor Safety on Premise 1. At their own expense, Contractor or its Subcontractors of any tier entering IBM's premises shall comply with the Occupational Safety and Health Act of 1970, as amended, and all regulations and standards. 2. Contractor shall notify IBM promptly in writing if a charge of non-compliance with the Occupational Safety and Health Act of 1970, as amended, has been filed against the Contractor in connection with any services being performed hereunder on IBM owned or leased premises. 3. For Contractor's projected to work 500 hours or more at an IBM location providing construction or manufacturing type services, Contractor must provide evidence of a satisfactory safety program to IBM consisting of the following elements and performance standards at IBM's request: . Contractor's OSHA Accident/Illness Frequency Rate number, no greater than industry average for SIC code (annually). . Contractor's SIC Code. . Contractor's OSHA 200 Log (copy) if contract extends beyond one year. . Contractor's OSHA Lost Workday Frequency Rate (Preferably below 1.5). . Contractor's Workers Compensation Experience Modification Rate (EMR) (Rate no greater than 1.0, without evidence of Contractor's progress toward this level). . Contractor's Safety Officer responsible for administering Safety and Health programs. . Copy of Contractor's Safety Program that addresses all aspects of the work to be performed for IBM such as Protective Equipment, HAZCOM, Lockout Tagout, Electrical Safety Work Practices, Confined Space, Accident Reporting, and General Office Safety. . Copy of Contractor's training programs for those tasks requiring specific safety related training. 4. General Contractors must ensure that any subcontractors they bring on IBM premises must also meet the above criteria. 5. IBM shall monitor and evaluate Contractor's performance under this section. Any non-compliance may result in termination of this Agreement. Past and present performance under this section will be considered in the awarding of future business. - -------------------------------------------------------------------------------- 1.16 Indemnification Contractor will at its expense, indemnify, defend and save IBM harmless against any claims (including costs of litigation and attorneys' fees, loss, damage, penalty, fine, or expense whatsoever) resulting from: 1. a breach or alleged breach of Contractor's warranties or representations under this Agreement; 2. Contractor's failure to comply with any governmental law, statute, ordinance, administrative order, rule, or regulation; 3. Contractor's or Subcontractor's failure to comply with the Occupational Safety and Health Act of 1970, as amended, and all regulations and standards; 4. for personal injury or death to persons and damage to property (including IBM's property) arising out of or in connection with or resulting from operations under this Agreement to the extent that such injuries, deaths, or damage are caused by the Contractor or any of its Subcontractors or by anyone directly or indirectly employed by any of them; 5. any alleged or actual infringement by any Deliverable, or any preexisting or third party materials from which any Deliverables are prepared, of a patent, copyright, trademark, trade secret, or other intellectual property right, privacy or similar right of any third party, in any country in the world. Contractor shall notify IBM if Contractor is or becomes aware of any right of, or protection accorded to, a third party as set forth above that might affect Contractor's ability to provide goods under this Agreement or limit IBM's freedom to use or sell such goods anywhere in the world. IBM shall provide notice to Contractor of any such proceeding or claim of which it becomes aware. IBM may actively participate in any such proceedings at its own expense. Contractor shall have no liability for required compliance by Contractor with written specifications furnished by IBM if such infringement cannot be avoided by the Contractor in complying with such specifications. - -------------------------------------------------------------------------------- 1.17 Environment 1. Contractor certifies that it is currently in compliance and that it shall comply with all federal, state, and local laws, rules, orders, and regulations relating to the protection of the environment and related matters. Contractor acknowledges that any chemical, material, or waste that may be used or generated in its processes is solely its responsibility to properly handle, use, store, treat, and dispose of in accordance with the applicable environmental laws and regulations. 2. Contractor agrees to provide IBM promptly, upon request, with any and all relevant information concerning its compliance with applicable environmental laws and regulations, including copies of required permits, EPA ID Numbers, waste manifest documents, and other appropriate federal, state, and local authority required documentation. Contractor also agrees, upon reasonable notice and during normal office hours, to permit IBM to inspect its premises and to audit its relevant records for the purpose of determining Contractor's compliance with all applicable environmental laws and regulations. 3. In the event that IBM specifications require the Contractor to use materials or chemicals that are not commonly used by the Contractor, before commencing work on the process, Contractor will represent in writing to IBM that it has the necessary expertise to use, control, and dispose of any such materials or wastes generated in the process, if any, in accordance with all appropriate and applicable environmental laws and regulations. - -------------------------------------------------------------------------------- 1.18 Compliance with Laws 1. General Contractor shall, at its own expense, comply with all governmental laws and regulations relating to its duties, obligations, and performance under this Agreement, including without limitation, Executive Order 11246 (as amended) of the President of the United States on Equal Employment Opportunity and the Rules and Regulations issued pursuant thereto, all environmental laws, ordinances, codes, rules, regulations, license and permit provisions, guidelines and directives, the Immigration Reform and Control Act of 1986, the Foreign Corrupt Practices Act, and the import and export laws and regulations of the United States Customs Services, the United States Department of Commerce and Department of State, and shall procure all licenses and pay all fees and other charges required thereby. Contractor shall notify IBM promptly, in writing, if a charge of non- compliance with the Occupational Safety and Health Act of 1970 has been filed against the Contractor in connection with services being performed hereunder on IBM owned or leased premises. 2. Leased Employees and Management Services Organization Contractor shall provide IBM any information about Contractor's personnel that IBM is required by law to obtain, including information on "leased employees" and "management services organization" as these terms are used in Secs. 414(m), (n) and (o) of the Internal Revenue Code. 3. Former DOD Employees Contractor warrants that no individual who is a former officer or employee of the Department of Defense (DOD) who: left DOD service on or after April 16, 1987; and served in a civilian position for which the rate of pay is equal to or greater than the minimum rate of pay for GS-13; or served in the Armed Forces in a pay grade of 04 or higher; shall be employed or compensated for services rendered under this Agreement within two (2) years after leaving service in DOD without the specific written approval of IBM. If Contractor requests such approval, Contractor agrees to provide IBM with any information needed to comply with 10 USC 2397 (b) and (c). 4. DTC ITAR Contractor warrants that it is not the subject of an indictment or conviction of the criminal statutes enumerated in 22 CFR Part 120.24, or is ineligible to contract with, or to receive a license or other approval to import defense articles or defense services from, or to receive an export license or other approval from any agency of the U.S. Government. Contractor must notify IBM immediately if it becomes the subject of an indictment or conviction of the criminal statutes enumerated in 22 CFR Part 120.24. 5. Contractor agrees that neither Contractor nor any of its agents or employees will export or re-export any information of IBM or any process, product, or service that is produced as a result of the use of such information to any country specified in such Export Regulations as a prohibited destination without first obtaining U.S. Government approval by application through IBM. Upon request, IBM will advise Contractor of the countries then specified in such regulations as prohibited destinations. 6. Boycotts Contractor shall comply with Part 769 of the U.S. Export Regulations concerning Restrictive Trade Practices or Boycotts. Contractor may not alter or add any statements to IBM documentation including, but not limited to IBM commercial invoices, IBM manifests, carrier air waybills, ocean bills of lading, certificates of origin, insurance certificates, consul documentation, or any other documentation. Contractor may not provide any information whether positive or negative concerning IBM's past, present, or future business: 6.1. With or in a boycotted country; 6.2. With any business concern organized under the laws of a boycotted country; 6.3. With any national or resident of a boycotted country; or 6.4. With "Black List" organizations or persons. Contractor will advise IBM of all boycott related requests that Contractor receives in connection with any IBM shipment, including but not limited to requests Contractor is required to report to the U.S. Department of Commerce in accordance with U.S. regulations. - -------------------------------------------------------------------------------- 1.19 Trademark Nothing in this Agreement grants either party any rights to use the other party's trademarks or trade names, directly or indirectly, in connection with any product, service, promotion, or publication without the prior written approval of the trademark owner. - -------------------------------------------------------------------------------- 1.20 Monthly Report Contractor with employees working on IBM premises shall submit a monthly report due by the fifth (5th) of each month listing the employee names, IBM purchase order numbers, and the rates of each of the Contractor's employees for the previous month. This report shall be submitted to the procurement administrator of this Agreement. - -------------------------------------------------------------------------------- 1.21 Electronic Data Interchange / Electronic Funds Transfer When business documents are transmitted electronically the following terms and conditions apply: 1. Transmission - Each party may electronically transmit and receive documents through the assistance of a network in accordance with mutually agreed upon standards. Each party shall be responsible for all network charges. If both parties use the IBM Information Network, the sender will be responsible for the transmission costs. 2. Receipt - A document is received when it arrives at the receiving party's mailbox. Upon receipt of any document, the receiving party shall promptly send an acceptance which will conclusively establish receipt and content of a document. If any document is received in an unintelligible or garbled form, the receiving party shall promptly notify the originating party (if identifiable from the received document) in a reasonable manner. In the absence of such a notice, the originating party's records of the contents of such document shall prevail. 3. Signature and Enforceability - Each party shall adopt as its signature an electronic identification consisting of symbols or codes (User ID) that shall be affixed to or contained in each document. Each party will maintain security procedures to prevent unauthorized use or disclosure of its User ID. Any document containing, or to which there is affixed, a User ID shall be considered: (a) a "writing" or "in writing"; (b) to have been "signed"; (c) an "original" when printed from electronic files or records established and maintained in the normal course of business; and (d) "admissible" to the same extent and under the same conditions as other business records originated and maintained in documentary form. 4. Confidential Information - The parties agree that all information transmitted shall comply with the Confidential Information Section of this Agreement. 5. Electronic Funds Transfer - By completing this Section, Contractor authorizes IBM to initiate electronic credit entries to the account listed below. Contractor agrees that such transactions will be governed by the National Automated Clearing House Association rules. This authority is to remain in effect until IBM has received written notification of termination in such time and such manner as to afford IBM a reasonable opportunity to act on it. ------------------------------------------------------------ Financial Institution: ------------------------------------------------------------ City, State ------------------------------------------------------------ Account Number: (max 17) ------------------------------------------------------------ Bank Routing/Transit Code: (max 9) 6. Limitation of Remedies - Neither party shall be liable to the other for any special, incidental, exemplary, or consequential damages arising from or as a result of: (l) any delay, omission, or error in the electronic transmission or receipt of any documents; or (2) any delay, omission, or error of an electronic credit entry by IBM even if the other party has been advised of the possibility of such damages. In addition, neither party shall be liable for any damages claimed by the other party based on any third party claim. In no event will either party be liable for any damages caused by the other party's failure to maintain security procedures to prevent the unauthorized use or disclosure of its User ID. - -------------------------------------------------------------------------------- 1.22 Utilization of Minority Owned Businesses l. In support of the services and products being provided herein, Contractor shall, when subcontract/purchasing opportunities exist, attempt to utilize minority owned suppliers to fulfill requirements of this contract. 2. Upon IBM request, Contractor shall provide reports to include the name and address of the minority owned suppliers utilized, description of services or products provided, dollar value of services or products, and a summary of efforts to utilize minority owned businesses. 3. A minority-owned business is defined as 51% or more owned and controlled by members of the following minority groups: Black Americans, Hispanic Americans, American Indians, native Hawaiians, Asian-Indian Americans, Asian- Pacific Americans, American Eskimos or Aleuts. The minority-owned supplier must certify their status. - -------------------------------------------------------------------------------- 1.23 Taxes 1. Contractor is responsible for all federal and state payroll taxes such as social security and unemployment taxes. 2. Contractor agrees to pay any taxes imposed by law related to the service provided hereunder unless otherwise agreed to in writing by IBM. - -------------------------------------------------------------------------------- 1.24 Gifts and Gratuities Contractor shall not make or offer a gratuity or gift of any kind to IBM employees or their families that could be viewed as relating to an actual or potential business relationship with IBM. Gifts include entertainment, personal services, favors, discounts, and other preferential treatment of any kind. IBM will interpret any such action as an improper attempt to influence IBM employees which will jeopardize IBM's relationship with the Contractor. - -------------------------------------------------------------------------------- 1.25 Representations And Warranties l. Contractor represents and warrants the originality of the Deliverables and that no portion of the Deliverables or their use or distribution violates or is protected by any copyright or other rights of any third party except as provided in the fourth paragraph of the "Rights In Data" section of this Agreement. 2. Contractor represents and warrants that it is under no obligation or restriction nor will it assume any such obligation or restriction which would in any way interfere or be inconsistent with or present a conflict of interest concerning the services to be furnished by Contractor under this Agreement. 3. Contractor represents and warrants that all Deliverables shall be free of any computer code, programming instruction, or set of instructions that are intentionally constructed with the ability to damage, interfere with, or otherwise adversely affect computer programs, data files, or hardware. 4. In providing services under this Agreement, Contractor understands that IBM does not wish to receive from Contractor any information which may be considered confidential or proprietary to Contractor or to any third party. Contractor represents and warrants that any information disclosed by Contractor to IBM is not confidential or proprietary to Contractor or to any third party. 5. Contractor represents and warrants that all Deliverables shall be free from defects in design, materials, and workmanship for a period of one year unless longer warranties are required in the Statement of Work in which case the longer periods of time shall prevail. 6. Contractor represents and warrants that Contractor maintains comprehensive general and vehicular liability insurance for claims for damages because of bodily injury or death and property damage caused by or arising out of acts or omissions of its employees. Contractor further represents and warrants that Contractor maintains sufficient contractual liability insurance to cover the liabilities assumed by Contractor under this Agreement. In no event shall any insurance be cancelled, be allowed to lapse or be materially modified without prior written notice to IBM. 7. Contractor represents and warrants that in all dealings leading to the execution of this Agreement, Contractor has been represented solely by its own bona fide employees or agents and that it has not paid or agreed to pay any other person any commission, percentage, brokerage, or contingent fee. Contractor also warrants that it has not made and will not make any gifts, loans, or grant other consideration to any employee of IBM, directly or indirectly, in connection with this Agreement or otherwise. The falsity or breach of either such warranty shall constitute a default under this Agreement. 8. Contractor represents and warrants that the price of the products or services purchased under this Agreement does not exceed the price charged by Contractor to any other customer purchasing the same products or services in like or smaller quantities, and under similar conditions of purchase. 9. Contractor represents and warrants that Contractor will not in any way, directly or indirectly, at any time during the term of this Agreement or any renewal thereof, or within two (2) years after its termination or expiration, solicit, divert, take away, or attempt to solicit, divert or take away from IBM any customers or prospective customers of IBM who were served by Contractor during the term of this Agreement, or whose names and/or addresses became known to Contractor in any manner during the term of this Agreement. Contractor also represents and warrants that it will not, during the term of this Agreement or within two (2) years thereafter, attempt or seek to cause any of the customers of IBM to refrain from patronizing IBM and will not assist any other persons to do so. - -------------------------------------------------------------------------------- 1.26 Quality And Acceptance 1. Contractor shall establish a quality improvement plan that demonstrates continuous quality improvement on the products and or services provided to IBM. Contractor must conform to the Malcolm Baldrige National Quality Award criteria, the ISO 9000 Standards, or an equivalent documented quality improvement process. IBM may audit Contractor's quality improvement plan for conformance to this requirement. 2. Contractor shall notify IBM in writing at the earliest possible time of any factor, event, or anticipated event that may affect Contractor's ability to meet the requirements of any Statement of Work, including changes in the assignment of key employees, strikes, or unavailability of critical resources. The issuance of such notice shall not excuse the Contractor from any default of performance obligation. 3. IBM shall have the right to conduct progress reviews at Contractor's place of business to verify that Contractor's performance is in accordance with the standards, specifications, and other requirements of the Statement of Work. Contractor shall take all actions necessary to correct any deficiencies identified by IBM during such reviews. Contractor's failure to correct such identified deficiencies or to obtain IBM's agreement on a plan to correct such deficiencies within ten (10) work days after receipt of such notice and to diligently proceed in accordance with such plan shall be grounds for termination of the Statement of Work by IBM in accordance with the Termination Section of this Agreement. 4. IBM shall have the right to evaluate and to test each Deliverable in accordance with the completion and acceptance criteria specified in the Statement of Work. IBM shall provide Contractor with written notification of its acceptance or rejection of the Deliverable. In the case of rejection or partial or conditional acceptance, such notification shall state the reasons for IBM's determination. Contractor shall correct any deficiencies preventing final acceptance at no additional charge to IBM and obtain IBM's agreement on a plan to correct such deficiencies within ten (10) work days after receipt of such notification. Contractor's failure to correct such deficiencies or to obtain IBM's agreement on such a plan and to proceed diligently in accordance with such plan shall be grounds for termination by IBM of the Statement of Work in accordance with the Termination Section of this Agreement. - -------------------------------------------------------------------------------- 1.27 Cost Reduction Contractor shall implement methods of improved productivity designed to facilitate cost reductions resulting in price reductions to IBM of at least 3% annually during the term of the Agreement. In the event that market conditions permit Contractor to reduce its costs further, Contractor shall provide additional cost reductions to IBM. In the event that market conditions beyond Contractor's control offset some or all of the agreed upon annual price reductions, Contractor shall notify IBM in writing, detailing the market conditions. If IBM agrees that such market conditions exist, IBM and Contractor shall negotiate in good faith to reach a mutually agreeable price reduction. - -------------------------------------------------------------------------------- 1.28 General Provisions 1. The rights and obligations of Sections titled Payment and Records, Confidential Information, Rights in Data, Invention Rights, Compliance with Laws, IBM Trademarks, and Warranties shall survive and continue after any expiration or termination of this Agreement and shall bind the parties and their legal representatives, successors, heirs, and assigns. 2. This Agreement does not imply any commitment to purchase products or services by either party. 3. IBM may at any time have others provide like or similar services provided by the Contractor as specified in the Statement of Work or purchase orders or may elect to accomplish like or similar work itself. 4. Contractor shall not disclose the existence of this Agreement or any of its terms and conditions or the fact that Contractor has furnished or contracted to furnish IBM services under this Agreement without the prior written consent of IBM. 5. Neither party shall be responsible for failure to fulfill its obligations under this Agreement due to fire, flood, war or other such cause beyond its control and without its fault or negligence (excluding labor disputes) provided it promptly notifies the other party. 6. The laws of the State of New York govern this Agreement. 7. Both parties agree to waive their right to a trial by jury in any dispute arising out of this Agreement. 8. No delay or failure by either party to act in the event of a breach or default hereunder shall be construed as a waiver of that or any subsequent breach or default of any provision of this Agreement. 9. The prevailing party in any legal action hereunder shall be entitled to reimbursement by the other party of its expenses including, without limitation, reasonable attorney's fees. 10. Any terms of this Agreement which by their nature extend beyond their expiration or termination shall remain in effect until fulfilled and shall bind the parties and their legal representatives, successors, heirs, and assigns. 11. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. - -------------------------------------------------------------------------------- 1.29 Notices Unless otherwise provided in this Agreement, all notices required or permitted hereunder shall be in writing and shall be given by personal service or sent by registered, certified or express mail, reputable overnight courier service or facsimile with receipt confirmed: International Business Machines Corporation P.O. Box 1900 Dept. PRB1 / Bld. 001H Boulder, CO 80301-9191 Attention: Nancy Hiatt - -------------------------------------------------------------------------------- 1.30 Modifications Except as specifically provided herein, this Agreement may not be amended or modified except by a formal amendment signed by both parties. - -------------------------------------------------------------------------------- 1.31 Authority Wherever the word "IBM" appears in this Agreement with respect to authorization for such items as Subcontracting; Delegations; Modifications; Termination and Cancellation, the word is deemed to mean and only mean IBM's Purchasing Department. No other person or department of IBM so authorized to act. Claims by Contractor for adjustments, increases, and increments to price or for added costs resulting from the foregoing items will not be allowed unless the said authorization shall have been duly granted in writing prior to implementation by IBM's Purchasing Department. - -------------------------------------------------------------------------------- 1.32 Rate Schedule The rates for all Deliverables and associated services committed by IBM under this Agreement shall be as specified in the Statement of Work and on the purchase orders issued by IBM and accepted by the Contractor. - -------------------------------------------------------------------------------- 1.33 Delivery Schedule Deliverables shall be completed and delivered in accordance with the Statement of Work and purchase orders issued hereunder. Time is of the essence in Contractor's furnishing Deliverables to IBM. Contractor shall apply best efforts in providing Deliverables to IBM. If Contractor fails to provide the Deliverables on time, IBM may purchase elsewhere and may, unless Contractor's delay was due to unforeseeable causes beyond its control and without its fault or negligence, charge Contractor with all losses incurred. - -------------------------------------------------------------------------------- 1.34 Term This Agreement dated October 04, 1995 shall become effective the date both parties have signed this Agreement and shall expire on October 31, 1997. - -------------------------------------------------------------------------------- 1.35 Termination and Cancellation 1. Either party may terminate this Agreement for convenience upon sixty (60) days prior written notice to the other party. 2. Either party may terminate this Agreement in the event of a material breach of this Agreement by the other party provided the party in breach is given written notice and fails to cure such breach within thirty (30) days. Contractor shall, upon receipt of notice to terminate, stop all work being performed and cancel subcontracts associated therewith. Any outstanding purchase orders shall terminate upon termination of this Agreement. IBM's sole liability for termination of each purchase order outstanding as of the date of termination shall be to pay at rates specified in the purchase orders for satisfactory work performed under the purchase orders as of the date of termination and for expenses or other direct charges incurred by Contractor from which Contractor cannot decommit itself. Any such amount shall not exceed the amount specified for the work in such terminated purchase orders. 3. Purchase orders issued by IBM under this Agreement and accepted by Contractor may be cancelled by IBM, in each case without further liability thereunder, as follows: Purchase orders, or portions thereof, covering services of Contractor's personnel to be performed on or off IBM premises, may be cancelled on twenty- four (24) hours written notice. Purchase orders issued under a Government contract may be cancelled at any time upon written notice. In the event of cancellation, termination, or expiration of any purchase order issued hereunder, all work in process thereunder in Contractor's possession shall be forwarded to IBM, and IBM shall make payment at the specified rates for satisfactory services performed to the effective date of cancellation, termination, or expiration of such purchase order. - -------------------------------------------------------------------------------- 1.36 Entire Agreement The foregoing terms and conditions, together with the referenced Attachments, are the complete and exclusive expression of the agreement between the parties, superseding any prior agreements, written or oral, relating to the subject matter of this Agreement notwithstanding anything contained in any document issued by Contractor. - -------------------------------------------------------------------------------- 1.37 Order of Precedence In the event of any inconsistency or conflict in the provisions of these documents, the order of precedence shall be: 1. The foregoing terms and conditions; 2. Attachments referenced herein. 3. Purchase orders 4. Purchase order attachments - -------------- 2.0 Signatures In witness whereof, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. International Business Computer Generated Solutions, Inc. Machines Corporation By: /s/ Philip Friedman --------------------------- /s/ G. H. Tamura 10/5/95 Title: President --------------------------- G. H. Tamura Date: 10/6/95 Location Procurement Manager --------------------------- - ----------------------------------- 3.0 Attachment A: Statement of Work - -------------------------------------------------------------------------------- 3.1 Project Description When an IBM customer requires assistance, they place a request call through the Call Management Centers (CMCs). That call is taken by a Customer Service Representative (CSR) employee and entered into the appropriate system for assignment. These calls are taken for a variety of customers on a variety of customized applications. The Contractor Customer Service Representative (CSR) works directly with IBM's customers, IBM's Customer Service Engineers (CE) and IBM's internal support organizations. It is expected that the CSR will be courteous and professional at all times. They must be able to communicate clearly and effectively by phone while being complete, accurate and timely in gathering required information. In addition, they must provide navigational and informational services to customers who require additional service or information within the IBM support network. They are expected to search various databases, make appropriate updates, and maintain those databases within a specified criteria. In addition, each CSR is expected to adhere to the quality processes currently in place which measures timeliness, accuracy, and professionalism. See Section 3.9 for acceptance criteria. It is the goal of the CSR team to become a single point of value for each call received. That value may include, but is not limited to, information sharing, information gathering, product entitlement and call navigation. We anticipate the role of this function will continue to expand as more business opportunities are identified. It is vital that the Contractor be flexible in meeting the requirements of these future opportunities. Contractor agrees that, by October 30, 1995, Contractor shall have hired at least 90% of the supplemental employees currently employed by IBM in each of the Atlanta and Dallas Call Management Centers for the positions listed in Section 3.2 of this Statement of Work. The failure of Contractor to comply with this paragraph shall permit IBM to immediately cancel this Agreement at IBM's sole discretion and with no liability on the part of IBM. - -------------------------------------------------------------------------------- 3.2 Manpower The estimated number of personnel required to perform each task is listed below, however, the number of personnel may change with the written concurrence of the IBM Coordinator and Contractor Supervisor. Job descriptions are provided in Section 3.5.
Table 1. Estimated Headcount JOB DESCRIPTION ATLANTA DALLAS Customer Service Representative **** **** SESA Coordinator **** Senior Customer Service Representative **** **** Training Specialist **** **** Team Leader **** **** Receptionist **** **** Graphics Coordinator **** **** Operational Support Manager **** ****
- -------------------------------------------------------------------------------- 3.3 Work Schedules The following identifies the work schedules: . The CMC's operate 24 hours per day, 7 days per week . Holiday work will be required . Overtime may be required - -------------------------------------------------------------------------------- 3.4 Skill Requirements The following list outlines the general skills required to perform all job descriptions listed in this section: . Very good verbal communication skills which are clear, understandable and precise . Be professional and courteous at all times . Above average typing skills . Good listening skills . Above average reading comprehension skills . Learn and follow procedures . Strong customer service skills and temperament which includes diffusing upset customers. . Administrative and organizational skills . Multiplexing skills . Knowledge of OS/2 . Freelance skills for graphics person . Computer navigation skills . Telephone handling skills **** Confidential treatment is being requested for these portions of this agreement. - -------------------------------------------------------------------------------- 3.5 Job Descriptions The following job descriptions serve only as guide as to the types of responsibilities within each job category. They are subject to change at any time by the IBM Coordinator. 1. Customer Service Representative (CSR) Position Concept: As the initial customer contact for IBM service, the CSR's professional communications and ultimate decision making responsibility directly impact IBM customers' degree of service delivery satisfaction. Effective communication of service offerings and efficient execution of the call process facilitates the request for service. The CSR must extract pertinent call information from the customer to ensure the service request is handled timely and properly. Service delivery concerns are proactively communicated to appropriate escalation levels. CSRs utilize the NSS system to record information and assign calls to the appropriate service representative or organization. They must remain knowledgeable of new service offerings and call procedures. In addition, the CSR may be required to research customer entitlement, navigate informational requests, take Hardware/Software service calls, and/or track Finders M/A information. Responsibilities . Receive customer request for Hardware and Software service. Be thoroughly knowledgeable of current service offerings, billable information, and entitlement process. Question customer to obtain product service and entitlement options to properly assign provider of service and determine urgency of request. Take personal ownership of each call received and aggressively seek to improve customer satisfaction. . Utilize resource materials in directing customer inquiries that are not service related. Inform appropriate contact of information changes. Be thoroughly knowledgeable of resource materials and give assistance when required. Escalate unresolved inquiries to resolution. . Navigate informational and procedural calls as required. . Be thoroughly knowledgeable and assist with backup procedures when required. . Maintain a working knowledge of special operating procedures used to interface with internal organizations relating to critical customers. . Be thoroughly knowledgeable of special operating procedures to interface with external providers of service (Customized Operational Service, Multi Vendor Support (MVS), etc.). Ensure special operating procedures are understood and adhered to. . Recognize customer complaints that need to be escalated. Demonstrate quality communication skills and exhibit high level of professionalism and extreme sensitivity to customer satisfaction. Follow appropriate procedures and use good judgement in reporting complaints. . Identify any National Service Support (NSS), Computer Aided Dispatch (CAD) or OASIS discrepancies or omissions (i.e. prescreens, alias) and notify appropriate resource. . Use courtesy, tact and discretion in all communications with customers, vendors and IBM personnel. Exhibit a high level of professionalism and utilize good judgement to inform manager of potential problems. . Maintain knowledge and operation of all CSR equipment. Utilize basic problem determination and follow reporting procedures. . Follow internal IBM phone guidelines pertaining to professionalism, hold and knowledge. . Perform entitlement on service contracts when required. . Input Finders requests when notified by the field. 2. SESA Coordinator Position Concept: Is responsible for making follow-up survey calls to customers concerning their satisfaction with a specific process. The coordinator will extract all pertinent information through a database provided and complete a preset number of surveys per day. That preset number is described in Section 3.8, Measurements. Responsibilities . Obtains pertinent information from required databases. . Makes outgoing calls to customer contacts provided by IBM internal databases . Demonstrates courtesy, tact and discretion in communications, so as to present a favorable company image . Input customer comments and survey results so that they match the opinions of the customer . Make internal phone audits and record results as required . Escalate customer complaints using established processes 3. Senior Customer Service Representative Position Concept: Provide leadership to CSRs and be focal person for operational questions. Maintain expert knowledge of customer service duties and review/monitor to ensure procedures are followed. Aggressively monitor NSS in order to recognize and handle potential service delivery concerns. Take a pro-active role in identifying and resolving customer satisfaction inhibitors. Implement a strategy with other seniors and team leaders to maintain balanced workload for customer hold times. Offer first level of escalation to CSRs for customer complaint situations. Evaluate training. Maintain expert knowledge of all CSR responsibilities. Prepare regular and special reports for IBM. Maintain expert knowledge of backup system procedures. Perform CSR duties as required. Responsibilities . Become an expert resource for CSRs and assist in interpreting current service offerings, billable information and entitlement process. Administer training as required. Enhance customer satisfaction through personal ownership of identified problems and aggressively seek resolution. Escalate when appropriate. . Monitor/review receive call activity and pro-actively identify potential customer situations. . Become an expert in call management criteria, measurement objectives, and special programs. Identify problems when objectives will not be met and make recommendations to the management team. . Maintain an expert knowledge of resource materials utilized to direct customers' inquiries that are not service related. Act as a resource and focal escalation point for unresolved inquiries and updating resource materials. Responsible for timely follow-up and extreme responsiveness to customer inquiries. . Maintain expert knowledge of system backup procedures and initiate when required. Ensure each CSR has backup and that current backup materials are readily available. Resolve CSR difficulty in obtaining system backup and escalate if necessary. . Maintain expert knowledge in and ensure that special operating procedures are followed to interface with external providers of service. Provide CSR training and assistance when necessary. . Review, maintain, and ensure an accurate database using branch office input. Ensure database integrity and update procedures are followed. Responsible to coordinate database activity. Recommend solutions to database problems and implement. . Handle customer complaints effectively and recognize need for escalation. Follow appropriate procedures and exercise good judgement in escalation and resolving complaints. Maintain records. . Demonstrate courtesy, tact, and discretion in all communications with customers, vendors, and IBM personnel. Exhibit a high level of professionalism at all times. Utilize good judgement informing management of potential problems. Set example and give guidance to CSCs as required. . Provide work direction and support to CSRs for the implementation of special programs and for the short-term solution of temporary workload imbalances. Maintain CSR lunch schedules and track vacation. Ensure CSR coverage. 4. Training Specialist Position Concept: Provides training of suppliers personnel. Responsibilities . Provide training and assistance as required. Update training materials and conduct training seminars for CSR when needed. Evaluate training and make recommendations to management and assist with training difficulties. . Maintain thorough knowledge of and be able to operate all CSR workstations and ACD agent equipment. Follow correct problem determination and reporting procedures. Utilize good judgement when following the correct escalation procedures. 5. Team Leader Position Concept: Serves as a "functional" leader in an environment where employee to management ratios make it difficult to prioritize and balance workload and maintain a high level of operational efficiency. Responsibilities . Operates complex office systems to prepare correspondence, foils, and documents. . With minimal management assistance, coordinate flow and prioritize "team" workload. . Balances workload; ensuring coverage and a high level of operational efficiency. . Drives team quality measurements. . Monitors services support activity and exposures. . Develops and implements internal customer satisfaction plans and programs. . Ensures team self-assessment audits are conducted and based on outcomes recommends corrective action plan to management. . Coordinates meetings, training and other workload inhibitors. . Maintains a high level of systems expertise for required business area. . Assumes additional responsibilities as required. 6. Receptionist Position concept - Answers the "must answer" line in the Call Management Center while controlling entry to the branch office and receiving visitors. Responsibilities . Greets, ascertains pertinent information, and registers visitors. Helps identify, locate and contact persons to be visited. Gives internal and external directions. Ensures that no one is detained in the reception area beyond a reasonable length of time. . Answers the "must answer" line in the Call Management Center. Pages person to be contacted when appropriate or navigates the call to the requested function. Ensures callers are greeted professionally, given the proper information and not left on hold longer than the IBM standard. . Collects and distributes mail from/to the CMC personnel. . Ensures only authorized persons are permitted into the facility and ensures escorts are provided when necessary. Reports security concerns to appropriate Contractor/IBM management. . Handles special situations such as outside solicitations, providing information about employees, etc., in accordance with company policies and practices. . Demonstrate courtesy, tact and discretion in communications, so as to present a favorable company and site image. . As required, initiates and maintains appropriate files and reports. . Perform other administrative tasks such as typing, filing, scheduling conference rooms, conference rooms, ordering supplies, updating the organizational chart and updating calendars. . Back-up branch secretary when required. . Work requests will be received from IBM personnel. . Perform other duties as assigned. 7. Graphics Coordinator Position Concept: Is responsible for creating and updating quality process and presentation charts on a timely basis. Primarily uses Lotus Freelance as the software on a PS/2 type machine. Will operate equipment associated with producing high-quality charts such as printers and plotters. Responsibilities . Operates basic graphics equipment and programs. . Tracks due dates on process charts. . Updates and distributes process charts monthly. . Provides assistance for other presentation charts. . Performs other duties, as assigned. . Maintains softcopies of all charts created. . Ensures equipment used is maintained and usable. . Work requests will be received from IBM personnel. 8. Operational Support Manager (OSM) Position Concept: Is the first line manager responsible for resource planning and operational support in the CMC. Responsibilities . Interprets IBM's policies, practices and procedures for territory. . Maintains effective performance planning, counseling, evaluation and development programs to properly evaluate employee performance and to enhance career growth. . Analyze performance of functions within areas of responsibility. Makes recommendations for operational enhancements and implements action as appropriate. . Works closely with IBM as an interface to ensure high levels of performance, productivity and customer satisfaction. . Determines manpower requirements and develops plans for area of responsibility. . Analyzes financial performance and recommends a course of action to IBM. Maintains control of direct expense involved with operation of assigned area. . Organizes and conducts frequent department meetings. Makes presentations on areas of responsibility in branch meetings. . Responsible for records retention management and compliance and security for all pertinent documents. . Assumes additional responsibilities as required. - -------------------------------------------------------------------------------- 3.6 Training 1. Initial process training for contract initiation will be provided by IBM. Any new product training deemed necessary by IBM will be provided by IBM. The Contractor's training specialist will then assume responsibility for on- going training and orientation of new and replacement personnel at the training rate. 2. Contractor shall have sufficient personnel trained to ensure that quality of service is met throughout the term of this Agreement. IBM shall pay for this training only if conducted during the employee's first thirty (30) days of work under this Agreement and at the Customer Service Trainee rate specified in Section 3.12. This payment shall not exceed a percentage of the total productive time billed. This percentage shall be determined by IBM and the Contractor after the initial training of personnel under this Agreement. - -------------------------------------------------------------------------------- 3.7 Transitional Training In the event of cancellation or at the expiration of this Agreement, Contractor agrees to provide a minimum of fifteen (15) days transitional training to a supplier to be specified by IBM if other than Contractor. Said training shall be conducted by an adequate number of Contractor employees to ensure continuity of service at a competent level of performance. IBM shall pay for such training at the rates specified in the Statement of Work for the job descriptions of the employees providing such training. Contractor shall ensure that it continues to meet all performance and quality requirements specified in the Statement of Work throughout such training period. - -------------------------------------------------------------------------------- 3.8 Measurements Specific measurements will be developed by the supplier and IBM to gauge performance and quality requirements. Overall areas measured will include but are not limited to: . Qualification of staff . Adherence to CMC training modules provided to Contractor as may be modified/updated from time to time by IBM . Customer satisfaction . Quality control - Call Hold time less than 10 seconds on average - SESA calls greater than 99.7% - Accuracy in taking calls greater than 99.0% - Under 2% abandonment rate - Minimal CMCALERTS and Customer Situation Information System (CSIS) incidents (actual formula to be determined) - Average 32 complete SESA surveys per day per headcount - Failure to meet any of the measurements identified in this Section, as modified, shall be deemed material breach of this Agreement. However, Contractor shall have one hundred and twenty (120) days from the date hereof to meet those measurements that are currently not being met by the CMC's before this provision will take effect with respect to measurements. - -------------------------------------------------------------------------------- 3.9 Acceptance Criteria Initial acceptance will depend on evaluation of the vendor's ability to meet the scope defined in this document. Key criteria that will be reviewed includes but not limited to: . Cost . Quality . Management - -------------------------------------------------------------------------------- 3.10 IBM Responsibilities IBM is responsible for the following: . Existing CMC Processes and Procedures . IBM Site Safety, Security and personnel conduct policies . Hardware/Software/Tools as described below (IBM Business use only) . Office facilities in Dallas and Atlanta Call Management Centers . Personal shared workstation and required software . Phone, headset, and phone system . Access to required systems/tools - NSS - OASIS - RETAIN - VM - HONE - IS - AUTOQUALITY if used - P&Q REVIEW if used - PRMS - CSIS . Access to any additional required equipment . Badge access to assigned location Note: The Contractor shall follow the practices, procedures and priorities of IBM in the use of IBM equipment, systems, and tools. - -------------------------------------------------------------------------------- 3.11 Contractor Responsibilities The Contractor is responsible for the following: . Answer customer requests in a timely, professional, and accurate manner . Monitor quality using the Autoquality System or an equivalent system. . Perform entitlement on service requests . Ensure operating processes and procedures are accurately followed . Assist in updating these processes and procedures as required . Update customer database records . Ensure skill requirements are met, maintained and updated . Provide effective management of personnel and workload . Train any additional personnel required after initial training . Support and adhere to ISO9000 registration when complete and all other CMC quality programs (Contractor personnel will talk to ISO9000 auditors when asked) . Evaluate work performance and increase or decrease to allow for efficiencies or increased workload at IBM's approval . Contractor shall supply for IBM's review and approval, transition and implementation plans to meet targets . Contractor management is expected to have regular status meetings and provide written reports regularly . Adhere to IBM Site Safety, Security and personnel conduct policies . Define process which manages new requirements from IBM . Monthly Quality updates and action plans - -------------------------------------------------------------------------------- 3.12 Rate Schedule Table 2. Rate Schedule - Atlanta
Job Description $/HR $/HR Pay Rate Bill Rate Customer Service Rep. **** **** SESA Coordinator **** **** Customer Service Trainee* **** **** Senior Customer Service Rep. **** **** Training Specialist **** **** Team Leader **** **** Receptionist **** **** Graphics Coordinator **** **** Operations Support Manager **** ****
Table 3. Rate Schedule - Dallas
Job Description $/HR $/HR Pay Rate Bill Rate Customer Service Rep. **** **** SESA Coord. **** **** Customer Service Trainee* **** **** Senior Customer Service Rep. **** **** Training Specialist **** **** Team Leader **** **** Receptionist **** **** Graphics Coordinator **** **** Operations Support Manager **** ****
. Notes -- *CSR Trainee rate is based upon a **** reduction from the regular rate. This rate shall apply for the first thirty days of employment. -- IBM shall pay overtime at a rate of **** of the regular pay rate. -- Pay rate plus **** percent uplift equals the bill rate. -- It is IBM's intent to reimburse for "productive" hours worked. Contractor should plan on invoicing IBM for actual hours worked at the call center location. Vacation/sick and other time away from the job should be absorbed in overhead. **** Confidential treatment is being requested for these portions of this agreement. -- Contractor will submit invoices bi-weekly (occurring every two (2) weeks). -- IBM shall pay shift premium at a rate of **** for 2nd shift and a rate of **** for 3rd shift. 2nd Shift rates will be paid to employees with start times between 12:00PM and 10:00PM and 3rd shift rates will be paid to employees with start times between 10:00PM and 4:00AM. There will be no weekend premiums paid. -- IBM shall pay Holiday pay at a rate of **** of the regular pay. Those holidays include the nationally recognized days associated with New Years, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. The above rates shall be fixed for the first twelve (12) month period and may be revised annually on the anniversary of the effective date of this Agreement. Any rate increases shall not exceed **** percent over the rates for the preceding twelve (12) month period. - -------------------------------------------------------------------------------- 3.13 Glossary of Terms AUTOQUALITY System used in recording live customer calls for monitoring purposes CMC (Call Management Center)- The two Centers located in Dallas and Atlanta CMCALERT Vehicle our internal customers use to communicate problems to the CMC. CSIS (Customer Situation Information System) - Customer complaint system ENTITLEMENT The process of ensuring customers are entitled to receive warranty or maintenance service from IBM. FASTTRAK Vehicle the CMC uses to communicate problems to the field. FINDERS Maintenance program in which field representatives call the CMC when they find a machine does not have a maintenance agreement. HONE (Hands-On Network Environment) - Repository of IBM marketing information. IS (Information Systems) Systems that store pertinent customer account information such as inventories. ISO9000 ISO standards which identify the requirements for an effective quality management system. QRT (Quality Response Time) - The measurement of hold times within the CMC NSS (National Service System) - System used to receive and assign service calls OASIS (Order and Service Information System ) System used to Attachment A: Statement of Work 29 **** Confidential treatment is being requested for these portions of this agreement. Service Agreement Number 2165 receive assign customer calls. P&Q REVIEW System used to track results in the monitoring process RECEIVE CALL The process of receiving a request from a customer. RETAIN (Remote Technical Assistance Network) - IBM's world-wide database storing customer problem records. TRAILER CALL The process used to measure external customer's satisfaction with the way their call was handled. VM (Virtual Machine) - IBM mainframe operating system. - ----------------------------- 4.0 Travel Expense Guidelines IBM shall reimburse you in accordance with the following guidelines for reasonable & actual travel and living expenses authorized in advance by IBM in writing and incurred solely in connection with services furnished under this Agreement. Your employees should exercise reasonable cost effectiveness when incurring these expenses. 4.1.1 Expense Account Details 1. Expense accounts are to be submitted to you by your employees immediately upon return from a business trip. Actual daily expenses must be reported to you under the applicable expense category. All reimbursable expenses for a given period are to be included on one expense account. 2. When reporting expenses, the following information is required: A. dates of departure and return for each trip; B. travel departure point and destination, C. name of the IBM employee who authorized the trip; D. business reason for the travel; E. people met and business conducted; F. a statement that no reimbursement is due whenever expenses are not claimed for any workday your employee is on travel status; and G. explanation of out-of-the-ordinary amounts claimed; e.g., name(s) of individual(s) attending a luncheon if they have not paid for their own portion and claimed it individually. 4.1.2 Receipts 1. An itemized receipt (copy acceptable with original retained by you) must substantiate lodging costs, airline travel, rental car and all other expenditures of twenty-five dollars ($25.00) or more. The receipt must show the amount, date, place and nature of the expense. The receipts must be attached to, and submitted with, the expense account. Reimbursement for airline travel requires a copy of the actual airline passenger coupon receipt. 2. Reimbursement for car rental requires a copy of the actual car rental agreement. 4.1.3 Transportation 1. Only the most economical airline accommodations, e.g., economy, coach, tourist, excursion, discount and shuttle flights are to be used. Other airline accommodations, e.g., first and business class air fare WILL NOT be reimbursed unless specifically approved by IBM in advance. Travel should be planned to take advantage of any possible discount fares. Air travel will be reimbursed only for that portion thereof which is directly related to the services being performed under this Agreement. 2. Rail or bus travel will be reimbursed for regular coach class. Such travel is not to exceed one day. Any additional days actually used in making the trip will be considered nonreimbursable, personal business. 3. Ground transportation will be reimbursed for taxi, bus or car rental. Actual tolls and parking fees incurred will be reimbursed. 4. Use of personal automobiles to fulfill approved travel obligations under this Agreement (not applicable to normal commutation) shall be reimbursed at the rate of twenty-seven-and-a-half ($.275) cents per mile, for the most direct, practical route to the business destination. Your employees have the responsibility to maintain a "Weekly Mileage Log" which will be submitted as an attachment to your invoice. If more than one person travels in the same automobile, only your employee responsible for the automobile will be reimbursed. 5. IBM will not reimburse you for normal commutation expenses. 4.1.4 Lodging and Meals 1. IBM will reimburse reasonable and actual lodging and meal expenses incurred while traveling on approved business. Commercial type accommodations and rates are to be requested at all times. 2. When guaranteed reservations have been made and plans change, the reservation should be Travel Expense Guidelines 31 Service Agreement Number 2165 canceled in time to avoid being charged for the room. 3. Room expense, including tax, is to be entered on the expense account by day, and the hotel bill is to be attached to the expense account. Charges on the hotel bill for other than lodging are to be entered by day under their proper classifications. 4. IBM will reimburse reasonable and actual meal expense. When possible each individual is to pay for his/her own meal. 5. Should an occasion arise where one person pays for more than his/her own meal, the name(s) of the person(s) are to be written on the expense account and the explanation noted as to the business reason for the expense. Alcoholic beverage expenses are not reimbursable. 4.1.5 Personal Expenses 1. IBM will not reimburse personal expenses. If expenses of a personal nature, including hotel shop purchases, laundry, valet, non-business telephone calls, movie charges, health club use, alcoholic beverages, sundry items, are charged against the room, the amount so charged is to be deducted from the invoice presented to IBM. 2. Business telephone calls made in IBM's behalf by your employees while traveling on approved IBM business will be reimbursed. If your employees are at an IBM location, business calls should be made at that location, utilizing IBM tie-lines and WATS lines, when possible. When your employees charge business calls to their home telephone numbers or personal telephone credit cards, the detailed telephone company bill is to be attached to the expense account if the aggregate total is twenty-five dollars ($25.00) or more. 3. IBM will reimburse reasonable and actual gratuities disbursed for business purposes by your employees while traveling on approved IBM business. Amendment to Service Agreement Between International Business Machines Corporation and Computer Generated Solutions, Inc. February 06, 1996 Contact: Nancy Hiatt @ 303-924-5396 IBM Integrated Procurement Solutions 6300 Diagonal Highway P. O. Box 1900 Boulder, Colorado 80301-9191 Department: PRB1 Building: 001H Service Agreement Number 2165 Service Agreement Number 2165 - -------------------------------------------------------------------------------- Amendment # 01 This document shall constitute a formal amendment to Service Agreement Number 2165 dated October 04, 1995. Section 3.0 Statement of Work Amend Sections 3.5 "Job Descriptions" and 3.12 "Rate Schedule" to read per the enclosed revised Statement of Work. Except as hereby amended, all other terms and conditions of this Agreement shall remain in full force and effect as written. If you agree with the above modifications, this document shall constitute an Amendment to Agreement Number 2139. Please indicate your agreement by signing both copies of this document and returning one copy to IBM Corp., 6300 Diagonal Hwy., Boulder, CO 80301, Attention Nancy Hiatt, Dept. PRB1, Bld. 001H. In witness whereof, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. International Business Computer Generated Solutions, Inc. Machines Corporation By: ----------------------- /s/ G. H. Tamura 2/6/96 Title: ----------------------- G. H. Tamura Date: Location Procurement Manager ----------------------- Service Agreement Number 2165 - ----------------------------------- 3.0 Attachment A: Statement of Work - -------------------------------------------------------------------------------- 3.1 Project Description When an IBM customer requires assistance, they place a request call through the Call Management Centers (CMCs). That call is taken by a Customer Service Representative (CSR) employee and entered into the appropriate system for assignment. These calls are taken for a variety of customers on a variety of customized applications. The Contractor Customer Service Representative (CSR) works directly with IBM's customers, IBM's Customer Service Engineers (CE) and IBM's internal support organizations. It is expected that the CSR will be courteous and professional at all times. They must be able to communicate clearly and effectively by phone while being complete, accurate and timely in gathering required information. In addition, they must provide navigational and informational services to customers who require additional service or information within the IBM support network. They are expected to search various databases, make appropriate updates, and maintain those databases within a specified criteria. In addition, each CSR is expected to adhere to the quality processes currently in place which measure timeliness, accuracy, and professionalism. See Section 3.9 for acceptance criteria. It is the goal of the CSR team to become a single point of value for each call received. That value may include, but is not limited to, information sharing, information gathering, product entitlement and call navigation. We anticipate the role of this function will continue to expand as more business opportunities are identified. It is vital that the Contractor be flexible in meeting the requirements of these future opportunities. Contractor agrees that, by October 30, 1995, Contractor shall have hired at least 90% of the supplemental employees currently employed by IBM in each of the Atlanta and Dallas Call Management Centers for the positions listed in Section 3.2 of this Statement of Work. The failure of Contractor to comply with this paragraph shall permit IBM to immediately cancel this Agreement at IBM's sole discretion and with no liability on the part of IBM. - -------------------------------------------------------------------------------- 3.2 Manpower The estimated number of personnel required to perform each task is listed below, however, the number of personnel may change with the written concurrence of the IBM Coordinator and Contractor Supervisor. Job descriptions are provided in Section 3.5. Service Agreement Number 2165 Table 1. Estimated Headcount
Job Description Atlanta Dallas Customer Service Representative **** **** SESA Coordinator **** Senior Customer Service Representative **** **** Training Specialist **** **** Team Leader **** **** Receptionist **** **** Graphics Coordinator **** **** Operational Support Manager **** ****
- -------------------------------------------------------------------------------- 3.3 Work Schedules The following identifies the work schedules: . The CMC's operate 24 hours per day, 7 days per week . Holiday work will be required . Overtime may be required - -------------------------------------------------------------------------------- 3.4 Skill Requirements The following list outlines the general skills required to perform all job descriptions listed in this section: . Very good verbal communication skills which are clear, understandable and precise . Be professional and courteous at all times . Above average typing skills . Good listening skills . Above average reading comprehension skills . Learn and follow procedures . Strong customer service skills and temperament which includes diffusing upset customers. . Administrative and organizational skills . Multiplexing skills . Knowledge of OS/2 . Freelance skills for graphics person . Computer navigation skills . Telephone handling skills 20 Amendment #01 **** Confidential treatment is being requested for these portions of this agreement. Service Agreement Number 2165 - -------------------------------------------------------------------------------- 3.5 Job Descriptions The following job descriptions serve only as guide as to the types of responsibilities within each job category. They are subject to change at any time by the IBM Coordinator. 1. Customer Service Representative (CSR) Position Concept: As the initial customer contact for IBM service, the CSR's professional communications and ultimate decision making responsibility directly impact IBM customers' degree of service delivery satisfaction. Effective communication of service offerings and efficient execution of the call process facilitates the request for service. The CSR must extract pertinent call information from the customer to ensure the service request is handled timely and properly. Service delivery concerns are proactively communicated to appropriate escalation levels. CSRs utilize the applicable system to record information and assign calls to the appropriate service representative or organization. They must remain knowledgeable of new service offerings and call procedures. In addition, the CSR may be required to research customer entitlement, navigate informational requests, take Hardware/Software service calls, and all other service offerings. Responsibilities . Receive customer request for service. Be thoroughly knowledgeable of current service offerings, billable information, and entitlement process. Question customer to obtain product service and entitlement options to properly assign provider of service and determine urgency of request. Take personal ownership of each call received and aggressively seek to improve customer satisfaction. . Utilize resource materials in directing customer inquiries that are not service related. Inform appropriate contact of information changes. Be thoroughly knowledgeable of resource materials and give assistance when required. Escalate unresolved inquiries. . Navigate informational and procedural calls as required. . Be thoroughly knowledgeable and assist with backup procedures when required. . Maintain a working knowledge of special operating procedures relating to critical customers. . Be thoroughly knowledgeable of special operating procedures to interface with external providers of service (Customized Operational Service, Multi Vendor Support (MVS), etc.). Ensure special operating procedures are understood and adhered to. . Recognize customer complaints that need to be escalated. Demonstrate quality communication skills and exhibit high level of professionalism and extreme sensitivity to customer satisfaction. Follow appropriate procedures and use good judgement in reporting complaints. . Identify any data base discrepancies or omissions (i.e., prescreens, alias) and notify appropriate resource (i.e., NSS, CAD, OASIS, RETAIN). . Use courtesy, tact and discretion in all communications with customers, vendors and IBM personnel. Utilize good judgment to inform manager of potential problems. . Maintain knowledge and operation of all CSR equipment. Utilize basic problem determination and follow reporting procedures . Follow internal IBM telephone etiquette guidelines. . Perform entitlement on service contracts when required. . Input Finders requests when notified by the field. 2. Commercialization Coordinator Position Concept: As the initial customer contact for Call Management Services, the CSR's professional communications and ultimate decision making responsibility directly impact IBM's customers' degree of Attachment A: Statement of Work 21 Service Agreement Number 2165 service delivery satisfaction. Effective communication of service offerings and efficient execution of the call process facilitate the request for service. The CSR must extract pertinent call information from the customer to ensure the service request is handled timely and properly. Service delivery concerns are proactively communicated to appropriate escalation levels. CSRs utilize the applicable system to record information and assign calls to the appropriate service representative or organization. They must remain knowledgeable of new service offerings and call procedures. Responsibilities . Receive customer request for service. Be thoroughly knowledgeable of current service offerings, billable information, and entitlement process. Question customer to obtain product service and determine urgency of request. Take personal ownership of each call received and aggressively seek to improve customer satisfaction. . Utilize resource materials in directing customer inquires that are not service related. Inform appropriate contact of information changes. Be thoroughly knowledgeable of resource materials and give assistance when required. Escalate unresolved inquires. . Navigate informational and procedural calls as required. . Be thoroughly knowledgeable and assist with backup procedures when required. . Maintain a working knowledge of special operating procedures relating to critical customers. . Recognize customer complaints that need to be escalated. Demonstrate quality communications skills and exhibit high level of professionalism and extreme sensitivity to customer satisfaction. Follow appropriate procedures and use good judgment in reporting complaints. . Identify any data base discrepancies or omissions (i.e., prescreens, alias) and notify appropriate resource (i.e., EUS, RETAIN, CLARIFY, MAAS). . Monitor on a daily basis group activity and ensure the efficient utilization of personnel. . Ensure that activity is centered on the handling of incoming service request during periods of greatest need as indicated by ACD information. . Provide training to trainees, associates and less experienced CSRs. . Support management in the implementation and operation of existing and new procedures. . Prepare special reports at management direction. . Make recommendations to enhance operations. . Use courtesy, tact and discretion in all communications with customers, vendors and IBM personnel. Utilize good judgment to inform manager of potential problems. . Maintain knowledge and operation of all CSR equipment. Utilize basic problem determination and follow reporting procedures. . Follow internal IBM telephone etiquette guidelines. 3. SESA Coordinator Position Concept: Is responsible for making follow-up survey calls to customers concerning their satisfaction with a specific process. The coordinator will extract all pertinent information through a database provided and complete a preset number of surveys per day. That preset number is described in Section 3.8, Measurements. Responsibilities . Obtains pertinent information from required databases. . Makes outgoing calls to customer contacts provided by IBM internal databases 22 Amendment #01 Service Agreement Number 2165 . Demonstrates courtesy, tact and discretion in communications, so as to present a favorable company image . Input customer comments and survey results so that they match the opinions of the customer . Make internal phone audits and record results as required . Escalate customer complaints using established processes 4. Finders Customer Service Coordinator Position Concept: To provide maintenance and inventory assistance to Technology Service Support (TSS), Customer Service Representatives (CSR), and Availability Service Customer Engineers (CE). The coordinator will research inventory databases and communicate billing information to CEs, TSSs, and CSRs. Coordinators will maintain a close relationship with all Customer Support Offices (CSO). Accuracy and professionalism are vital to the success of the Finders program. The Finders coordinator will ensure proper inventory corrections and maintenance updates occur in a timely and effective manner. Coordinators will escalate all CSR, CE, and field manager concerns to the appropriate senior, team leader, or manager. Responsibilities . Receive CSR and CE requests to research and correct customer inventory and maintenance discrepancies. . Search databases, i.e., ISI, SPIF, HONE, VM, and NSS for contact and billing information. . Process Finders requests for inventory discrepancies and updates, and forward to appropriate maintenance processing departments. . Notify CE and CSR when request is complete. . Using BILLMAPS and CETRACK, track and ensure all Finders logs are updated and closed in a timely and accurate manner. . Provide status of logs to CSR, CE, or field manager upon request. . Escalate to appropriate CSR when log closure objectives are not met. . Provide assistance with: -- M/A Rates -- Billing Rates -- Billable Activity (B/A) Codes -- Hourly Service Document and Hourly Service Invoice information. . Handle incoming Call Entitlement Team (CET) calls and warm transfer when needed. . Maintain knowledge of all databases and processes used in Finders. . Navigate informational and procedural call as required. . Use courtesy, tact, and discretion in all communications with customers, vendors, and IBM personnel. Exhibit a high level of professionalism and use good judgment to inform manager of potential problems. 5. Senior Customer Service Representative Position Concept: Provide leadership to CSRs and be focal person for operational questions. Maintain expert knowledge of customer service duties and review/monitor to ensure procedures are followed. Aggressively monitor NSS in order to recognize and handle potential service delivery concerns. Take a pro-active role in identifying and resolving customer satisfaction inhibitors. Implement a strategy with other seniors and team leaders to maintain balanced workload for customer hold times. Offer first level Attachment A: Statement of Work 23 Service Agreement Number 2165 of escalation to CSRs for customer complaint situations. Evaluate training. Maintain expert knowledge of all CSR responsibilities. Prepare regular and special reports for IBM. Maintain expert knowledge of backup system procedures. Perform CSR duties as required. Responsibilities . Become an expert resource for CSRs and assist in interpreting current service offerings, billable information and entitlement process. Administer training as required. Enhance customer satisfaction through personal ownership of identified problems and aggressively seek resolution. Escalate when appropriate. . Monitor/review receive call activity and pro-actively identify potential customer situations. . Become an expert in call management criteria, measurement objectives, and special programs. Identify problems when objectives will not be met and make recommendations to the management team. . Maintain an expert knowledge of resource materials utilized to direct customers' inquiries that are not service related. Act as a resource and focal escalation point for unresolved inquiries and updating resource materials. Responsible for timely follow-up and extreme responsiveness to customer inquiries. . Maintain expert knowledge of system backup procedures and initiate when required. Ensure each CSR has backup and that current backup materials are readily available. Resolve CSR difficulty in obtaining system backup and escalate if necessary. . Maintain expert knowledge in and ensure that special operating procedures are followed to interface with external providers of service. Provide CSR training and assistance when necessary. . Review, maintain, and ensure an accurate database using branch office input. Ensure database integrity and update procedures are followed. Responsible to coordinate database activity. Recommend solutions to database problems and implement. . Handle customer complaints effectively and recognize need for escalation. Follow appropriate procedures and exercise good judgement in escalation and resolving complaints. Maintain records. . Demonstrate courtesy, tact, and discretion in all communications with customers, vendors, and IBM personnel. Exhibit a high level of professionalism at all times. Utilize good judgement informing management of potential problems. Set example and give guidance to CSCs as required. . Provide work direction and support to CSRs for the implementation of special programs and for the short-term solution of temporary workload imbalances. Maintain CSR lunch schedules and track vacation. Ensure CSR coverage. 6. Training Specialist Position Concept: Provides training of suppliers personnel. Responsibilities . Provide training and assistance as required. Update training materials and conduct training seminars for CSR when needed. Evaluate training and make recommendations to management and assist with training difficulties. . Maintain thorough knowledge of and be able to operate all CSR workstations and ACD agent equipment. Follow correct problem determination and reporting procedures. Utilize good judgement when following the correct escalation procedures. 7. Team Leader Position Concept: Serves as a "functional" leader in an environment where employee to management ratios make it difficult to prioritize and balance workload and maintain a high level of operational efficiency. Responsibilities 24 Amendment #01 Service Agreement Number 2165 . Operates complex office systems to prepare correspondence, foils, and documents. . With minimal management assistance, coordinate flow and prioritize "team" workload. . Balances workload; ensuring coverage and a high level of operational efficiency. . Drives team quality measurements. . Monitors services support activity and exposures. . Develops and implements internal customer satisfaction plans and programs. . Ensures team self-assessment audits are conducted and based on outcomes recommends corrective action plan to management. . Coordinates meetings, training and other workload inhibitors. . Maintains a high level of systems expertise for required business area. . Assumes additional responsibilities as required. 8. Receptionist Position concept - Answers the "must answer" line in the Call Management Center while controlling entry to the branch office and receiving visitors. Responsibilities . Greets, ascertains pertinent information, and registers visitors. Helps identify, locate and contact persons to be visited. Gives internal and external directions. Ensures that no one is detained in the reception area beyond a reasonable length of time. . Answers the "must answer" line in the Call Management Center. Pages person to be contacted when appropriate or navigates the call to the requested function. Ensures callers are greeted professionally, given the proper information and not left on hold longer than the IBM standard. . Collects and distributes mail from/to the CMC personnel. . Ensures only authorized persons are permitted into the facility and ensures escorts are provided when necessary. Reports security concerns to appropriate Contractor/IBM management. . Handles special situations such as outside solicitations, providing information about employees, etc., in accordance with company policies and practices. . Demonstrate courtesy, tact and discretion in communications, so as to present a favorable company and site image. . As required, initiates and maintains appropriate files and reports. . Perform other administrative tasks such as typing, filing, scheduling conference rooms, conference rooms, ordering supplies, updating the organizational chart and updating calendars. . Back-up branch secretary when required. . Work requests will be received from IBM personnel . Perform other duties as assigned. 9. Graphics Coordinator Position Concept: Is responsible for creating and updating quality process and presentation charts on a timely basis. Primarily uses Lotus Freelance as the software on a PS/2 type machine. Will operate equipment associated with producing high-quality charts such as printers and plotters. Responsibilities . Operates basic graphics equipment and programs. Attachment A: Statement of Work 25 Service Agreement Number 2165 . Tracks due dates on process charts. . Updates and distributes process charts monthly. . Provides assistance for other presentation charts. . Performs other duties, as assigned. . Maintains softcopies of all charts created. . Ensures equipment used is maintained and usable. . Work requests will be received from IBM personnel 10. Operational Support Manager (OSM) Position Concept: Is the first line manager responsible for resource planning and operational support in the CMC. Responsibilities . Interprets IBM's policies, practices and procedures for territory. . Maintains effective performance planning, counseling, evaluation and development programs to properly evaluate employee performance and to enhance career growth. . Analyze performance of functions within areas of responsibility. Makes recommendations for operational enhancements and implements action as appropriate. . Works closely with IBM as an interface to ensure high levels of performance, productivity and customer satisfaction. . Determines manpower requirements and develops plans for area of responsibility. . Analyzes financial performance and recommends a course of action to IBM. Maintains control of direct expense involved with operation of assigned area. . Organizes and conducts frequent department meetings. Makes presentations on areas of responsibility in branch meetings. . Responsible for records retention management and compliance and security for all pertinent documents. . Assumes additional responsibilities as required. - -------------------------------------------------------------------------------- 3.6 Training 1. Initial process training for contract initiation will be provided by IBM. Any new product training deemed necessary by IBM will be provided by IBM. The Contractor's training specialist will then assume responsibility for on-going training and orientation of new and replacement personnel at the training rate. 2. Contractor shall have sufficient personnel trained to ensure that quality of service is met throughout the term of this Agreement. IBM shall pay for this training only if conducted during the employee's first thirty (30) days of work under this Agreement and at the Customer Service Trainee rate specified in Section 3.12. This payment shall not exceed a percentage of the total productive time billed. This percentage shall be determined by IBM and the Contractor after the initial training of personnel under this Agreement. 26 Amendment #01 Service Agreement Number 2165 - -------------------------------------------------------------------------------- 3.7 Transitional Training In the event of cancellation or at the expiration of this Agreement, Contractor agrees to provide a minimum of fifteen (15) days transitional training to a supplier to be specified by IBM if other than Contractor. Said training shall be conducted by an adequate number of Contractor employees to ensure continuity of service at a competent level of performance. IBM shall pay for such training at the rates specified in the Statement of Work for the job descriptions of the employees providing such training. Contractor shall ensure that it continues to meet all performance and quality requirements specified in the Statement of Work throughout such training period. - -------------------------------------------------------------------------------- 3.8 Measurements Specific measurements will be developed by the supplier and IBM to gauge performance and quality requirements. Overall areas measured will included but are not limited to: . Qualification of staff . Adherence to CMC training modules provided to Contractor as may be modified/updated from time to time by IBM . Customer satisfaction . Quality control -- Call Hold time less than 10 seconds on average -- SESA calls greater than 99.7% -- Accuracy in taking calls greater than 99.0% -- Under 2% abandonment rate -- Minimal CMCALERTS and Customer Situation Information System (CSIS) incidents (actual formula to be determined) -- Average 32 complete SESA surveys per day per headcount -- Failure to meet any of the measurements identified in this Section, as modified, shall be deemed material breach of this Agreement. However, Contractor shall have one hundred and twenty (120) days from the date hereof to meet those measurements that are currently not being met by the CMC's before this provision will take effect with respect to measurements. - -------------------------------------------------------------------------------- 3.9 Acceptance Criteria Initial acceptance will depend on evaluation of the vendor's ability to meet the scope defined in this document. Key criteria that will be reviewed includes but not limited to: . Cost . Quality . Management Attachment A: Statement of Work 27 Service Agreement Number 2165 - -------------------------------------------------------------------------------- 3.10 IBM Responsibilities IBM is responsible for the following: . Existing CMC Processes and Procedures . IBM Site Safety, Security and personnel conduct policies . Hardware/Software/Tools as described below (IBM Business use only) . Office facilities in Dallas and Atlanta Call Management Centers . Personal shared workstation and required software . Phone, headset, and phone system . Access to required systems/tools -- NSS -- OASIS -- RETAIN -- VM -- HONE -- IS -- AUTOQUALITY if used -- P&Q REVIEW if used -- PRMS -- CSIS . Access to any additional required equipment . Badge access to assigned location Note: The Contractor shall follow the practices, procedures and priorities of IBM in the use of IBM equipment, systems, and tools. - -------------------------------------------------------------------------------- 3.11 Contractor Responsibilities The Contractor is responsible for the following: . Answer customer requests in a timely, professional, and accurate manner . Monitor quality using the Autoquality System or an equivalent system. . Perform entitlement on service requests . Ensure operating processes and procedures are accurately followed . Assist in updating these processes and procedures as required . Update customer database records . Ensure skill requirements are met, maintained and updated . Provide effective management of personnel and workload . Train any additional personnel required after initial training . Support and adhere to ISO9000 registration when complete and all other CMC quality programs (Contractor personnel will talk to ISO9000 auditors when asked) 28 Amendment #01 Service Agreement Number 2165 . Evaluate work performance and increase or decrease to allow for efficiencies or increased workload at IBM's approval . Contractor shall supply for IBM's review and approval, transition and implementation plans to meet targets . Contractor management is expected to have regular status meetings and provide written reports regularly . Adhere to IBM Site Safety, Security and personnel conduct policies . Define process which manages new requirements from IBM . Monthly Quality updates and action plans - -------------------------------------------------------------------------------- 3.12 RATE SCHEDULE - -------------------------------------------------------------------------------- Table 2. Rate Schedule - Atlanta - -------------------------------------------------------------------------------- JOB DESCRIPTION $/HR $/HR PAY RATE BILL RATE - -------------------------------------------------------------------------------- Customer Service Rep. **** **** Commercialization **** **** Customer Service Trainee* **** **** Finders **** **** Senior Customer Service Rep. **** **** Training Specialist **** **** Team Leader **** **** Receptionist **** **** Graphics Coordinator **** **** Operations Support Manager **** **** - -------------------------------------------------------------------------------- Attachment A: Statement of Work 29 **** Confidential treatment is being requested for these portions of this agreement. SERVICE AGREEMENT NUMBER 2165 - -------------------------------------------------------------------------------- Table 3. Rate Schedule - Dallas - -------------------------------------------------------------------------------- JOB DESCRIPTION $/HR $/HR PAY RATE BILL RATE - -------------------------------------------------------------------------------- Customer Service Rep. **** **** SESA Coord. **** **** Customer Service Trainee* **** **** Finders **** **** Senior Customer Service Rep. **** **** Training Specialist **** **** Team Leader **** **** Receptionist **** **** Graphics Coordinator **** **** Operations Support Manager **** **** - -------------------------------------------------------------------------------- . Notes - -- *CSR Trainee rate is based upon a **** reduction from the regular rate. This rate shall apply for the first thirty days of employment. - -- IBM shall pay overtime at a rate of **** of the regular pay rate. - -- Pay rate plus **** percent uplift equals the bill rate. - -- It is IBM's intent to reimburse for "productive" hours worked. Contractor should plan on invoicing IBM for actual hours worked at the call center location. Vacation/sick and other time away from the job should be absorbed in overhead. - -- Contractor will submit invoices bi-monthly (occurring twice a month). - -- IBM shall pay shift premium at a rate of **** for 2nd shift and a rate of **** for 3rd shift. 2nd Shift rates will be paid to employees with start times between 12:00PM and 10:00 PM and 3rd shift rates will be paid to employees with start times between 10:00PM and 4:00AM. There will be no weekend premiums paid. - -- IBM shall pay Holiday pay at a rate of **** of the regular pay. Those holidays include the nationally recognized days associated with New Years, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. - -- Overtime will be reimbursed at a maximum of **** of Total Regular number of hours authorized per billing cycle. - -- No other overtime or premium rate will be paid without the prior approval of the IBM Contract Manager. The above rates shall be fixed for the first twelve (12) month period and may be revised annually on the anniversary of the effective date of this Agreement. Any rate increases shall not exceed **** over the rates for the preceding twelve (12) month period. 30 Amendment #01 **** Confidential treatment is being requested for these portions of this agreement. Service Agreement Number 2165 - -------------------------------------------------------------------------------- 3.13 Glossary of Terms AUTOQUALITY System used in recording live customer calls for monitoring purposes CMC (Call Management Center)- The two Centers located in Dallas and Atlanta CMCALERT Vehicle our internal customers use to communicate problems to the CMC. CSIS (Customer Situation Information System) - Customer complaint system ENTITLEMENT The process of ensuring customers are entitled to receive warranty or maintenance service from IBM. FASTTRAK Vehicle the CMC uses to communicate problems to the field FINDERS Maintenance program in which field representatives call the CMC when they find a machine does not have a maintenance agreement. HONE (Hands-On Network Environment) - Repository of IBM marketing information. IS (Information Systems) Systems that store pertinent customer account information such as inventories. ISO9000 ISO standards which identify the requirements for an effective quality management system. QRT (Quality Response Time) - The measurement of hold times within the CMC NSS (National Service System) - System used to receive and assign service calls OASIS (Order and Service Information System) System used to receive assign customer calls. P&Q REVIEW System used to track results in the monitoring process RECEIVE CALL The process of receiving a request from a customer. RETAIN (Remote Technical Assistance Network) - IBM's world-wide database storing customer problem records. TRAILER CALL The process used to measure external customer's satisfaction with the way their call was handled. VM (Virtual Machine) - IBM mainframe operating system. Attachment A: Statement of Work 31 Service Agreement Number 2165 32 Amendment #01 Amendment to Service Agreement Between International Business Machines Corporation and Computer Generated Solutions, Inc. April 02, 1996 Contact: Nancy Hiatt Tel. 303-924-5396 IBM Integrated Procurement Solutions 6300 Diagonal Highway P.O. Box 1900 Boulder, Colorado 80301-9191 Department: PRB1 Building: 001H Service Agreement Number 2165 - -------------------------------------------------------------------------------- Amendment # 02 This document shall constitute a formal amendment to Service Agreement Number 2165 dated October 04, 1995. Add Attachment B Statement of Work Add Attachment B as an additional Statement of Work per the enclosed document to be performed under this Service Agreement. Except as hereby amended, all other terms and conditions of this Agreement shall remain in full force and effect as written. If you agree with the above modifications, this document shall constitute an Amendment to Agreement Number 2165. Please indicate your agreement by signing both copies of this document and returning one copy to IBM Corp., 6300 Diagonal Hwy., Boulder, CO 80301, Attention: Nancy Hiatt, Dept. PRB1, Bld. 001H. In Witness whereof the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. International Business Computer Generated Solutions, Inc. Machines Corporation By: /s/ -------------------------- /s/ G. H. Tamura 4/2/96 Title: President -------------------------- G. H. Tamura Date: 4/11/96 Location Procurement Manager -------------------------- 1 Attachment B Statement of Work March 11, 1996 Contact: Nancy Hiatt Tel. 303-924-5396 IBM Integrated Procurement Solutions 6300 Diagonal Highway P.O. Box 1900 Boulder, Colorado 80301-9191 Department: PRB1 Building: 001H Service Agreement Number 2165 - -------- Contents 1.0 Term ..................................... 1 1.1 Project Description ...................... 1 1.2 Responsibilities As An IBM Subcontractor.. 1 1.3 Coordinators/Supervisors ................. 1 1.4 Work Schedules ........................... 2 1.5 IBM Workstation Support Locations ........ 2 1.5.1 "C" Programmer Support Group, Atlanta ................................. 2 1.5.2 Advanced Workstation Support Center, Chicago.................................. 2 1.5.3 Desktop Support Center, Atlanta ..... 3 1.5.4 Network Support Center, Atlanta ..... 3 1.5.5 EUS Center, Tampa ................... 5 1.6 IBM Large Computing Support Location...... 5 1.6.1 MVS Support Group, Atlanta .......... 5 1.7 Graphics Coordinator ..................... 5 1.8 Training ................................. 6 1.9 Transitional Training .................... 6 1.10 Measurements ............................ 6 1.10.1 Basic Understanding ................ 7 1.10.2 Minimum Customer Satisfaction Level. 7 1.10.3 Quality Measurements/Reporting ..... 7 1.11 Acceptance Criteria...................... 7 1.12 IBM Responsibilities..................... 7 1.13 CGS Responsibilities..................... 8 1.14 Rate Schedule............................ 9 1.15 Glossary of Terms........................ 12 Contents ii - -------------------------------------------------------------------------------- 1.0 Term The term of this Statement of Work dated March 11, 1996 is effective from January 1, 1996 through December 31, 1996. - -------------------------------------------------------------------------------- 1.1 Project Description Helpdesk Services (HDS) is an IBM Workstation Support services capability, which provides helpdesk support for many hardware and software products, both IBM and non-IBM (specifics by location follow). CGS employees must be able to provide support for all of these environments. The number of CGS employees performing tasks may change with the concurrence of both parties. This number can fluctuate based on the number of customers being supported and the cost of support from CGS as compared to alternate sources. CGS will periodically be asked to supply additional employees (either full time or part time) to meet these needs. When requesting additional CGS employees IBM will identify specific product skills which the CGS employees must possess before being assigned to work in IBM. - -------------------------------------------------------------------------------- 1.2 Responsibilities As An IBM Subcontractor CGS employees shall be responsible for: . Answering requests for service received via telephone from customers and providing the required information/resolution of customer issues. The requests will involve questions and/or problems related to the use, configuration, or installation of the supported products. The questions must be answered in a complete, accurate, and timely fashion. . Demonstrating sufficient technical knowledge of the supported products listed to provide problem determination for the customer and usage assistance to customers, and to obtain information as needed from the product vendor. . Demonstrating tact, sound business judgement, and good communication skills when dealing with customers, with IBM employees, and with product vendors. . Demonstrating effective telephone communication skills. . Provide efficient use and successful completion of customer requests using the call management system to handle call activity and to record symptom/fix information. . Utilizing call handling/routing processes and procedures established between IBM and CGS. . Training of CGS employees on additional products to assist IBM when workload peaks occur or when other responsibilities listed above are not being pursued. . Recognizing when a customer situation warrants the intervention of an IBM manager and reporting the situation immediately. . Maintaining an acceptable business appearance and conduct. . Providing technical representatives capable of delivering prompt, quality solutions as described in the "IBM Helpdesk Services Locations" section. - -------------------------------------------------------------------------------- 1.3 Coordinators/Supervisors IBM and CGS shall appoint Site Coordinators. Each party shall inform the other of the name(s) of the coordinators appointed at the date of contract execution. CGS shall appoint a Site Coordinator, who shall supervise and direct the work of CGS employees and shall handle all personnel issues. This supervisor will interface with the IBM Site Coordinator(s) and will be the focal point for all on-site CGS interaction. This CGS Site Coordinator will be provided at no additional charge. The CGS Site Coordinator is expected to attend regularly scheduled technical meetings and reviews. The CGS Site Coordinator is expected to review CGS employee contributions on a regular basis to ensure CGS employees are achieving the quality/productivity goals as described later in the "Quality Assurance" section. The CGS Site Coordinator will receive reports on a regular basis, detailing call activity for all CGS employees. The CGS Site Coordinator is expected to actively assist the IBM Site Coordinator in improving overall HDS services. 1 - -------------------------------------------------------------------------------- 1.4 Work Schedules The IBM Support Centers provide customer assistance 24 hours per day, 7 days per week. CGS must be able to fulfill all shift requirements. Exact work hours will be determined by the IBM Site Coordinator in conjunction with CGS. CGS will be asked to supply part time employees to work 3-5 hours during "peak" workload times. Job descriptions are provided in Section 1.13. Since IBM Support Centers operate on a 24 hours per day, 7 days per week schedule, employees, including some number of CGS employees, will be required to work on IBM designated Holidays. - -------------------------------------------------------------------------------- 1.5 IBM Workstation Support Locations The following are the current IBM locations where CGS employees are required to provide telephone assistance to remotely diagnose customer problems/questions and communicate a correct response: 1.5.1 "C" Programmer Support Group, Atlanta "C" Programmer Design, develop and test programming tools written with "C". Requires strong "C" level programming skills. Prepare high level component designs from general requirement statements and provide component design documentation. Requires minimal supervision and is capable of designing drivers to test integrated modules. Senior "C" Programmer - same as above, plus: . Provide technical direction a group of "C" programmers . Provide informal and/or formal training in areas of expertise . Provide debugging, PD and system assistance to application developers . Provide consulting and programming services on operating systems software and other areas of expertise, including database internals and system utilities 1.5.2 Advanced Workstation Support Center, Chicago CGS employees will have all necessary skills, knowledge and expertise to provide support on: . RISC/6000 Hardware Problem Determination Provide prompt, quality support for hardware and usage problems related to the RISC/6000 operating environment. Responders require one to two years experience on the RISC/6000 hardware platform, support experience, strong interpersonal skills, attention to detail, demonstrated call leadership, ability to follow center procedures, team player, and potential to qualify as an AIX/UNIX support rep. . MULTIVENDOR SUPPORT - Provide remote hardware and software support for UNIX platforms. Responders require two to three years experience as a UNIX Administrator, knowledge of SUN, HIP, and SCO, ability to apply administrative knowledge in a variety of environments, attention to detail, strong interpersonal skills. . RISC/6000 CUSTOMER CALL SCREENING - Provide hardware and software RISC/6000 and AIX call screening and problem resolution. Responders require two to three years with the RISC/AIX platform as an administrator or equivalent experience. Strong communication skills, attention to detail, ability to follow center procedures, customer orientation, sensitive to escalation process, and a team player. . PNID/PARTS NUMBER SERVICE - Provide remote parts number identification services to IBM customers. Responders require strong organizational and communication skills, operational knowledge of a PC, be a team player and customer focused. 2 1.5.3 Desktop Support Center, Atlanta Desktop Support Representative CGS employees will have all necessary skills, knowledge and expertise including A + Certification to: provide assistance on and have a good working knowledge of PC, PS/2 Point of Sale terminals, and/or associated workstation equipment. Senior Desktop Support Representative - same as above, plus: . Provide strong computer skills specific to the product supported . Provide strong problem determination skills . Capable of training and assisting Desktop representatives . Provide excellent customer service techniques . Possess excellent oral and written communications skills Desktop Support Center Team Leader - This position is limited to one (l) team leader per twenty-five (25) employees within the Desktop Support Center. The team leader is expected to respond to customer/ce calls 50% of the time as describe in the position above, plus: . Schedule assigned resources to workload and alert IBM when available skills and/or resources will not satisfy a known engagement . Provide overall work direction to a team of technical resources sufficient to satisfy assigned service level objectives . Identify and respond to critical changes within assigned mission (technical, distribution of workload, etc.) with action plans for IBM review and implementation . Demonstrate ability to serve as escalation point for all critical customer calls System Installation Technician Position Concept: Travel to various customer locations to install computer systems and disconnect existing equipment. Responsibilities . Travel to customer locations based on a provided schedule . Unpack hardware systems and install according to procedures. Back up data from existing system. Load data to new system. Diagnose any system problem discovered during process. Disconnect existing system. Pack specified items for return. . Accurately complete online electronic form with the required information for the new system and the disconnected system. . Perform customer training on the new system. . Communicate any problems/discrepancies to Project Manager(s). . Utilize good judgement when handling any unusual situations. . Submit accurate labor and expense data on a timely basis. 1.5.4 Network Support Center, Atlanta The Network Support Center is comprised of four groups; LAN SERVICES Support, IDNX, LAN/WAN Connectivity, and Wireless/Cellular Helpdesk. The LAN Services environment is separated into three (3) skill requirements: l. Remote LAN Monitoring & Administration; 2. LAN Software - level II to perform Network Operating System (NOS) single product certification required and must be assigned workload in one of the following: Netware, Microsoft NT, Banyan, OS/2 Lanserver, etc.; and 3. LAN Software - Level II multiple NOS product certification and assigned workload. A Team Leader may be named and is limited to one (l) per twenty-five (25) employees within the Network Support Center. The team leader is expected to respond to customer/ce calls 50% of the time. Other duties are described in the job description. 1.5.4.1 LAN SERVICES SUPPORT CGS employees will have all necessary skills, knowledge and expertise to: . Provide remote support to IBM internal Lan installations in a LAN Administration support role. Must be able to troubleshoot over the phone all hardware/software problems associated with IBM Lanserver and OS/2 related 3 problems. Requires in-depth knowledge of IBM Lanserver and OS/2. . Provide remote telephone support to customer's to isolate LAN failures to the failing component. Interface with other IBM resources on LAN related issues and OEM vendor conference calls as a technical resource for the customer. . Provide direct dial in support for servers, includes monitoring critical resources, error and event logs, tuning, down loading software code, backing up critical files and operating system configurations, adding/ deleting users, resetting passwords, creating print servers, etc. . Products Supported: - - Servers: file, print, gateway, domain, MAU's, LAM's, CAU'S connectivity, token ring and ETHERNET topologies, LAN operating systems (OS/2 LANServer, NOVELL, etc.), IBM and OEM LAN adapter cards. . Environments supported: - - Hardware, software, configuration, tuning, multi-vendor product connectivity. . Certifications: - - Novell CNE, Banyan, Windows NT, OS/2 Operating system, Netware, LAN Network Manager, etc. Environment will require assigned workload in either single product or multiple product certified skills. - - Billing Rates: - - Bill Rates are based on each of the three (3) skill groups and on length of time in skill group based on entry, 3 months, and 6 months. CGS employees currently in these skill groups as of March 8, 1996 will remain at their present bill rate. A listing is to be provided to IPS with the employees name and bill rate as of March 8. All subsequent CGS employees will be at the rates listed in the Rate Schedule of this document. 1.5.4.2 IDNX SUPPORT CENTER CGS employees will provide direct support to IBM end users customers, and other IBM organizations, on workstations and remotely diagnosing event and error logs, to resolve hardware problems with voice and data equipment, working with TELCO and other equipment supplier vendors identified by IBM. Requires an in-depth knowledge of multiplexors, data communications devices, and switches. . Products supported: - IDNX - ADNX - STM . Environment Supported: - Wide area high bandwidth, PBX/CBX, Channel banks, echo cancellors, T-l/T-3, LWX Lan adapter, voice, data, video, image, frame relay, all speeds of data transmission. 1.5.4.3 LAN/WAN CONNECTIVITY SUPPORT CENTER CGS will isolate all network failures to a failing component, invoke and coordinate IBM resources, as required, participate in OEM vendor and TELCO conference calls as a technical resource for the customer. Interface with product and software engineering on defects and quality issues. . Products Supported: - - All IBM communication type products (modems, controllers, adapters, CPU's, etc.), over 200 in number. OEM communication type products. . Environment Supported: - - Hardware, software, configuration, TELCO carriers, OEM vendors. 1.5.4.4 WIRELESS/CELLULAR HELPDESK Wireless/Cellular Helpdesk Representative CGS employees will provide support to IBM end user customers that have contracted for cellular helpdesk services. Strong technical knowledge and/or experience in the cellular/wireless industry 4 to accurately and quickly perform problem determination and resolution. Must have thorough knowledge of a11 PC Laptops (IMB and OEM). Must be "Modem literate" pertaining to all types, capabilities, and standards, compression and error protocols, and completed range of asynchronous terminology. Familiar with CDPD for purpose of installation assistance, trouble-shooting, including some knowledge of TCP/IP concepts and protocols. Senior Wireless/Cellular Helpdesk Representative - same as above, plus: . In-depth knowledge of all laptops, modems, cellular protocols . Able to train and assist Cellular/wireless helpdesk representative . In-depth knowledge of TCP/IP protocols and networks . Be escalation point for difficult technical problems 1.5.4.5 NETWORK TEAM LEADER Network Support Center Team Leader -This position is limited to one (l) team leader per twenty-five (25) employees within the Network Support Center. The team leader is expected to respond to customer/ce calls 50% of the time as described in the position above plus: . Schedule assigned resources to workload and alert IBM when available skills and/or resources will not satisfy a known engagement . Provide overall work direction to a team of technical resources sufficient to satisfy assigned service level objectives . Identify and respond to critical changes within assigned mission (technical, distribution of workload, etc.) with action plans for IBMS review and implementation . Demonstrate ability to serve as escalation point for all critical customer calls 1.5.5 EUS Center, Tampa End User Support (EUS) supports over 250 IBM and non-IBM and commercially available, cross industry, PC software applications and PC hardware products: this includes DOS, OS/2, and Apple Macintosh operating systems. EUS also provides support on custom software/hardware. A custom product is an application developed by an IBM end user or its vendor to meet unique needs. CGS employees must have the capability to learn and support products that IBM is or may be supporting and have the ability to learn new custom products which IBM may elect to support in the future. Certifications include Microsoft Certified Professional, OS/2 Certified Engineer/Instructor, Microsoft Windows 95 Certification, Certified Novell Engineer. Additional acceptable certifications require prior written approval of both IBM Procurement and the IBM Site Coordinator. - -------------------------------------------------------------------------------- 1.6 IBM Large Computing Support Location The following are the current IBM locations where contract employees are required to provide telephone assistance to remotely diagnose customer problems/questions and communicate a correct response: 1.6.1 MVS Support Group, Atlanta Provide remote systems support to MVS customers worldwide. Requires an in-depth knowledge of MVS internals, sub-systems, and program products. - -------------------------------------------------------------------------------- 1.7 Graphics Coordinator Position Concept: Is responsible for creating and updating quality process and presentation charts on a timely basis. Primarily uses Lotus Freelance as the software on a PS/2 type machine. Will operate equipment associated with producing high-quality charts such as printers and plotters. 5 Responsibilities . Operates basic graphics equipment and programs. . Tracks due dates on process charts. . Updates and distributes process charts monthly. . Provides assistance for other presentation charts. . Performs other duties, as assigned. . Maintains soft copies of all charts created. . Ensures equipment used is maintained and usable. - -------------------------------------------------------------------------------- 1.8 Training Training provided by CGS to its employees supporting IBM will fall into one of three categories new employee, continuing. or new support. "New employee" training is a combination of technical and process education. CGS is responsible for the "new employee" technical education required for CGS employees prior to being assigned to IBM. This training must ensure that new CGS employees have sufficient technical knowledge of the supported products to provide reliable problem determination and usage assistance to customers, and to provide an efficient interface with the product vendor. CGS is responsible for providing IBM with a detailed outline of their "new employee" technical training plan, and the criteria used to certify completion of the training plan for each employee. All CGS employees are expected to complete this certification process prior to being assigned to work supporting IBM. IBM will not be responsible for any charges associated . with this training. CGS employees will be expected to maintain currency on new versions and new releases of supported products. This training is described as "continuing" training. Time spent on "continuing" training activities is on-going for uniform improvement of technical skills. "New support" training applies to time spent on education required to provide new or improved support to customers. IBM will provide for "new support" training for CGS Site Coordinators. This type of training may occasionally involve certification tests or exams. IBM will pay all costs associated with the training of site coordinators (unless special provisions are made in advance). CGS is expected to provide this training, testing and certification to its employees and to pay for the cost of the certification tests or exams. When a certified CGS employee leaves, CGS will be responsible to provide an equivalent skill replacement or be responsible for associated certification training expense. IBM will provide "new employee" process education on specific items which are considered to be unique to IBM. This education will be conducted once for the CGS Site Coordinator (or their designated representative). Thereafter, the CGS Site Coordinator is responsible for the "new employee" process education for all other CGS employees. The IBM Site Coordinator shall coordinate all IBM activities in support of the "new employee" process training. - -------------------------------------------------------------------------------- 1.9 Transitional Training In the event of cancellation or at the expiration of this Agreement, CGS agrees to provide a minimum of fifteen (15) days transitional training to a supplier to be specified by IBM if other than CGS. Said training shall be conducted by an adequate number of CGS employees to ensure continuity of service at a competent level of performance. IBM shall pay for such training at the rates specified in the Statement of Work for the job descriptions of the employees providing such training. CGS shall ensure that it continues to meet all performance and quality requirements specified in the Statement of Work throughout such training period. - -------------------------------------------------------------------------------- 1.10 Measurements CGS shall be responsible for Customer satisfaction survey results for calls responded to by CGS employees. The surveys will be conducted under IBM's authorization on a random basis. The sample should include a minimum of 5% to 8% of IBM end users whose problems have been resolved. Customer satisfaction results are a key indicator of service and will be shared between IBM and CGS 6 on a weekly basis. Improvement plans, as required, will be jointly developed and implemented. 1.10.1 Basic Understanding CGS will provide employees who can meet or exceed a minimum customer satisfaction level (see detail below) for all sites where it provides services to IBM. CGS will track these levels and replace any employees not meeting the minimum customer satisfaction level within two weeks. If a CGS employee leaves or is dismissed, CGS will be fully responsible for all regular hourly reimbursement (equivalent hours at IBM site, not to be greater than 90 days) associated with training a replacement. 1.10.2 Minimum Customer Satisfaction Level CGS employees must maintain an average of 95% minimum customer satisfaction level based on IBM's customer satisfaction survey. The satisfaction level is to be measured quarterly using a rolling three month average. Should any CGS employee not maintain an average of 95% minimum customer satisfaction level, CGS will notify IBM that the situation will be corrected within two weeks. CGS will be liable for up to three month's regular hourly reimbursement to train any necessary replacement(s). 1.10.3 Quality Measurements/Reporting IBM will provide the CGS Site Coordinator with reports and/or information detailing CGS's performance against the quality goals. This information will be supplied on a weekly and/or monthly basis. The CGS Site Coordinator is expected to work with the IBM Site Coordinator to ensure attainment of quality goals. CGS employees will participate and demonstrate commitment to quality improvement programs such as IBM Business Management Measurements (BMM) and ISO 9000 assessments/certification. Specific measurements will be developed by IBM and CGS to gauge performance and quality requirements. Overall areas measured will include but are not limited to: . Qualification of staff - Calls per day per rep . Adherence to procedures . Customer satisfaction . Quality control - Problem Duration - Call Response time/Call Abandon Rate - First Call Resolution - Minimal Customer Situation Information System (CSIS) incidents (actual formula to be determined) - -------------------------------------------------------------------------------- 1.11 Acceptance Criteria Initial acceptance will depend on evaluation of the vendor's ability to meet the scope defined in this document. Key criteria that will be reviewed includes but not limited to: . Cost . Quality . Management - -------------------------------------------------------------------------------- 1.12 IBM Responsibilities IBM is responsible for the following: . Existing Processes and Procedures . IBM Site Safety, Security and personnel conduct policies . Hardware/Software/Tools as described below (IBM Business use only) IBM will provide and maintain ownership of IBM PC'S or PS/2'S, printers, as well as any IBM and OEM software/hardware and all related technical manuals it deems necessary. Maintenance of the equipment will be performed by IBM. . Office facilities . Personal shared workstation and required software . Phone, headset, and phone system . Access to required systems/tools - RETAIN - KBS - VM - EUS ON-LINE 7 . Access to any additional required equipment . Badge access to assigned location Note: The supplier shall follow the practices, procedures and priorities of IBM in the use of IBM equipment, systems, and tools. - -------------------------------------------------------------------------------- 1.13 CGS Responsibilities CGS is responsible for the following: . Answer customer requests in a timely, professional, and accurate manner . Monitor call quality using a remote call monitoring system . Ensure operating processes and procedures are accurately followed . Assist in updating these processes and procedures as required . Update customer database records . Ensure skill requirements are met, maintained and updated . Provide effective management of personnel and workload . Train any additional personnel required after initial training . Support and adhere to ISO 9000 registration when complete and all other quality programs (CGS personnel will talk to ISO 9000 auditors if asked) . Evaluate work performance and increase or decrease to allow for efficiencies or increased workload at IBM's approval . CGS shall supply for IBM's review and approval, transition and implementation plans to meet targets . CGS management is expected to have regularly scheduled status meetings and provide written reports to the IBM Site Coordinator monthly. . Adhere to IBM Site Safety, Security and personnel conduct policies . Define process which manages new requirements from IBM . Monthly Quality updates and action plans . Perform configuration and setup of hardware and installation of software packages for the equipment assigned to them. 8 - -------------------------------------------------------------------------------- 1.14 Rate Schedule - -------------------------------------------------------------------------------- Table 1. Rate Schedule - -------------------------------------------------------------------------------- Job Description - "C" Programmer - $/HR $/HR Atlanta Pay Rate Bill Rate - -------------------------------------------------------------------------------- Programmer **** **** Senior "C" Programmer **** **** - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table 2. Rate Schedule - -------------------------------------------------------------------------------- Job Description - Atlanta Desktop $/HR $/HR Pay Rate Bill Rate - -------------------------------------------------------------------------------- Desktop Support Representative **** **** Senior Desktop Support Represen- **** **** tative Desktop Support Team Leader **** **** System Installation Technician **** **** - -------------------------------------------------------------------------------- **** Confidential treatment is being requested for these portions of this agreement. 9 - -------------------------------------------------------------------------------- Table 3. Rate Schedule - -------------------------------------------------------------------------------- Job Description - Atlanta Network $/HR $/HR Support Pay Rate Bill Rate - -------------------------------------------------------------------------------- LAN Monitoring & Administration - **** **** Entry LAN Monitoring & Administration - **** **** 3 months in position LAN Monitoring & Administration - **** **** 6 months in position LAN Software- Single NOS Product **** **** Certification Assigned - Entry LAN Software- Single NOS Product **** **** Certification Assigned - 3 Months LAN Software - Single NOS Product **** **** Certification Assigned - 6 Months LAN Software - Multi-NOS Product **** **** Certification Assigned - Entry LAN Software - Multi-NOS Product **** **** Certification Assigned - 3 Months LAN Software- Multi-NOS Product **** **** Certification Assigned - 6 Months IDNX Remote Support Represen- **** **** tative LAN/WAN Connectivity Support **** **** Representative Wireless/Cellular Support Represen- **** **** tative Senior Wireless/Cellular Support **** **** Representative Network Support Team Leader **** **** - -------------------------------------------------------------------------------- **** Confidential treatment is being requested for these portions of this agreement. 10 - -------------------------------------------------------------------------------- Table 4. Rate Schedule - -------------------------------------------------------------------------------- Job Description- Chicago Advanced $/HR $/HR Workstation Support Pay Rate Bill Rate - -------------------------------------------------------------------------------- RISC/6000 Hardware PD **** **** Multivendor Support Representative **** **** - - UNIX RISC/6000 Call Screening - **** **** RISC/AIX PNID/Parts Number Service **** **** - -------------------------------------------------------------------------------- Table 5. Rate Schedule - -------------------------------------------------------------------------------- Job Description - Tampa EUS $/HR $/HR Pay Rate Bill Rate - -------------------------------------------------------------------------------- SW Application Support Represen- **** **** tative up to 3 years IBM experience SW Application Support Represen- **** **** tative with IBM approved certif- ication or 3 years IBM experience - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table 6. Rate Schedule - -------------------------------------------------------------------------------- Job Description - MVS Support Rep- $/HR $/HR resentative Pay Rate Bill Rate - -------------------------------------------------------------------------------- MVS Support Representative **** **** - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table 7. Rate Schedule - -------------------------------------------------------------------------------- Job Description - Graphics Coordi- $/HR $/HR nator Pay Rate Bill Rate - -------------------------------------------------------------------------------- Graphics Coordinator **** **** - -------------------------------------------------------------------------------- . Notes -- IBM shall pay overtime at a rate of ****% of the regular pay rate. -- IBM will not pay shift premium -- IBM will not pay overtime for CGS managers/CGS Site Coordinator -- Pay rate times uplift equals the bill rate **** Confidential treatment is being requested for these portions of this agreement. 11 -- It is IBM's intent to reimburse for "productive" hours worked. Supplier should plan on invoicing IBM for actual hours worked at the support center location. Vacation/sick and other time away from the job should be absorbed in overhead. -- CGS will not use an employee assigned to an IBM location for any outside consulting work without receiving advanced authorization, in writing, from IBM. - -------------------------------------------------------------------------------- 1.15 Glossary of Terms . "Technical Representative" is a person who is skilled in the use of a product and is considered to be of an advisory capacity on the product. . "Help Desk" Services (HDS) are a bundle of separate services available through IBM's Workstation Technical Support organization to provide a comprehensive array of services that uniquely address a customer's needs in today's complex mixed vendor computer processing environments. . "OEM" is the original equipment manufacturer (e.g. Compaq, Apple, etc.). . "Problem" is a singular request for assistance on a specific product. Requests for assistance on multiple products, or different problems with the same product will be considered to be multiple problems. If an initial answer does not resolve the problem, subsequent calls may be placed under the original problem number. A problem may involve multiple conversations or actions: the initial request, off-line research, a callback. and closure. . "NOS" is a Network Operating System such as OS/2 LANServer, BANYAN, MICROSOFT NT, etc. . "Supported Product" is an eligible software/hardware product which is on a current Workstation Technical Support supported product list. Supported implies trained personnel are ready and available to handle calls on the product. . "Workstation" is a machine of an eligible type and at least one eligible program listed on the supported product list. . "CSIS" (Customer Situation Information System) is IBM's customer complaint system for tracking, monitoring, and ensuring satisfactory resolution. . "Entitlement" is the process of ensuring customers are entitled to receive warranty/maintenance service or helpdesk services from IBM. . "Retain" (Remote Technical Assistance Network) is IBM's world-wide database storing customer problem records. . "VM" (Virtual Machine) is the IBM mainframe operating system. . "Trailer Call" is the process used to measure a customer's level of satisfaction with the way their call was handled. . "ISO 9000" are internationally recognized industry standards which identify the requirements for an effective quality management system. EX-10.2 5 AGREEMENT FOR SERVICES BETWEEN AT&T AND CGS * EXHIBIT 10.2 ------------ Master Agreement for Professional Services dated June 26, 1995, between AT&T Corp. and Computer Generated Solutions, Inc. * Confidential Treatment is being requested with respect to portions of this exhibit MASTER AGREEMENT FOR -------------------- PROFESSIONAL SERVICES --------------------- THIS MASTER AGREEMENT FOR PROFESSIONAL SERVICES ("Agreement") is made and entered into as of the 26th day of June, 1995, by and between AT&T Corp., a corporation of the State of New York with offices at 55 Corporate Drive, Bridgewater, NJ 08807 (hereinafter referred to as "CUSTOMER"), and Computer Generated Solutions, Inc., a corporation of the State OF Delaware with offices at 1675 Broadway, 31st Floor, New York, New York 10019 (hereinafter referred to as "CONSULTANT"). W I T N E S S E T H - - - - - - - - - - That, for and in consideration of the mutual promises and covenants hereinafter contained, the parties hereto agree as follows: ARTICLE 1 --------- GENERAL DESCRIPTION OF OBJECTIVES --------------------------------- AND SCOPE OF SERVICES --------------------- 1.1 CONSULTANT agrees to provide to CUSTOMER technical assistance and assistance in design, programming, training, consulting, project management, use of expertise and related services as are described on such CONSULTANT Schedules as are executed from time to time by both parties to this Agreement (the "Schedules"). Such services shall be provided in accordance with the provisions of this Agreement and within guidelines established by CUSTOMER. There shall be two types of Schedules, one a time and materials Schedule substantially in the form of annexed hereto as Exhibit 1 and made a part hereof ("T&M ------- - Schedule"), the other a fixed price Schedule substantially in the form annexed hereto as Exhibit 2 and made a part hereof ("Fixed Price Schedule"). Each ------- - Schedule shall be consecutively numbered to facilitate identification. 1.1.1 Each such Schedule, when executed by an authorized representative of both parties, shall constitute a separate agreement and except for any provisions herein which are specifically excluded or modified in such Schedule, each such Schedule shall incorporate therein all of the terms and conditions of this Agreement. Each T&M Schedule will contain the names of the CONSULTANT employees performing services covered by that Schedule, their job classification, the daily rate of payment applicable to each listed CONSULTANT employee (the "Daily Rate"), the work location of each CONSULTANT employee, the name of CUSTOMER's Project Manager and such additional information, terms and conditions as the parties may agree upon. Each Fixed Price Schedule will contain the fixed price of the work effort, the names of CONSULTANT's and CUSTOMER's Project Managers and such additional information, terms and conditions as the parties may agree upon. In the event of any conflict between the terms and conditions of this Agreement and the terms and conditions of any Schedule, the terms and conditions of such Schedule shall govern. 1.2 The scope of CONSULTANT's work effort must be coordinated with appropriate personnel designated by CUSTOMER and shall at all times be subject to the parameters established by CUSTOMER from time to time. 1.3 CONSULTANT agrees that CUSTOMER'S parent company or any subsidiary and/or affiliated company of CUSTOMER may execute Schedules in accordance with the provisions of this Agreement. In such event, the applicable subsidiary or company of CUSTOMER executing any Schedule shall be considered to be the "CUSTOMER" as that term is used in this Agreement. 1.4 Unless otherwise mutually agreed to by the parties in writing, CONSULTANT and CUSTOMER agree not to hire or to solicit the employment of any personnel of the other party directly or indirectly associated with CONSULTANT'S work effort under any Schedule during the term of such Schedule and for a period of twelve (12) consecutive months thereafter. 1.5 This Agreement shall commence on the date first above written and shall continue in full force and effect thereafter 2 unless and until terminated in accordance with the provisions of this Agreement. ARTICLE 2 -------- STATEMENT OF WORK ----------------- 2.1 A statement of scope of work (the "Statement") shall be attached to each Schedule as an Attachment A and shall be incorporated therein and made a part ------------ thereof. Any statement attached to a T&M Schedule will contain a description of, and the schedule for, the tasks to be performed by CONSULTANT, the documentation if any, to be produced by CONSULTANT, the maximum dollar amount (the "Maximum Dollar Amount") billable under such T&M Schedule, and such additional information as the parties may wish to include. Any Statement attached to a Fixed Price Schedule will contain a full and complete description of the tasks to be performed by CONSULTANT, a description of the deliverables to be produced by CONSULTANT, a listing of the documentation to be provided by CONSULTANT, the schedule for completion of each of the foregoing (including, but not limited to, milestone dates and PERT charts), a schedule of payments and such additional information as the parties may wish to include. 2.1.1 Each Schedule referred to herein shall be deemed to include any such Statement. ARTICLE 3 ------- ORGANIZATION OF EMPLOYEES ------------------------- SUPPLIED BY CONTRACTOR ---------------------- 3.1 CONSULTANT will appoint for each T&M Schedule, at no charge to CUSTOMER, a qualified member of its staff who will operate as the main interface between CUSTOMER and CONSULTANT, who will ensure that CONSULTANT personnel coordinate and interface with CUSTOMER personnel in a manner satisfactory to CUSTOMER, and who will assist CUSTOMER in resolving any problems. 3.2 In order to establish a close working relationship with CUSTOMER on fixed price work efforts and to ensure that CONSULTANT personnel coordinate and interface with such CUSTOMER personnel as may be designated by CUSTOMER, CONSULTANT agrees to 3 appoint a qualified member of its staff, at no charge to CUSTOMER, to function as CONSULTANT's Project Manager for each Fixed Price Schedule. The CONSULTANT Project Manager will be charged with the responsibility of coordinating CONSULTANT's fixed price work effort with appropriate CUSTOMER personnel and of ensuring that CONSULTANT's resources are available to perform the tasks set forth on the applicable Fixed Price Schedule. The CONSULTANT Project Manager will also prepare the monthly status reports required under the terms of Article 5 hereof. 3.3 In the event that any CONSULTANT employee performing services under any Schedule is found to be unacceptable to CUSTOMER for any cause, including, but not limited to, demonstration that he or she is not qualified to perform, CUSTOMER shall have the right to notify CONSULTANT of such fact (without waiving any other rights or remedies it may have hereunder) and CONSULTANT shall immediately remove said employee from performing services under that Schedule and, if requested by CUSTOMER, provide a qualified replacement. 3.3.1 In the event that any anticipated or actual delays in meeting CUSTOMER's deadlines or scheduled completion dates for work being performed under any Schedule are caused by the unacceptable performance of any CONSULTANT employee, CONSULTANT shall provide additional temporary personnel, as requested by CUSTOMER and at no charge to CUSTOMER, in order to complete the assignment involved in a timely manner. 3.4 CONSULTANT agrees to ensure the continuity of CONSULTANT employees assigned to perform services under any Schedule. Any reassignment by CONSULTANT of those of its employees assigned to perform services under any Schedule must be with CUSTOMER's prior written consent and with one (1) month's prior written notice to CUSTOMER. In the event CONSULTANT reassigns any of its employees assigned to perform services under any Schedule, CONSULTANT will promptly provide a replacement acceptable to CUSTOMER. In no event may CONSULTANT remove or replace personnel provided hereunder for the purpose of reassignment to another customer or elsewhere within CUSTOMER, unless otherwise agreed to in writing by CUSTOMER. 4 3.5 There will be no charge to CUSTOMER for any replacement provided in accordance with Sections 3.3 and/or 3.4 hereof for a reasonable period of time (to be agreed upon between CUSTOMER and CONSULTANT) while the replacement employee acquires the necessary orientation and education to make a productive contribution substantially equal to that of the employee replaced. 3.6 CONSULTANT, in performance of this Agreement, is acting as an independent contractor. Personnel supplied by CONSULTANT hereunder are not CUSTOMER's personnel or agents, and CONSULTANT assumes full responsibility for their acts. CONSULTANT shall be solely responsible for the payment of compensation of CONSULTANT employees assigned to perform services hereunder, and such employees shall be informed that they are not entitled to the provision of any CUSTOMER employee benefits. CUSTOMER shall not be responsible for payment of workers' compensation, disability benefits, unemployment insurance and for withholding income taxes and social security for any CONSULTANT employee, but such responsibility shall be that of CONSULTANT. 3.6.1 In the event that the Internal Revenue Service, any state or local government agency or any other applicable entity determines that the personnel provided by CONSULTANT under any Schedule are employees of CUSTOMER for the purpose of withholding tax liability, CONSULTANT agrees to indemnify CUSTOMER against and release CUSTOMER from all liabilities, costs, and expenses (including, but not limited to, attorneys' fees) associated with the defense of such claim. ARTICLE 4 --------- ORGANIZATION OF PERSONNEL ------------------------- SUPPLIED BY CUSTOMER -------------------- 4.1 CUSTOMER shall designate an appropriate CUSTOMER representative as CUSTOMER's Project Manager for each Schedule. The CUSTOMER's Project Manager will be charged with the responsibility of acting as CONSULTANT's principal point of interface with CUSTOMER for the services covered by the Schedule involved, and, in the case of any T&M Schedule, will direct, 5 define, and schedule the tasks to be performed by CONSULTANT employees contemplated by the applicable Statement. ARTICLE 5 --------- STATUS REPORTS; STATUS MEETINGS ------------------------------- 5.1 Unless otherwise agreed to by CUSTOMER, in writing, CONSULTANT shall submit to CUSTOMER's designated Project Manager every month during the term of each Statement (commencing thirty (30) days from the commencement date of such Statement) written status reports fully describing CONSULTANT's activities and accomplishments during the preceding month, in order to timely report CONSULTANT's continuous involvement in the tasks contemplated by the applicable Statement and in order to direct timely corrective action as necessary. The status reports will include, but will not necessarily be limited to, the following: 5.1.1 Current status of CONSULTANT activities together with an explanatory narrative when appropriate. 5.1.2 Indication of the progress of the work being performed by CONSULTANT, as that progress relates to the Statement involved. 5.1.3 Resources used since the date of the last report, as well as a cumulative total to date. 5.1.4 Identification of actual and anticipated problem areas, the impact on CONSULTANT's work effort of said problem areas, and present action being taken (or suggested alternative action steps to be taken) in order to reduce the impact of such problems. 5.2 If CUSTOMER so requests, CONSULTANT shall hold status meetings with CUSTOMER management in order to review the status of CONSULTANT activities. 6 ARTICLE 6 --------- FEES AND EXPENSES; RECORDS; TAXES --------------------------------- 6.1 CONSULTANT agrees to invoice CUSTOMER, monthly in arrears as of the 15th day of each month (or as otherwise mutually agreed to by the parties in writing), for the technical assistance and assistance in design, programming, consulting, training, project management, use of expertise and related services provided to CUSTOMER by CONSULTANT personnel under any T&M Schedule in accordance with the Daily Rate set forth opposite each CONSULTANT employee listed on that Schedule. Such Daily Rate shall be in no event more than CONSULTANT's standard published rate for an employee in that job classification. CONSULTANT agrees to invoice CUSTOMER for any fixed price work effort in accordance with the schedule of payments set forth on the Statement attached to the applicable Fixed Price Schedule. 6.1.1 For work performed pursuant to any T&M Schedule, the normal work week shall be five (5) days, eight (8) hours per day, excluding one (1) hour for meals. Such days and hours shall be as requested by CUSTOMER from time to time. In the event that less than an eight (8) hour day is worked by a CONSULTANT employee on any given day, the amount payable by CUSTOMER for that day will be determined by applying a fraction whose numerator is the actual number of hours worked by such CONSULTANT employee and whose denominator is eight (8) to the appropriate Daily Rate for that employee. Any hours worked by a CONSULTANT employee under any T&M Schedule in excess of eight (8) in any one day, or any days worked by a CONSULTANT employee under any T&M Schedule in excess of five (5) days in any one week, shall be at no additional expense to CUSTOMER unless prior written approval is obtained from the applicable Project Manager, in which case the amount payable for each such hour shall be l/8 of the applicable Daily Rate. 6.1.2 For work performed pursuant to any T&M Schedule, CONSULTANT will submit authorized time sheets to CUSTOMER each week showing the number of hours worked by CONSULTANT employees. 7 6.2 In addition to the charges invoiced in accordance with Section 6.1 hereof, CONSULTANT shall invoice CUSTOMER, monthly in arrears as of the 15th day of each month (or as otherwise mutually agreed to by the parties in writing), for expenses incurred as a result of performing services in accordance with any Schedule. Such expenses shall be limited to the following: 6.2.1 Reasonable out-of-pocket expenses necessarily and actually incurred by CONSULTANT in the performance of its services hereunder, provided that: (i) CUSTOMER has given its prior written consent for any such expenses; (ii) the expenses have been detailed on a form acceptable to CUSTOMER and submitted to the appropriate CUSTOMER Project Manager for review and approval; and (iii) if requested by CUSTOMER, CONSULTANT submits supporting documentation in addition to the approved expense form. It is understood that CUSTOMER shall not reimburse CONSULTANT unless otherwise specified in the Exhibit for commutation expenses under any circumstances or for travel and living expenses incurred by any CONSULTANT employee in performing services at a CUSTOMER facility located in the same metropolitan area as that of employee's home base. It is also understood that any air transportation reimbursable hereunder shall be coach-economy and that entertainment by or on behalf of CONSULTANT shall be at no cost to CUSTOMER. 6.3 CONSULTANT will submit the charges and/or expenses to be invoiced for services performed under any Schedule to the CUSTOMER's Project Manager for that Schedule for review and approval prior to actual invoicing. The charges and/or expenses invoiced in accordance with this Article 6, except for any amounts disputed by CUSTOMER, shall be payable by CUSTOMER within thirty (30) days of CUSTOMER's receipt of each invoice. Any disputed charges and/or expenses shall not affect payment of non-disputed charges and/or expenses, in accordance with the terms of this Agreement. Consultant agrees to send duplicate copies of each invoice to AT&T Solutions, 55 Corporate Drive, Bridgewater, New Jersey 08807, ATTN: Financial Manager. 8 6.4 Notwithstanding anything to the contrary contained herein, CUSTOMER shall not be liable for any charges and/or expenses under any T&M Schedule in excess of the Maximum Dollar Amount specified on such T&M Schedule. In the event that CONSULTANT'S charges and/or expenses billable under any T&M Schedule approach the Maximum Dollar Amount, CONSULTANT shall immediately notify CUSTOMER of such fact, in writing, and if CUSTOMER agrees, at its discretion, in writing, a new Maximum Dollar Amount shall be applicable to such T&M Schedule. 6.5 CONSULTANT shall maintain complete and accurate accounting records, in a form in accordance with generally accepted accounting principles, to substantiate CONSULTANT's charges and expenses hereunder. Such records shall include, but not be limited to, payroll records, attendance cards and job summaries, and CONSULTANT shall retain such records for a period of one (1) year from the date of final payment under any Schedule. 6.5.1 CUSTOMER shall have access to the records described in Section 6.5 for purposes of audit during normal business hours during the period in which CONSULTANT is required by the terms of Section 6.5 hereof to maintain such records. 6.6 The charges set forth herein do not include and CUSTOMER will pay, as hereinafter stated, all sales or use taxes lawfully levied against or upon the services provided hereunder, or arisinq out of this Agreement. ARTICLE 7 --------- VERIFICATION OF ACCEPTABILITY ----------------------------- 7.1 Each and every deliverable contemplated by any Schedule shall be subject to a verification of acceptability by CUSTOMER for the purpose of demonstrating that the deliverable satisfies the criteria for verification of acceptability mutually agreed to by CUSTOMER and CONSULTANT for said deliverable, a copy of which shall be attached to the applicable Schedule and made a part thereof 9 7.2 The criteria for verification of acceptability for each deliverable contemplated by any Schedule shall be jointly developed and mutually agreed to in writing by CUSTOMER and CONSULTANT at least thirty (30) days in advance of the date identified in the Schedule for production of the deliverable involved. 7.2.1 In the event the parties are unable to jointly develop and mutually agree to the criteria for verification of acceptability of software deliverables, then at a minimum, verification of acceptability of such software deliverable shall be based on the conformance of the software deliverables to the functional specifications for same. 7.2.2 In the event the parties are unable to jointly develop and mutually agree to the criteria for verification of acceptability of requirements definition deliverables, design deliverables or other non- software deliverables, then, at a minimum, verification of acceptability of such deliverables shall be based, in the case of design deliverables, on the conformance of the design deliverable to the applicable statement of business requirements and, in the case of requirements definition deliverables and other non-software deliverables, on CUSTOMER's satisfaction or non-satisfaction with the deliverable. 7.3 The verification of acceptability for any deliverable pursuant to any Schedule shall commence on the date CONSULTANT notifies CUSTOMER's Project Manager, in writing, that the deliverable involved has been satisfactorily completed, in CONSULTANT's opinion, and is ready for verification of acceptability by CUSTOMER. Such commencement date shall be a date no later than ten (10) calendar days after the date on which the deliverable is to be produced, as specified on the applicable Statement (or such other date as may be mutually agreed to by both parties in writing). Verification of acceptability shall continue for the period of time specified in the criteria for verification of acceptability or, if no such time period has been 10 agreed upon by the parties, for a period of thirty (30) consecutive days. 7.4 In the event that any deliverable contemplated by any Schedule does not conform to the criteria for verification of acceptability for same within the verification of acceptability period described in Section 7.3 hereof, CUSTOMER shall notify CONSULTANT in writing of such fact. CUSTOMER shall cooperate with CONSULTANT in identifying in what respects the deliverable has failed to conform to the criteria. CONSULTANT shall, at no cost to CUSTOMER, promptly correct any deficiencies which prevent such deliverable from conforming to the criteria. Upon completion of the corrective action by CONSULTANT, and at no additional cost to CUSTOMER, the verification of acceptability will be repeated until the deliverable has successfully conformed to the criteria for verification of acceptability. 7.5 If the deliverable contemplated by any Schedule does not conform to the criteria for verification of acceptability within thirty (30) days after the initial verification of acceptability period described in 7.3, CUSTOMER may (i) immediately terminate the applicable schedule without waiving any other rights or remedies it may have hereunder and CONSULTANT shall immediately reimburse CUSTOMER any amounts paid; or (ii) require CONSULTANT to continue to attempt to correct the differences, reserving the right to terminate as aforesaid at anytime. 7.6 When any deliverable has successfully conformed to or satisfied the criteria for verification of acceptability for same, CUSTOMER shall promptly notify CONSULTANT of such fact in writing. ARTICLE 8 --------- PATENT AND COPYRIGHT INFRINGEMENT --------------------------------- 8.1 CONTSULTANT agrees to defend and/or handle at its own cost and expense any claim or action against CUSTOMER, its parent company, and its or their subsidiaries and/or affiliated companies, for actual or alleged infringement of any patent, copyright or other property right (including, but not limited to, misappropriation of trade secrets) based on any software, 11 program, service and/or other materials furnished to CUSTOMER by CONSULTANT pursuant to the terms of this Agreement or the use thereof bv CUSTOMER. 8.1.1 CONSULTANT shall have the sole right to conduct the defense of any such claim or action and all negotiations for its settlement or compromise, unless otherwise mutually agreed to in writing by the parties hereto. 8.2 CONSULTANT further agrees to indemnify and hold CUSTOMER, its parent company, and its or their subsidiaries and/or affiliated companies, harmless from and against any and all liabilities, losses, damages, costs and expenses (including, but not limited to, attorneys' fees) associated with any such claim or action. 8.3 CONSULTANT agrees to give to CUSTOMER, in reasonable detail, prompt written notice of any threat, warning, or notice of any such claim or action against CONSULTANT which could have an adverse impact on CUSTOMER's use of said software, program, service and/or materials. 8.4 In addition to CUSTOMER'S other rights and CONSULTANT'S obligations pursuant to Sections 8.1, 8.2 and 8.3 hereof CONSULTANT agrees, should CUSTOMER'S use of any service, software, program, and/or other material furnished to CUSTOMER by CONSULTANT be enjoined by any court, to promptly obtain, at no expense to CUSTOMER, the right to continue to use the items so enjoined or, at no expense to CUSTOMER, provide CUSTOMER promptly with substitute items (which supply of such items will not violate any third party's rights), that are qualitatively and functionally at least the equal of the enjoined products and satisfy CUSTOMER's needs to the same extent as the enjoined product. ARTICLE 9 --------- CONFIDENTIAL INFORMATION ------------------------ 9.1 Confidential information shall mean any information obtained by CONSULTANT from, or disclosed to CONSULTANT by, CUSTOMER, its parent company, its or their subsidiaries and/or 12 affiliated companies, and/or any of their clients, which relates to the past, present or future business activities of said entities, and/or their clients, including, but not limited to, any information relating to pricing, methods, processes, financial data, lists, technical data, apparatus, statistics, programs, specifications, documentation, research, development or related information, and the results from the provision of the services performed by CONSULTANT under this Agreement. CONSULTANT shall hold such confidential information in trust and confidence for CUSTOMER and shall not reproduce, disclose to any person, firm or enterprise, or use for its own benefit, any such confidential information. Upon the completion and/or termination of any Schedule, or sooner if so requested by CUSTOMER, CONSULTANT shall deliver to CUSTOMER all items, including, but not limited to, drawings, blueprints, descriptions, test data or other papers or documents, which may contain any such confidential information. 9.2 Unless otherwise specified in any Schedule, title to all materials, products and/or deliverables, including, but not limited to, reports, designs, programs, specifications, documentation, manuals, visual aids, and any other materials developed and/or prepared for CUSTOMER by CONSULTANT under any Schedule (whether or not such Schedule is completed), and all interest therein shall vest in CUSTOMER and shall be deemed to be a work made for hire and made in the course of the services rendered hereunder. To the extent that title to any such works may not, by operation of law, vest in CUSTOMER or such works may not be considered works made for hire, all rights, title and interest therein are hereby irrevocably assigned to CUSTOMER. All such materials shall belong exclusively to CUSTOMER, with CUSTOMER having the right to obtain and to hold in its own name, copyrights, resistrations or such other protection as may be appropriate to the subject matter, and any extensions and renewals thereof. CONSULTANT agrees to give CUSTOMER and any person designated by CUSTOMER, reasonable assistance, at CUSTOMER's expense, required to perfect the rights defined in this Section 9.2. Unless otherwise requested by CUSTOMER, upon the completion of the services to be performed under each Schedule or upon the earlier termination of such Schedule, CONSULTANT shall immediately turn over to CUSTOMER all materials 13 and deliverables developed pursuant to such Schedule, including, but not limited to, working papers, narrative descriptions; reports and data. ARTICLE 10 ---------- WARRANTIES ---------- 10.1 CONSULTANT warrants and represents that each of its employees assigned to perform services under any Schedule shall have the proper skill, training and background so as to be able to perform in a competent and professional manner and that all work will be performed in accordance with the Schedules. 10.2 Unless otherwise specified in any Schedule, all materials, deliverables and products developed under each Schedule by CONSULTANT, whether or not such Schedule is completed, are the property of CUSTOMER. CONSULTANT warrants that CUSTOMER shall receive free, good and clear title to all materials, deliveries and products developed under this Agreement. 10.3 CONSULTANT warrants and represents that each and every software deliverable contemplated by a Fixed Price Schedule shall conform to the specifications for same as mutually agreed to in writing by CUSTOMER and CONSULTANT. 10.4 CONSULTANT warrants and represents that for that period of time specified in the applicable Schedule from the date CUSTOMER notifies CONSULTANT of the fact that a deliverable has successfully conformed to the criteria for verification of acceptability for same, in accordance with Section 7.5 hereof CONSULTANT will, at no charge to CUSTOMER, furnish such materials and services as shall be necessary to correct any defects in the operation of the version of the software deliverable or other products in CUSTOMER's possession and to maintain them in good working order in accordance with the specifications for same. Unless otherwise stated in the Schedule, the warranty period shall be one hundred twenty (120) consecutive calendar days. 14 ARTICLE 11 ---------- INDEMNIFICATION; INSURANCE -------------------------- 11.1 CONSULTANT shall be liable for and shall defend, indemnify and hold CUSTOMER harmless against any claims, losses, damage or expenses (including reasonable attorney's fees) in connection with or arising out of the acts or omissions of CONSULTANT, its officers, employees, agents and representatives. 11.2 CONSULTANT shall procure and maintain for itself and its employees all insurance coverage's as required by Federal or State law, including workers' compensation insurance. CONSULTANT also agrees to maintain comprehensive general liability coverage with limits of $3,000,000 and $500,000 automobile liability coverage. CONSULTANT shall furnish to CUSTOMER a certificate of insurance evidencing such coverage and naming CUSTOMER and all parent companies of CUSTOMER as additional insured. Said certificate wlll include a provision whereby thirty (30) days notice must be received by the Vendor Manager, AT&T Solutions, 55 Corporate Drive, Bridgewater, New Jersey 08807 prior to cancellation or a material change in coverage by either CONSULTANT or Insurer. 11.3 CONSULTANT shall procure and maintain for itself Employers' Liability Insurance coverage including bodily injury coverage, with a minimum of $100,000 for each person. CONSULTANT will provide CUSTOMER a certificate of insurance evidencing such coverage which will include a provision whereby thirty (30) days notice must be received by the Vendor Manager, AT&T Solutions, 55 Corporate Drive, Bridgewater, New Jersey 08807, prior to cancellation or a material change in coverage by either CONSULTANT or Insurer. ARTICLE 12 ---------- EXCUSABLE DELAYS (FORCE MAJEURE) -------------------------------- 12.1 In no event shall either party be liable to the other for any delay or failure to perform hereunder, which delay or failure to perform is due to causes beyond the control of said party including, but not limited to, acts of God; acts of the public enemy; acts of the United States of America, or any State, territory or political division of the United States of America, or of 15 the District of Columbia; fires; floods; epidemics; quarantine restrictions; strikes; and freight embargoes. 12.2 In every case the delay or failure to perform must be beyond the control and without the fault or negligence of the party claiming excusable delay, and the party claiming excusable delay must promptly notify the other party of such delay. 12.3 Performance times under this Agreement or under any Schedule shall be considered extended for a period of time equivalent to the time lost because of any delay which is excusable under this Article 12; provided, however, that if any such delay continues for a period of more than sixty (60) calendar days, the party not claiming excusable delay shall have the option of terminating this Agreement or the applicable Schedule, upon notice to the party claiming excusable delay. ARTICLE 13 ---------- MATERIAL BREACH; TERMINATION ---------------------------- 13.1 In the event of any material breach of, or material misrepresentation relating to, any Schedule by either party, the other party may terminate said Schedule by giving thirty (30) days' prior written notice thereof and/or pursue any other remedies and rights at law or in equity; provided, however, that such Schedule will not terminate at the end of said thirty (30) days' notice period if the party in breach has cured the misrepresentation or breach of which it has been notified prior to the expiration of said thirty (30) days. 13.2 IN NO EVENT SHALL EITHER PARTY BE LIABLE, ONE TO THE OTHER, FOR INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE FURNISHING, PERFORMANCE, OR USE OF THE SERVICES OR MATERIALS PROVIDED FOR IN THIS AGREEMENT, EXCEPT TO THE EXTENT SUCH DAMAGES ARE INCLUDED IN AN AWARD AGAINST CUSTOMER RESULTING FROM A CLAIM FOR WHICH CUSTOMER IS INDEMNIFIED HEREUNDER AND EXCEPT FOR PERSONAL INJURY OR DEATH, OR DAMAGE TO REAL PROPERTY. ARTICLE 14 ---------- TERMINATION FOR CONVENIENCE --------------------------- 14.1 Notwithstanding any other provision(s) of this Agreement to the contrary, Customer may terminate this Agreement or any Schedule(s) hereunder for its convenience by giving Consultant two (2) weeks' prior written notice of its election to terminate said Agreement or Schedule. In such case, Customer agrees to pay Consultant for all costs incurred by Consultant up to the effective date of termination at the agreed upon rates and expenses set forth herein. 16 ARTICLE 15 ---------- CUSTOMER SECURITY REGULATIONS/WORK POLICY ----------------------------------------- 15.1 CONSULTANT and each employee of CONSULTANT performing services covered by any Schedule will safeguard the confidential information of CUSTOMER to which he/she has access. Without limiting the generality of the foregoing, neither CONSULTANT nor any employee or other personnel provided by CONSULTANT will trespass into, destroy, modify, or disclose any confidential information of CUSTOMER except as otherwise provided herein. Without limiting any of CUSTOMER'S rights or remedies hereunder, all of which are specifically reserved, any unauthorized trespass into, destruction, modification, or disclosure of confidential information by or caused by CONSULTANT or any employee or other personnel provided by CONSULTANT will be grounds for immediate termination of Services and, where appropriate, referral to law enforcement agencies for criminal prosecution. 15.2 CONSULTANT'S personnel will comply with CUSTOMER'S security regulations particular to each work location, including, but not limited to, CUSTOMER'S internal security department's fingerprinting and photographing screening process. CONSULTANT'S personnel, when deemed appropriate by CUSTOMER, will be issued visitor identification cards. Each such card will be surrendered by CONSULTANT'S personnel upon demand by CUSTOMER or upon termination of this Agreement. 15.3 Unless otherwise agreed to by the parties, CONSULTANT'S personnel will observe the working hours, working rules, and holiday schedules of CUSTOMER while working on CUSTOMER'S premises. In addition, the vacation time for CONSULTANT'S personnel will be scheduled so as not to interfere with the deadlines or scheduled completion date for any work being performed under any Schedule. ARTICLE 16 ---------- ASSIGNMENT ---------- 16.1 This Agreement shall be binding upon the parties' respective successors and permitted assigns. 16.2 Neither party may assign this Agreement and/or any of its rights and/or obligations hereunder without the prior written consent of the other party, and any such attempted assignment shall be void, except that CUSTOMER may assign this Agreement, and/or any of its rights and/or obligations hereunder, upon written notice to CONSULTANT, to its parent company, or to any of its or their subsidiaries or affiliated companies, without the consent of CONSULTANT. Furthermore, no work to be performed by CONSULTANT hereunder shall be 17 subcontracted to or performed on behalf of CONSULTANT by any third party, except upon written permission by CUSTOMER. ARTICLE 17 ---------- NOTICES ------- 17.1 All notices and other official communications under this Agreement shall be in writing and shall be sufficiently given if delivered personally or mailed by first class mail, proper postage prepaid, to AT&T Solutions, 55 Corporate Drive, Bridgewater, New Jersey, 08807, Attention: Vendor Manager and to Computer Generated Solutions,Inc., 1675 Broadway, 31st Floor, New York, New York, 10019 Attention:Lori Ozzello, or to such other address or addressee as either party may from time to time designate to the other by written notice. 17.2 Any such notice or other official communication shall be deemed to be given as of the date it is personally delivered or when placed in the mails in the manner specified. ARTICLE 18 ---------- GOVERNING LAW ------------- 18.1 The validity of this Agreement, the construction and enforcement of its terms, and the interpretation of the rights and duties of the parties shall be governed by the laws of the State of New York. ARTICLE 19 ---------- MODIFICATION, AMENDMENT, SUPPLEMENT OR WAIVER --------------------------------------------- 19.1 No modification, amendment, supplement to or waiver of this Agreement or any Schedule hereunder, or any of their provisions shall be binding upon the parties hereto unless made in writing and duly signed by both parties. 19.2 A failure or delay of either party to this Agreement to enforce at any time any of the provisions hereof, or to exercise any option which is herein provided, or to require at any time performance of any of the provisions hereto shall in no way be construed to be a waiver of such provisions of this Agreement. ARTICLE 20 ---------- COMPLETE AGREEMENT ------------------ 20.1 This Agreement, together with all Schedules, Exhibits and Attachments hereto constitutes the entire agreement between the parties and supersedes all prior agreements, promises, proposals, representations, understandings and 18 negotiations, whether written or oral, between the parties respecting the subject matter hereof. ARTICLE 21 ---------- SEVERABILITY ------------ 21.1 In the event any one or more of the provisions of this agreement shall for any reason be held to be invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired and the invalid, illegal or unenforceable provisions shall be replaced by a mutually acceptable provision which, being valid, legal and enforceable, comes closest to the intention of the parties underlying the invalid, illegal, or unenforceable provision. ARTICLE 22 ---------- ADVERTISING OR PUBLICITY ------------------------ 22.1 Neither party shall use the name or symbol of the other in publicity releases or advertising without securing the prior written consent of the other. ARTICLE 23 ---------- EXHIBITS; ATTACHMENTS --------------------- 23.1 The terms and conditions of any and all Exhibits and Attachments to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as if fully set forth herein. ARTICLE 24 ---------- HEADINGS -------- 24.1 The headings in this Agreement are for purposes of reference only and shall not in any way limit or affect the meaning or interpretation of any of the terms hereof. ARTICLE 25 ---------- FAVORABLE PROVISIONS -------------------- 25.1 CONSULTANT warrants that all of the provisions of this Agreement are comparable to or better than the equivalent provisions being offered by CONSULTANT to any of its present commercial customers. If CONSULTANT offers more favorable provisions to commercial customers during the terms of their contract periods under this Agreement, such provisions shall be made available 19 to CUSTOMER. CONSULTANT'S obligations pursuant to this Article 25 may be limited by applicable law. ARTICLE 26 ---------- COMPLIANCE WITH LAWS -------------------- 26.1 CONSULTANT warrants that it will comply with all applicable US, state and local laws and regulations in its performance of its obligations hereunder. IN WITNESS WHEREOF, the parties hereto, each acting under due and proper authority, have executed this Agreement as of the date first above written. AT&T Corp. Computer Generated Solutions, Inc. By: /s/ Joseph S. Defazio By: /s/ Fred Schlossberg ------------------------- ------------------------ Name: JOSEPH S. DEFAZIO Name: FRED SCHLOSSBERG ----------------------- ---------------------- (Print or Type) (Print or Type) Title: Manager Title: V.P. - Finance ---------------------- --------------------- 20 This Schedule, dated as of _____________, 19__, is issued pursuant to, and incorporates herein, the Master Agreement for Professional Services dated as of _____________, 19__, ("Agreement"), by and between At&T Corp. ("Customer"), and Computer Generated Solutions, Inc. ("Consultant"). Any term not otherwise defined herein shall have the meaning ascribed to it in the Agreement. 55 Corporate Drive 1675 Broadway - ----------------------------- ----------------------------- (CUSTOMER Location) (CONSULTANT Location) Bridgewater, NJ 08807 New York, NY 10019 - ----------------------------- ----------------------------- Joseph DeFazio Computer Generated Solutions, Inc. - ----------------------------- ----------------------------- (CUSTOMER Project Manager) (Consultant Project Manager)
Name of Hourly Commencement Scheduled Right to Hire Consultant Rate Date Completion Date Status - ---------- ---- ---- --------------- ------ 1. **** ****/hr. May 15, 1995 Sept. 15, 1995 Avail after 8 mos. 2. **** ****/hr. June 11, 1995 Dec. 11, 1995 N/A 3. **** ****/hr. June 11, 1995 Dec. 11, 1995 Avail. after 6 mos. 4. **** ****/hr. June 11, 1995 Dec. 11, 1995 N/A 5. **** ****/hr. June 27, 1995 Dec. 27, 1995 N/A 6. **** ****/hr. June 26, 1995 Dec. 26, 1995 N/A 7. **** ****/hr. N/A 8. **** ****/hr. July 5, 1995 Jan. 5, 1996 N/A 9. **** ****/hr. July 12, 1995 Oct. 12, 1995 N/A 10. **** ****/hr. July 13, 1995 Nov. 13, 1995 After 7 consec. mos. 11. **** ****/hr. July 18, 1995 Oct. 18, 1995 N/A
Maximum Dollar Amount - --------------------- $500,000 /s/JS 8/4/95 ER CProfSve.Agr **** Confidential treatment is being requested for these portions of this agreement. 21 A.1 If authorized by Customer, reasonable out-of-pocket complimentary overnight business related travel expenses will be reimbursed such as flights, hotels, meal per diem of $35.00 per day, taxis, car rentals, tolls, and mileage. Automobile driving mileage may also be reimbursed at a rate of $0.26 for round trip mileage greater than 100 miles from the Consultant's home base to the Customer facility. A.2 Customer agrees to pay the sum of $35.00 per day to **** for travel related expenses from the Commencement Date of Service until August 31, 1995. IN WITNESS WHEREOF, the parties hereto, each acting with proper authority, have executed this Schedule No.___ as of the day, month, and year first above written. Computer Generated Solutions, Inc. AT&T Corp. By: /s/ Fred Schlossberg By: /s/ Joseph S. Defazio ------------------------ ------------------------- Name: FRED SCHLOSSBERG Name: JOSEPH S. DEFAZIO ---------------------- ----------------------- (Print or Type) (Print or Type) Title: V.P. - Finance Title: Manager --------------------- ---------------------- **** Confidential treatment is being requested for these portions of this agreement. 22 EXHIBIT 2 --------- FIXED PRICE SCHEDULE This Schedule, dated as of ______________, 19__, is issued pursuant to, and incorporates herein, the Master Agreement for Professional Services dated as of _______________, 19__, ("Agreement"), by and between AT&T Corp. ("Customer"), and Computer Generated Solutions, Inc. ("Consultant"). Any term not otherwise defined herein shall have the meaning ascribed to it in the Agreement. -------- (Number) Fixed Price Scheduled Start Date - ----------- -------------------- Warranty Period Scheduled Completion Date - --------------- ------------------------- CUSTOMER Project Manager CONTRACTOR Project Manager - ------------------------ -------------------------- See Attachment A for a full and complete description of the tasks to be ------------ performed, a description of the deliverables to be produced, a listing of the documentation to be provided, the schedule for completion of each of the foregoing (including, but not limited to, milestone dates and PERT charts) and a schedule of payments. Computer Generated Solutions, Inc. AT&T Corp. By: By: ------------------------ ------------------------- Name: Name: ---------------------- ----------------------- (type or print) (type or print) Title: Title: --------------------- ---------------------- 23 EX-10.3 6 OUTSOURCING AGREEMENT TELEVSERVICE RESOURCES & CGS * EXHIBIT 10.3 ------------ Outsourcing Agreement dated as of March 30, 1996, between Teleservice Resources, Inc. and Computer Generated Solutions, Inc. * Confidential treatment is being requested with respect to portions of this exhibit OUTSOURCING AGREEMENT between TELESERVICE RESOURCES, INC. and COMPUTER GENERATED SOLUTIONS THIS OUTSOURCING AGREEMENT (this "Agreement") is effective March 30, 1996 (the "Effective Date"), by and between TeleService Resources, Inc. ("TSR"), a Delaware corporation having its principal address at 4201 Cambridge Rd., Fort Worth, TX 76155, and Computer Generated Solutions ("CGS"), a Delaware corporation (also generically referred to herein as "Party" or "Parties") having its principal address at 1950 Stemmons Freeway, Suite 3049, Dallas, TX 75207. 1. PURPOSE. This Agreement sets forth the terms and conditions under which CGS agrees to assume responsibility for answering, diagnosing and solving RyderFIRST support problems including, but not limited to, hardware, software and processes attached as Exhibit A, which TSR agrees to outsource to CGS. During the term of --------- this Agreement, CGS shall be TSR's non-exclusive provider of, and TSR shall purchase from CGS, the services as defined herein, all in accordance with the terms and conditions of this Agreement. 2. DEFINITIONS. 2.1 TSR. ---- The term "TSR" shall mean and include TeleService Resources, Inc. and any Successor. "Affiliate" shall mean, with respect to any entity, any other entity directly or indirectly controlling, controlled by, or under common control with such first entity. "Control" (including, with correlative meaning, the terms "controlling" and "controlled by" shall mean, with respect to any entity, the possession, directly or indirectly, of the power to direct the management and policies of such entity. 2.2 Customer. --------- The term "Customer" shall mean RyderFIRST, Ryder employees and dealers and other persons or entities who are under contract by Ryder, Inc. 2.3 AMRDS. ------ The term "AMRDS" shall mean and include AMR Distribution Systems, Inc., a division of AMR Services and their employees who will provide the warehouse, shipping, refurbishment and repair of RyderFIRST equipment. 2.4 CGS. ---- The term "CGS" shall mean and include Computer Generated Solutions, Inc. provider of Telephone Technical Help Desk support and maintenance. 3. TERM AND TERMINATION. 3.1 Term. ----- The term of this Agreement will commence on the Effective Date and will end on March 30, 1999, or such anniversary thereof to which the term of this Agreement has been extended or earlier upon termination in accordance with the provisions of this Agreement. TSR may, at its option, extend this Agreement for successive terms of one (l) year(s) each, by providing CGS with notice of extension, at - -------------------------------------------------------------------------------- 1 least sixty days (60) days in advance of the anniversary date of the Agreement. Upon termination of the Agreement, TSR will have no future liability except for Services rendered or Equipment delivered by CGS prior to the termination date. 3.2 Termination for Cause. ---------------------- Should CGS fail to perform its material obligations under this Agreement, TSR shall give CGS written notice of such failure. CGS shall have fifteen (15) days from receipt of said notice to correct this failure at no cost to TSR. Should CGS fail to correct its performance within the fifteen (15) day period, TSR shall have the right to immediately terminate this Agreement or a portion of this Agreement by giving CGS written notice of termination. In the event of termination for breach, TSR reserves all remedies available at law and in equity. 3.3 Termination without Cause. -------------------------- TSR may terminate this Agreement at any time by providing CGS at least sixty (60) days notice of such termination. CGS has the right to terminate this Agreement at any time by providing TSR at least ninety (90) days notice of such terms. 3.4 Post Termination Events. ------------------------ Upon termination of the Agreement, CGS shall cease performing Services on behalf of TSR. All reports required to be provided by CGS shall be provided at the usual interval; however, all reports are required to be provided to TSR no later than thirty (30) after termination of Agreement. CGS shall immediately cease use of all TSR/Ryder Owned Equipment and Ryder Licensed Software. TSR has the right, with or without notice, to enter upon CGS's premises, de-install the TSR/RyderFIRST Owned Equipment and TSR/RyderFIRST Licensed Software and remove it from the premises. 4. PROJECT OVERVIEW. The project is separated into two sections: 1) call handling and 2) warehouse refurbishment and repair. These two sections are delineated in Exhibit A. ---------- 5. PRODUCTS, SERVICES AND CGS RESPONSIBILITIES. 5.1 Seamless Integration. --------------------- CGS shall perform the Services specified in this Agreement at the performance levels set forth in Exhibit B. --------- 5.2 Represent Ryder's/TSR's Interests. ---------------------------------- CGS agrees that at all times CGS and its employees shall act on behalf of the best interests of Ryder and TSR by consistently demonstrating the highest quality of professionalism, courtesy, customer service and demeanor. In the event that Ryder and/or TSR, at any time and in its sole reasonably discretion, deems an employee designated by CGS to be unsuitable, Ryder and/or TSR shall advise CGS of such determination, and CGS and TSR shall develop a plan to provide a suitable replacement employee acceptable to TSR to perform the Services hereunder. 5.3 Employee Training. ------------------ Ryder will conduct the initial training on the RyderFIRST application. All subsequent training CGS shall develop and conduct a program to train its employees and supervisors on an ongoing basis to perform the Services, with emphasis on high quality customer service and skilled resolution to problem calls. Recurrent and refresher training courses shall be delivered periodically to CGS's employees as - -------------------------------------------------------------------------------- 2 well as initial training. All such training and development costs shall be borne wholly by CGS. All such training shall include and adhere to the content, methods and procedures submitted by Ryder for providing such Service. 5.4 Quality Control. ---------------- CGS agrees that a high level of quality is integral to the Services performed by CGS on behalf of Ryder. CGS agrees to institute quality control procedures such as, but not be limited to, employee training (as referenced in Section 5.3 above), program results, customer feedback, call monitoring, and adherence to Ryder procedures. 5.5 Call Monitoring. ---------------- CGS agrees to monitor its employees calls to determine if employees are performing the Services as required herein. CGS agrees to monitor a minimum of 200 calls per week. CGS agrees that Ryder or TSR or their agent may, at its option, participate in CGS's call monitoring. 5.6 Establish Priorities. --------------------- CGS shall establish the priorities of problems that it is encountering in the performance of this Agreement and provide a list of priorities with proposed resolutions to TSR Client Services Manager on a monthly basis, as needed. 5.7 Provide Reports. ---------------- CGS agrees to provide Ryder/TSR the reports required in Exhibit A in the time --------- frame required thereunder. Additional reports will be provided by CGS from time to time as reasonably requested by Ryder/TSR. (There may be costs associated with custom report development or analytical research.) 5.8 Interfaces. ----------- CGS agrees, at its sole cost and expense, to build all interfaces required to connect CGS's equipment and systems with Ryder/TSR's systems. CGS shall comply with TSR's security practices in developing and connecting the equipment and systems. 5.9 Maintain Equipment and Interfaces. ----------------------------------- CGS agrees to maintain the equipment required in Exhibit A and interfaces (as --------- provided in Section 5.8 above) in good working order. 5.10 Maintain Software. ------------------ CGS agrees to maintain all software required in Exhibit A at the same release --------- level as Ryder's software release. 5.11 Disaster Recovery. ------------------ CGS agrees to maintain a disaster recovery plan acceptable to Ryder/TSR. 5.12 Ryder/TSR Information. ---------------------- CGS agrees that any information that it obtains from TSR or Ryder is protected under the confidentiality provisions of this Agreement and shall be used solely for the performance of the Services under this Agreement. (Please see Attachment D.) - -------------------------------------------------------------------------------- 3 5.13 Ryder's Equipment. ------------------ Ryder is supplying CGS with certain Ryder-owned Equipment and Ryder-Licensed Software for CGS's use on CGS's premises in connection with the Services to be provided under this Agreement. CGS acknowledges and agrees that it shall not use such Ryder-Owned Equipment or Ryder-Licensed Software for any purpose other than for the fulfillment of its obligations under this Agreement. CGS agrees to provide Ryder or Ryder's third party service provider access to Ryder-Owned Equipment and Ryder-Licensed Software located on CGS's premises for regular maintenance or repairs and for upgrades, updates and fixes. CGS shall be liable for any loss or damage to the Ryder-Owned Equipment and Ryder-Licensed Software located on CGS's premises. CGS shall not be liable for any loss or damage caused solely by Ryder or its third party service provider. Further CGS agrees that it shall not attach any other equipment nor load any other Software to Ryder-Owned Equipment without the express written consent of Ryder/TSR. 6. PERFORMANCE STANDARD, REMEDY AND INCENTIVE. 6.1 Performance Standard. --------------------- CGS agrees to meet or exceed each of the applicable service levels and performance obligations set forth. 6.2 Verification of Service Levels. ------------------------------- CGS shall provide TSR with a [daily/monthly] performance report, documenting CGS's performance relative to the Service Levels. In addition, CGS will provide TSR with such documentation and other information as may be reasonably requested by TSR from time to time to verify CGS's compliance with the Service Levels. 6.3 Review of Service Levels. ------------------------- The parties will review during every month the Service Levels and the actual compliance of the CGS's Services in compliance herewith. If three or more of the performance measurements specified in Exhibit B are not met in any given month, --------- CGS will be liable for the credits they are responsible for as specified in Exhibit B. (For example: If answer time, abandon rate and shipping time are - --------- missed in a given month, CGS will be responsible for two thirds of the 1% credit due to Ryder.) In reverse if AMRDS performs at all levels for the quarter they will receive one third of the performance bonus. (This holds true for the penalites and bonuses from Dealer Satisfaction measurement as shown in Exhibit B.) 7. SECURITY. CGS agrees that it will comply with all United States governmental rules and shall monitor its employees activities to ensure compliance with rules and regulations. 8. SERVICE LOCATIONS. As of the Effective Date, CGS shall provide the Services to TSR at CGS's location on 1950 Stemmons Freeway, Suite 3049, Dallas, TX 75207. 9. WARRANTY. CGS warrants that it will provide the Services in accordance with the highest professional duty of care and skill. - -------------------------------------------------------------------------------- 4 9.1 Equipment and Software. ----------------------- CGS warrants that the CGS owned equipment and licensed software shall meet the standards contained in this agreement. 9.2 Personnel. ---------- CGS warrants that each of its employees assigned to perform services under this Agreement shall have the proper skill, training and background to be able to perform such Services in a competent and professional manner at the level required in this Agreement. 9.3 CGS Viability. -------------- CGS warrants that it has the financial capacity to perform and continue to perform its obligations under this Agreement, that no legal proceedings have been threatened or brought against CGS that could threaten performance of this Agreement and that entering into this Agreement is nor prohibited by any contract or order by any court of competent jurisdiction. 10. PAYMENT. For the Services rendered under the terms of this Agreement, TSR agrees to pay CGS the amount set forth on Exhibit C at intervals agreed to in Exhibit C. --------- --------- Invoices must be received by TSR by the third business day of the following month. All payment terms are net thirty (30) days upon receipt of invoice. The amount set forth in Exhibit C is exclusive of all costs, expenses and taxes --------- required to be paid by TSR. Any other costs or expenses shall be borne by CGS. 11. INSURANCE. 11.1 Policies. --------- CGS shall, at its own cost and expense, procure and maintain in full force and effect during the term of this Agreement, policies of insurance, of the types and in the amounts necessary to ensure that CGS is able to sustain claims, damages and other business liability without impacting its ability to provide the Services thereunder and to protect Ryder/TSR from any claim, damage or liability resulting from CGS's acts or omissions. Such insurance will include the replacement of all Ryder/TSR assets within CGS's possession. CGS will obtain such insurance with responsible insurance carriers duly qualified in those states (locations) where Services are to be performed covering the operations of CGS, pursuant to this Agreement. 11.2 Certificates. ------------- CGS shall provide TSR with certificates of insurance as evidence of the above coverage, including all special requirements specifically noted above and shall provide TSR with certificates of insurance evidencing renewal or substitution of such insurance thirty (30) days prior to the effective date of such renewal or substitution. 11.3 Service. -------- Provisions of this Section as to Service of insurance shall not be construed as limiting in any way the extent to which CGS may be held responsible for payment for damages to persons or property resulting from its activities or the activities of any person(s) for which CGS is otherwise responsible. - -------------------------------------------------------------------------------- 5 12. LIABILITY AND INDEMNIFICATION. CGS agrees to indemnify, defend and hold TSR/Ryder, its officers, directors, agents and employees harmless from and against any and all liabilities, damages, losses, expenses, claims, demands, suits, fines, penalties (whether civil or criminal) or judgments, including reasonable attorney fees, costs and expenses incidental thereto, which may be suffered by, accrued against, charged to or recoverable from TSR/Ryder, its officers, directors, agents or employees, by reason of liability, loss, expense, claim, demand, suit, fine, judgment or damage, including, but not limited to bodily injuries or physical destruction of property, arising out of or in connection with the performance of the obligations of CGS under this Agreement. Notwithstanding the foregoing, in no event shall either party be liable for indirect, incidental or consequential damages except when such damages are caused by the gross negligence or willful misconduct of the other party, its officers, directors agents, employees or subcontractors. In no event shall TSR be liable to CGS for any amounts in excess of what has been paid by TSR to CGS under this Agreement. Additionally, CGS's total liability must not exceed what has been paid to CGS in a given year by TSR. 13. SUBCONTRACTING. CGS shall not, directly or indirectly, assign, subcontract, transfer or otherwise dispose of, in whole or in part, any of its interests, rights or obligations under this Agreement. TSR may assign any and all of its rights and obligations under this Agreement to (i) any affiliate of AMR Corporation, or (ii) any company that succeeds to, or that is an affiliate of any company (or affiliated group of companies) that succeeds to substantially all of TSR's assets. 14. BANKRUPTCY. If CGS becomes insolvent, takes any step leading to its cessation as a going concern, fails to pay its debts as they become due, or ceases business operations for longer than five (5) business days for reasons other than a strike or natural disaster, then TSR may immediately terminate this Agreement on notice to CGS unless CGS immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to CGS, and if this Agreement has not otherwise terminated, then TSR may suspend all further performance of this Agreement until CGS assumes this Agreement and provides adequate assurance of performance thereof or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by TSR pending CGS's assumption or rejection will not be a breach of this Agreement, and will not affect TSR's right to pursue or enforce any of its rights under this Agreement or otherwise. 15. NON-DISCLOSURE OF INFORMATION. CGS, on behalf of itself and its employees, acknowledges that much, if not all, of the material and information related to TSR or Ryder which has or will come into CGS's possession or knowledge in connection with the performance of the Agreement consist of confidential and proprietary data of TSR or Ryder (collectively, "Confidential Information"), disclosure of which or use by third parties would be damaging to TSR or Ryder. CGS, on behalf of itself and its employees, agrees to hold such Confidential Information in strictest confidence and agrees not to release such information to any employee of CGS unless such employee has a need for such knowledge. CGS, on behalf of itself and its employees, further agrees not to make use of Confidential Information for its own benefit or for the benefit of any third parties, but only for the performance of this Agreement, and not to release or - -------------------------------------------------------------------------------- 6 disclose it to any other party either during the term of this Agreement or after the termination of this Agreement. In the event of any breach of this confidentiality obligation, CGS acknowledges that TSR or Ryder would have no adequate remedy at law, since the harm caused by such a breach would not be easily measured and compensated for in the form of damages. Accordingly, CGS waives its right to contest the availability or appropriateness as a from of remedy any equitable relief sought by TSR or Ryder but does not hereby waive its right to contest the question of whether a breach has occurred. CGS further waives the requirement of any bond being posted as security for such equitable relief. (See Attachment D). 16. RIGHT TO AUDIT. TSR shall have the right from time to time to audit CGS's books and records related to this Agreement and the Services it is providing to TSR. Such audit shall be performed at CGS's offices and CGS agrees to provide such auditors any assistance they may reasonably require. 17. MOST FAVORED CUSTOMER. If at any time during the term of this Agreement CGS enters into an agreement with any other customer, purchasing substantially similar Services under substantially similar material circumstances, terms and conditions, at terms more favorable than those provided in this Agreement, CGS shall, within thirty (30) days of its acceptance of the new agreement with the other customer, notify TSR of such agreement. Within thirty (30) days of receipt of CGS's notice, TSR may give written notice to CGS that this Agreement is to be amended to provide TSR with the same terms provided to the other customer. Such amendment shall be made retroactive to the effective date of the other customer's agreement. 18. GENERAL PROVISIONS. 18.1 Notices. -------- Except as otherwise expressly specified herein, all notices, requests, or other communications required thereunder shall be in writing and shall be deemed to have been given or made if delivered personally or mailed, by certified or registered mail, postage prepaid, return receipt requested or by commercial courier service which maintains a record of delivery, or by fax followed by written confirmation in the form of a duplicate notice, to the Parties at their respective addresses first set forth below, or at such other addresses as shall be specified in writing by either of the parties to the other in accordance with the terms and conditions of this Section 18.1. Notices, requests, or ------------ communications shall be deemed effective upon personal delivery, or three (3) days following deposit in the mail in accordance with this Section 18.1. ------------ 18.2 Captions. --------- The captions appearing in this Agreement have been inserted as a matter of convenience and in no way define, limit or enlarge the scope of this Agreement or any of the Sections thereto. 18.3 Governing Law. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and the federal laws of the United States of America. CGS hereby consents and submits to the jurisdiction of the courts in the State of Texas or the United States District Court for the Northern District of Texas in all questions and controversies arising out of this Agreement. - -------------------------------------------------------------------------------- 7 18.4 Severability. ------------- In the event that any one or more of the provisions of this Agreement is determined by a court of competent jurisdiction to be invalid, unenforceable or illegal, such invalidity, unenforceability or illegality shall not affect any other provisions of this Agreement, and the Agreement shall be construed as if the challenged provision had never been contained herein. The parties further agree that in the event such provision is an essential part of this Agreement, they will immediately begin negotiations for a suitable replacement provision. 18.5 Advertising. ------------ CGS shall not use Ryder's name or refer to TSR or any of its affiliates, directly or indirectly, in any advertisement, news release or professional or trade publication without receiving prior written approval from TSR and Ryder. 18.6 Non-Exclusivity. ---------------- TSR understands and agrees that this is a non-exclusive agreement and that CGS may provide similar services to other third parties. CGS understands and agrees that this agreement is a nonexclusive and that TSR may obtain the same services from third parties or continue to operate the same services internally. 18.7 Survival. --------- Sections 3.4, 5.13. 12, 15, 16 and 18.7 shall survive the termination or expiration of this Agreement. 18.8 No Waiver. ---------- The failure of either party at any time to require performance by the other party of any provision of this Agreement shall in no way affect that party's right to enforce such provisions, nor shall the waiver by either party of any breach of any provision of this Agreement be taken or held to be a waiver at any further breach of the same provision. 18.9 Force Majeure. -------------- Neither Party shall be liable for delays or any failure to perform under this Agreement due to causes beyond its reasonable control. Such delays include, but are not limited to, fire, explosion, flood or other natural catastrophe, governmental legislation, acts, orders, or regulation, strikes or labor difficulties, to the extent not occasioned by the fault or negligence of the delayed Party. Any such excuse for delay shall last only as long as the event remains beyond the reasonable control of the delayed Party. However, the delayed Party shall use its best efforts to minimize the delays caused by any such event beyond its reasonable control. The delayed Party must notify the other Party promptly upon the occurrence of any such event, or performance by the delayed Party will not be considered excused pursuant to this Article, and inform the other Party of its plans to resume performance. - -------------------------------------------------------------------------------- 8 18.10 Entire Agreement. ----------------- The following Exhibits and Attachments, including all subparts thereof, are attached to this Agreement and are made a part of this Agreement for all purposes. Exhibit A RyderFIRST Support Service Requirements Exhibit B Performance Standards and Remedies Exhibit C Pricing Schedule Exhibit D Cost Reduction Initiatives Exhibit E Reporting Requirements Exhibit F Training Requirements Attachment A Uninterruped Telecommunication Service Plan Attachment B Telephone Performance Response Reports Attachment C Telecommunications Trouble Shooting, Problem Resolution, Escalation, and Testing and Trouble Reporting Procedures Attachment D Non-Disclosure Non-Compete Agreement This Agreement constitutes the entire agreement between the parties and supersedes any and all previous representation, understandings, discussions or agreements between TSR and CGS as to the subject matter hereof. This Agreement may only be amended by an instrument in writing signed by TSR and CGS. TSR and CGS each acknowledge that it has had the opportunity to review this Agreement with its legal counsel. Executed on the dates set forth below to be effective as of the date first above written by the undersigned authorized representatives of TSR and CGS. TELESERVICE RESOURCES COMPUTER GENERATED SOLUTIONS By: /s/ Lauri L. Curtis By: /s/ Steve Carter --------------------- ----------------------- Name: Lauri L. Curtis Name: Steve Carter Group President TeleService Resources Title: Vice President Data Management Services Date: 4-18-96 Date: 6/3/96 ------------------- ------------------ Address for Notice: Address for Notice: TeleService Resources Computer Generated Solutions, Inc. Mark Spaulding Steve Carter Vice President Sales, Vice President Marketing & Client Services 1950 Stemmons Freeway, Suite 3049 4201 Cambridge Rd. Dallas, TX 75207 Fort Worth, TX 76155 Fax: 214-746-5372 Fax: 817-354-8144 - -------------------------------------------------------------------------------- 9 EXHIBIT A --------- RYDERFIRST SUPPORT SERVICE REQUIREMENTS --------------------------------------- General Work Flow Overview: - -------------------------- The following information is provided for reference purposes only. Ryder has a network of over 4600 independent dealerships which are the principle distribution network for Consumer Truck Rental. Each dealership has a RyderFIRST system composed of a monitor, keyboard, CPU, card swipe, and printer. Approximatelv 400 dealers have additional workstations. The smallest dealers utilize line splitters (approximately 1000). The dealers contact the RyderFIRST support organization when they have an operational issue related to the RyderFIRST application or hardware. Hardware Maintenance: - --------------------- 3,500 of the RyderFIRST PC's are currently covered by an IBM service contract. The RyderFIRST Support organization dispatches IBM via the ECCO system for hardware problems with these units. The other 1700 systems that are not covered by a maintenance agreement are maintained on a depot unit swap basis. This involves shipping a replacement component and retrieving the failed component. Failed components are repaired, refurbished and warehoused for redistribution. New Dealer Installation Support: - ------------------------------- As new dealers are scheduled for start-up, RyderFIRST hardware and starter kits are shipped by the AMRDS warehouse facility to the dealer location. The CGS Technical Helpdesk technician facilitates the new dealer opening process via telephone. As dealers are closed, systems are either 1) shipped back to the warehouse for refurbishing, reformatting, and testing by AMRDS or 2) cleaned, by Ryder and reused at a new dealer within the district. Currently most units are shipped back to the warehouse for refurbishment, reformatting and testing. Software is loaded and tested before shipping to a new dealer. All units are tracked by CGS and AMRDS. I. Technical Helpdesk Services: CGS will provide the following services: A. Scope of Support CGS will provide complete customer service and Technical Helpdesk support to all RyderFIRST System users. Support must be provided Monday through Saturday 7 am to 8 p.m. EST and Sunday 8 am to 3 p.m. EST, 52 weeks a year, excluding Christmas, New Years, and Thanksgiving day. The Service includes: . After hours messaging system that allows the caller to leave their name and number. Messages for caller will include the standard hours of coverage and a contact number for emergency situations. . RyderFIRST application information/guidance to dealers. RyderFIRST application support involves the functions listed below. Support technicians are required to be proficient in each of these functions. F2 - Train - Dealer Train - Practice Exercises - Transfer CBT Scores - -------------------------------------------------------------------------------- 10 F4 - Rental - Quote/Reservations - Open Agreement - Close Agreement - Transfers - Out-of-Service - Moving Supplies Only - Notepad Retrieval - TSR & I (Repair Order) F5 - Status - Inventory Grid Status - Inventory Detail - Reservation Status - Quote Status - Market Team Inventory F6 - Options - Message - Reports - Customer/Prospect - Dealer F11 - Local Rates . Problem resolution specialist to resolve complex support issues. . Check and credit card authorization processes support. CGS is responsible for notifying and working with TSR Client Services Manager and the application, BUYPASS, to resolve any issues relating to these processes. Ensure customer account data, and dealer information is correct in Buypass software. Ensure all dealers are functioning correctly to ensure timely updates to dealers. . On-going system monitoring, via the "Watchdog" PC to identify and resolve event in which the dealer's communications have been interrupted, including wrong or disconnected dealer phone numbers, and identifying and eliminating inactive dealers. Ryder must pre-approve the inactive status of any dealer prior to file or data elimination. . In cases of hardware failure for components on an IBM service contract, CGS will dispatch IBM via the ECCO system. If IBM does not respond and close the trouble ticket within twenty four (24) hours, CGS will follow up and escalate the problem with IBM. CGS will monitor the status of the ECCO call to ensure proper support. CGS will further support the IBM technician by being available to discuss the problem with an IBM technician on site. CGS will track the call through to completion and properly report the trouble found and resolution. TSR will provide CGS with the initial IBM contacts. - -------------------------------------------------------------------------------- 11 . Remote access data interrogation. There are multiple files on the RyderFIRST system which may become corrupted or otherwise require support. The RyderFIRST support will include reviewing and manipulating these files through remote access using PC Anywhere. PKZipping utilities will be used to capture and release dealer information (Using CHECKSUM and PKZIP routines). Provide the proper replacement files. Each CGS technician must have the requisite knowledge and access of the required systems to remotely access a dealer's PC. . TSR in conjunction with CGS must have and maintain at all times during this Agreement, a recovery plan in the event OF telecommunication service interruption. The current plan is attached hereto as Attachment A. ------------- Uninterrupted Telecommunication Service Plan, and will include, among others things, diverse call routing. Each technician must have access to both the RyderFIRST application and the problem management system as well as on-site access to a terminal with access to the IBM ECCO service notification system. . Telecommunication trouble shooting, problem resolution, testing and problem escalation. (See Attachment C for details) B. CGS Personnel CGS will provide personnel trained and competent to perform the services set forth herein. Helpdesk technicians will consistently demonstrate the following Service qualities: . Dealer Friendliness and Professional Courtesy . Flexibility . Possess Appropriate Documentation . Exercise Proper Security Measures (multiple levels) . Reliability . Problem Indexing Capabilities C. Event Tracking and Reports . CGS will utilize a state-of-the-art call tracking, call management and problem resolution tracking system which meets the reporting requirements as described in the reporting section of this Agreement. In addition, this system must provide adequate statistics for per call billing as detailed herein. Helpdesk Software System Timeline Date ---------------------------------------------------------- CGS will: Identify and select the software package 4/5/96 Demonstrate System to Ryder 3/12/96 Complete Training 7/5/96 Start Pilot Call Program 7/8/96 Full RyderFIRST Call Support 8/1/96 - -------------------------------------------------------------------------------- 12 The initial reports required from the call and problem tracking system include: . RyderFIRST Exception Report - This report lists all support occurrences relating to any one of several identified critical problem types (i.e., dealer system down). Must be provided to Ryder daily. . RyderFIRST Daily Call Status Report - Provides the detail information on every support call. Must be provided to Ryder daily. . RyderFIRST Incident Analysis by System Area - Provides a breakdown of all calls for a set time period for each system area. The system areas, such as Instructional or Hardware, will be provided at a future date. Run monthly and quarterly. . RyderFIRST Instructional Incidents by Environment. (There are 20 Systems environments in the US). Provides a listing of the number of instructional calls per environment for a set time period. Details on each application area (Quotes/Reservations, Inventory Status) and average calls per dealer are also provided. Run monthly and quarterly. . RyderFIRST Instructional Incidents by Dealer - Provides a listing of the number of instructional calls per dealer for a time period. Detail on each application area (Quotes/Reservations, Inventory Status) and the percentage of total environment calls that dealer represents are also provided. The capability must exist to sort this report by environment, then by dealer or simply by dealer and run monthly and quarterly. . Call reporting listing abandoned calls, duration of calls, answer speed, total calls and outbound vs. inbound calls. The reports listed above shall be transmitted electronically to Ryder and printed at the headquarters facility. D. Software Change Request Support CGS will provide the following Service in support of RyderFIRST software: RyderFIRST application problems that are determined to require changes to the software, will be controlled through a formal process between TSR and Ryder. This process will be initiated through completion of a Ryder MIS Work Request (MIS 104 form). Changes to the application software will only be made when work request forms are completed and approved by appropriate TSR and Ryder representatives. Work requests will be numerically controlled to facilitate the tracking of software change activity. Ryder will issue TSR a block of numbers for work request assignment. All work requests must contain a unique number which will be assigned sequentially from the block of numbers provided. - ------------------------------------------------------------------------------- 13 Approved work requests will be entered into the Ryder Truck Rental Work Request System for control of application software development. The Ryder Work Request System will produce weekly reports detailing the status of application software changes. Copies will be provided to CGS on a weekly basis. Software Change Process - ---------------------- The process of initiating, approving, and controlling software changes is as follows: I. RyderFIRST support personnel at CGS prepare MIS-104 work request form. 2. The TSR Client Services Manager assigns a unique 5 digit number per block of numbers provided. These blocks will be provided by Ryder. Document description of software problem. 3. Provide reference to problem number. 4. Escalate Work Request to TSR's Client Services Manager. Provide a 3.5 floppy Disk containing the related software and data. (Obtained from Dealer system). 5. Work request sent to Ryder for review approval, and prioritization. FAX copy of form to: MIS Department Ryder Truck Rental, Inc. FAX-(305) 470-7909 Attn.: Rita Alvarez Work Request Priority Meeting - ------------------------------ TSR and appropriate Ryder personnel will hold regular conference call meetings to establish the priorities of current and future software changes to the RyderFIRST application. At a minimum, these meetings will be held monthly. TSR will provide CGS uith a tentative schedule for these meetings on a quarterly basis. II. NEW DEALER INSTALLATION SUPPORT CGS will be ready to provide the following new dealer installation support by June 1, 1996. Ryder estimates that 980 new dealers will be opened in 1996. After receiving the RyderFIRST System hardware from the warehouse, new dealers are called by a CGS technician and walked through the dealer startup process. This process includes the following items: 1. CGS receives order for RyderFIRST system hardware, site survey, and site survey addendum (if multi station) from Ryder Dealer Administration. Then CGS notifies the AMRDS warehouse to ship RyderFIRST system hardware. 2. CGS receives letter of agency from Dealer Development Manager (Ryder Field Representative) authorizing CGS to make changes in dealer's phone line. 3. CGS is advised of telephone information on the day the RyderFIRST System hardware is ordered. 4. The dealer's merchant ID number is provided to CGS by Dealer Administration. - ------------------------------------------------------------------------------- 14 5. CGS follows up with dealer to verify receipt of equipment and to set appointment for install process. 6. CGS walks dealer through install process. 7. CGS runs diagnostics for dealer's printer and modem. 8. CGS communicates weekly with Dealer Administration, providing an update on all dealers that are in the process of being opened. 9. CGS continues to follow up with Area Center and dealer to verify that start up files are sent. 10. CGS checks for download completion and addresses any incomplete downloads with the district. 11. CGS notifies the Area Center when the download is complete and the dealer is ready to automate. A database of all automated dealers must be maintained. This database must minimally include the following fields. Consumer Environment# Dealer # Dealer Name Address Contact Name Time Zone Phone # Workstation (Type of Equip. to order) ID's of each component Hours of Operation by Day Comments (3 - 80 char lines) Open Date American Express # Telecredit # Buypass # III. Warehousing and Logistics AMRDS will be ready to provide the following warehousing and logistics support by June 1, 1996. AMRDS is responsible for providing complete inventory warehousing and maintenance of the hardware components utilized by the RyderFIRST system. These components are detailed in the schedule below. A detailed, full-featured relational database (on tape) of Ryder dealers and all hardware components, including when components were received or returned to the warehouse, by district and dealer, is required. This database must also include a history of the current and two prior dealer locations of the component including when the unit was received by the warehouse or distributed to a dealer. TSR will provide periodic and ad hoc reporting monthly 3 days prior to month end. A. Inventory . AMRDS will provide secured warehousing space for all RyderFIRST components in inventory. Any cost associated with this service should be included in the hardware swap and shipping charges. . The number of components in inventory will decrease as dealers are opened and rise as additional equipment is purchased. The following listing represents the installed inventory as of the effective date of this Agreement. AMRDS will maintain the inventory tracking and account, at the serial number level, to Ryder as required herein. Component Svc. Estimated - ------------------------------------------------------------------------------- 15 Type Description Quantity Plan Purchase - ------------------------------------------------------------------------ CPU IBM - PS/2 Model 35 - 80 MB HD 3500 IBM 1991-92 386 Chip CPU IBM - Model 30 - Client -W/O 500 IBM 1992 W/486 Chip Upgrade CPU IBM - PS/2 Model 35 - 80 MB HD 1000 SWAP 1994 386 Chip CPU IBM - 486 ValuePoint -33 MHZ 415 SWAP 1994 120 MB HD CPU IBM - 486 Series 330 - 50 MHz 300 SWAP 1995 270 MB HD CPU Total 5,715 PRINTER IBM - Propriter II 18 IBM 1990-91 PRINTER IBM - Proprieter III 3574 IBM 1992 PRINTER OKIDATA - model 184 1000 SWAMP 1992 PRINTER OKIDATA - model 184 336 SWAMP 1994 PRINTER OKIDATA - model 184 300 SWAMP 1995 PRINTER OKIDATA - model 520 101 SWAMP 1995 Printer Total 5,329 MONITOR IMB- model 8512 4000 IBM 1991-92 MONITOR Leading Edge 1015 SWAMP 1992 MONITOR CTX - model 5468 400 SWAMP 1994 MONITOR CTX - model 5468 300 SWAMP 1995 MONITOR Total 5,715 Line Splitters Command Communications 1200 SWAMP 1992 ComShare 750 Line Splitters Command Communications 1300 SWAMP 1994 ComShare 750 Ryder provided spare inventory levels by component are listed below: Component Consigned Inventory Type Count - ----------------------------- CPU's 256 Line Splinters ________ Monitors 253 keyboards ________ Printers 183 Card Swipes ________ In addition to the equipment listed above a certain number of accessory items must be inventoried. Accessory items include keyboards, printer ribbons, diskettes, and card swipes. for those components under an IBM maintenance agreement the RyderFIRST Support facility dispatches IBM via the ECCO system. An additional 1700 systems are maintained on a swap maintenance program. For these units the support facility must initiate the shipment of a replacement component and retrieve the damaged component. Failed components are repaired and redistributed by AMRDS. B. NEW DEALER HARDWARE SHIPPING - ------------------------------------------------------------------------------- 16 The new dealer hardware shipping should include the following: . Gathering the components from inventory. Prepare and ship fully integrated and operational Systems, including at a minimum, one CPU, one printer, one monitor, and one starter kit. . Four boxes (new components will not require a box). . Packing the components (including packing material) in the box and labeling the boxes. . Shipping. Shipping cost for new dealer openings should be based on UPS ground ---------- rates. Package dimensions and weights are provided for each component. ----- . Calling the dealer back within 10 days TO VERIFY RECEIPT OF THE SHIPMENT. Component Box Size WEIGHT (WITH CONTENTS) ----------------------------------------------------------------------- CPU 18.5' X 20" X 9"H 35 lbs Monitor 18.5" X 20" X 16.5H 35 lbs Printer 16.5" X 20" X 9"H 25 lbs Starter Kit 16.5" X 20" X 9"H 14 lbs CLOSED DEALER HARDWARE RETURN SHIPPING As dealers are closed, systems are either 1) shipped back to the warehouse for refurbishing, reformatting, and testing or 2) cleaned via remote access and reused at a new dealer within the district. Currently most units are shipped back to the warehouse for refurbishment, reformatting and testing. Software is loaded and tested before shipping to a new dealer. . The closed dealers hardware return shipping cost should include the expense of shipping three boxes to the closed dealer's site or the dealers Dealer Development Manager, at Ryder's option. . These boxes will be shipped UPS ground. . Foam inserts are installed in the boxes prior to shipping to facilitate packing by Ryder district personnel. . The three boxes shipped are described below. Component Box Size Weight (with contents) ------------------------------------------------------------------------ CPU 18.5" X 20" X 9'M Empty Monitor 18.5" X 20" X 16.5H Empty Printer 16.5" X 20" X 9"H Empty The closed dealers hardware return shipping cost also includes the expense of shipping the components from the closed dealer to the AMRDS warehouse facility. The pertinent information is provided below: - ------------------------------------------------------------------------------- 17 Component Box Size Weight (with contents) ------------------------------------------------------------------------ CPU 18.5" X 20" X 9"H 35 lbs Monitor 18.5" X 20" X 16.5H 35 lbs Printer 16.5" X 20" X 9"H 25 lbs CGS and AMRDS are responsible for tracking assets being returned from closed dealers. AMRDS will be responsible for replacing assets lost in the shipping process. D. Closed Dealer Hardware Refurbishment and Restocking The Closed Dealer Hardware Refurbishment and Restocking cost includes costs incurred to perform/provide the following services: . Maintain a repair database which tracks each component, its characteristics, the date it was refurbished, and all repairs made to the component. . Insure that all system parts are attached and secure in component. . Run the appropriate diagnostic procedures including anti-virus, F disk, and testing of Ryder 16/CID card, Card swipe, Modern Test (Loopback and Dial Out), and BIOS. . Thoroughly clean component cover removing stickers and writing, etc. . Thoroughly clean the interior of the component, removing all dust. . Reassemble component. . Attach color coded connection dots on component. . Run IBM system diagnostics on memory, keyboard, disk drive, parallel port, serial port, disk drive (test cylinder, seek test, write, read, compare, head select, error detection and correction), monitor (video graphics, character set, display attributes, 40 x 25 display, 80 x 25 display, 80 x 30 display, 132 x 25 display, vertical display, color graphics, horizontal display, 640 x 200 graphics, 640 x 350 2-color graphics, 640 x 350 16 of 64, 640 x 480 graphics - checkerboard display, video - page 1 to 8). . Format Disk. . Load DOS. . Load RyderFIRST Software are and data files Just prior to shipping. . Verify software version. . Maintain RyderFIRST master. . Power down and up system and leave on for 24 hours. . Return system/component to inventory. E. NEW DEALER STARTER KITS . Approximately 1,000 dealers are expected to open in 1996. . As new dealers are opened the RyderFIRST hardware and starter kits are shipped from the warehouse facility to the dealer. . The starter kits include keyboard, card swipe, line splitter, two printer ribbons, 10 pre-labeled backup diskettes and a diagnostic diskette. . Ryder furnishes all components of the starter kit with the exception of the printer ribbons and backup diskettes. - -------------------------------------------------------------------------------- 18 . The cost per dealer for starter kits must include the cost of assembly (packaging) of the starter kits and the shipping box as well as the cost of the printer ribbons and backup diskettes. . The starter kit box is 16.5 "X 20" X 9"H. F. Proprietary Board Assembly and Installation . Ryder will procure new hardware from time to time. It is estimated 100-200 new Systems will be purchased in 1996. . AMRDS is responsible for installing ID tags and miscellaneous stickers, as appropriate, on each new component purchased by Ryder and consigned to AMRDS for the RyderFIRST System. . AMRDS is not currently responsible for building a Ryder Proprietary Board which contains an internal modem and electronics for the card swipe. Ryder may request AMRDS to supply the proprietary board at a future time. . AMRDS is responsible for the installation of a Ryder Proprietary board on each new CPU purchased. . After the Ryder Proprietary board is installed, the component is placed in available inventory. G. AMRDS Hardware Requirements . AMRDS must provide an automated asset tracking/cost allocation system for the warehouse facility. . AMRDS must provide a PC/LAN capable of efficiently loading updated software after refurbishment or at the time new hardware is placed in service. IV. Hardware Maintenance AMRDS will be ready to provide the following hardware maintenance support by June 1, 1996. The swap maintenance process involves replacing defective components at dealerships. Swaps generally occur on a component, not an entire system. The functions required in the swap process are described below. . CGS Telephone support technician makes decision to swap defective component and notifies AMRDS warehouse. . For all orders received by 6:00 p.m. Dallas time, AMRDS warehouse will ship replacement component(s) OVERNIGHT to dealer. --------- . Dealer installs replacement component and packages defective component for return shipping back to AMRDS warehouse. . AMRDS warehouse arranges for pickup of defective component by UPS ground for return to warehouse. . AMRDS warehouse is responsible for tracking of defective components during the return shipping process and for follow-up if delivery is delayed. . Upon arrival at the AMRDS warehouse, the defective component is diagnosed by a AMRDS technician to identify problem. - -------------------------------------------------------------------------------- 19 . The following approved options are listed in order of preference: a) In-house AMRDS technician repairs component. b) Outside technician repairs component c) Component is surplused for salvage (decision requires Ryder approval). . The component is returned to inventory (unless surplused for salvage). . In addition to component swaps relating to maintenance, AMRDS is also responsible for shipping replacement components when hardware is stolen from the dealer's premises. The same process is used as for swap maintenance but the request for asset write off, as if the asset were being surplused, must be submitted to Ryder. The hardware which is maintained under the swap maintenance program is listed below. Component Yr Type Description Vol. Maint Purch --------------------------------------------------------------------- CPU IBM - PS/2 Model 35 - 80 MB HD 1000 SWAP 1992 386 Chip CPU IBM - 486 ValuePoint 33 MHZ 415 SWAP 1994 120 MB HD CPU IBM - 486 Series 330 - 50 MHZ 300 SWAP 1995 270 MB HD CPU Total 1,715 PRINTER OKIDATA - model 184 1,000 SWAP 1992 PRINTER OKIDATA - model 184 336 SWAP 1994 PRINTER OKIDATA - model 184 300 SWAP 1995 PRINTER OKIDATA - model 520 101 SWAP 1995 Printer Total 1,737 MONITOR Leading Edge 1015 SWAP 1992 MONITOR CTX - model 5468 400 SWAP 1994 MONITOR CTX - model 5468 300 SWAP 1995 MONITOR Total 1,715 Line Splitters Command Communications 1200 SWAP 1992 ComShare 750 Line Splitters Command Communications 1300 SWAP 1994 ComShare 750 V. Support Volume/Scheduling Statistics . Estimating an average of 7,800 inbound calls per month (93,600/year) for 1996. These call volumes may vary by as much as 10 to 20% of projected levels. . The average inbound support call lasts 3 minutes. . Estimating an average of 4,600 outbound calls per month, (55,200/year) for 1996. These are typically follow-up calls to dealers for resolution of RyderFIRST support inquiries. . The average outbound support call lasts 3 minutes. - -------------------------------------------------------------------------------- 20 . Consumer truck rental's business activity is extremely seasonal with the first and fourth quarters being the slowest and the second and the third quarters being the busiest. Our business also fluctuates by time of the month, business at the end of the month, and day of the week. Saturday is the busiest. Support call volume is somewhat related to business activity. . Inbound support call volumes vary by time of day. The busiest time period is 4-6 pm, followed by 10 am - 1 pm. . Inbound support call volumes vary by day of week. The busiest day is Monday followed in order of decreasing activity by Thursday, Friday, Tuesday, Wednesday, Saturday, and Sunday. A typical Monday will have 400 calls, Friday and Tuesday 300 calls and Saturday 200 calls. . Inbound support call volumes vary by time of month. The last week of the month is the busiest. The middle two weeks are the least busy. . Support call volumes increase significantly for the 1 - 2 month period following a software release to the RyderFIRST system or if a business change occurs which requires a change in procedure. . The following historical call volumes are provided for forecasting use. Notice that as the system matures and stabilizes, the call volumes are reduced. Additionally, continuous dealer training on the part of Ryder will also reduce relative call volumes.
Year Type Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec - -------------------------------------------------------------------------------------------------------------------- 94 Inbound 7962 7835 8246 9358 8837 10624 9651 11871 8747 8898 7824 6687 94 Outbound 4527 4588 4670 3988 3903 5745 5791 10003 6761 7440 6640 6293 95 Inbound 7590 9940 7797 6414 8518 *8500 *9000 *9000 *8000 *7800 *7800 *7500 95 Outbound 7828 8602 7719 5442 7237 *5100 *5400 *5400 *4800 *4700 *4700 *4500 *Projected call volumes
- ------------------------------------------------------------------------------- 21 EXHIBIT B --------- PERFORMANCE STANDARDS AND REMEDIES ---------------------------------- CGS agrees to provide the Services thereunder in accord with the following performance standards: I. Dealer Satisfaction: This area is where Ryder requires superior performance. Each second and third quarter Ryder conducts comprehensive dealer satisfaction surveys. The question measured is: "How satisfied are you with the assistance you received from the Ryder First Help Line?" The results are based on an average of very satisfied and somewhat satisfied on a quarterly basis. The standard will be **** average of very satisfied and somewhat satisfied. If CGS performs at a **** for the quarterly measure there will be a **** bonus paid to CGS. If CGS performs at **** or above, CGS will be paid a **** bonus for the quarter. If the average is **** for the quarter, CGS will pay to Ryder ****. If the team performs at below **** CGS will pay Ryder **** for the quarter. (Ryder warrants that performance on this question has not fallen below **** for a quarter since before the second quarter of 1993.) The first dealer satisfaction measurement for purposes of this section will be second quarter 1997. II. Other Performance Standards
Performance Responsible Measurement Measurement % Level Standard Organization period - ------------- ------------- ------------- ------------- ------------- Answer Time CGS All Calls in 20 Monthly 80% Sec Abandoned Call CGS Abandoned Calls/ Monthly less than 5% Rate(1) Total Calls Refurbish Cycle AMRDS 5 Business Days Monthly 95% Shipping Time AMRDS Orders Received Monthly 90% Hardware Failures by 6:00 p.m. Shipped Same Day Shipping Time CGS By 6:00 p.m. Next Monthly 90% for New Dealer Business Day New Dealer CGS Schedule Monthly 95% Install Installation Within 7 Days New Dealer CGS Within 10 Days Monthly 90% Follow-up of Shipment
(1) Abandon Call Definition: An abandoned call is defined as one in which the caller stays on the line for more than 15 seconds but hangs up before a technician answers. If three or more of the above standards are not met in a given month TSR will provide Ryder with a 1% reduction in the monthly bill. CGS will be responsible for their measurements that were missed in relationship to the total missed. For example: if answer time, abandoned call and refurbishment cycle were missed CGS would be responsible for two thirds of the 1% credit. If all standards are met for the quarter, Ryder will pay TSR 1% of the quarterly billing as a bonus. CGS will receive **** of this bonus. These reductions and bonus provisions will commence on October 1, 1996 III. Complete Shipments: Any incomplete shipment will result in a subsequent overnight delivery of the missing part(s) at TSR's expense. Out of stock situations are exempt. - -------------------------------------------------------------------------------- 22 **** Confidential treatment is being requested for these portions of this agreement. IV. Close Ticket Time: All calls will be handled, escalated or closed within one hour of the call. V. Additional Measurements to Consider:* Reporting Accuracy Rate Problem Resolution Accuracy Rate * These will be reviewed at quarterly quality reviews. - -------------------------------------------------------------------------------- 23 Exhibit C --------- CGS Pricing Schedule -------------------- Service Functions Unit Price - ----------------- ---------- Inbound RyderFIRST Telephone Support ****/call New Dealer Telephone Startup ****/dealer Initial Installation **** Includes: Database Design Programming Design Training Testing System Design, set up, scripting, training and testing Transmission set up, training and testing Telephone support, installation, testing and training CGS agrees to invoice TSR monthly for services performed under this contract, by the third business day of the following month. TSR agrees to pay CGS net thirty (30) days after the receipt of invoice. - -------------------------------------------------------------------------------- 24 **** Confidential treatment is being requested for these portions of this agreement. Exhibit D --------- Cost Reduction Initiatives -------------------------- At the quarterly quality reviews TSR and CGS will identify and agree on a minimum of one cost reduction initiative for the next quarter. The fist quality review will be held in January 1997. - -------------------------------------------------------------------------------- 25 Exhibit E --------- Reporting Requirements ---------------------- These requirements will be mutually established during the implementation process and reviewed quarterly. - -------------------------------------------------------------------------------- 26 Exhibit F --------- Training Requirements --------------------- Support Training . Ryder will provide RyderFIRST application training to supervisors and Technicians at startup. Subsequent to startup all RyerFIRST application training for CGS personnel will be the responsibility of CGS. . TSR will make available to CGS training and documentation for any changes to the RyderFIRST application. (Ryder currently does two software releases per year.) . CGS will provide on-going and refresher training as required. - -------------------------------------------------------------------------------- 27 Attachment A - ---------- Uninterrupted Telecommunications Service Plan Basic Coverage - -------------- . The CGS Help Desk is located at the Informart, a building designed to house only computer related vendors. It has a reliable electrical wiring network design, backup power systems and twenty four hour security to ensure quality technical support reliability. . The CGS Help Desk PC Workstations, Server and Rolm Phone switch are all connected to an interrupt power supply (UPS) located in the CGS suite. The UPS will protect against power surges and either Partial or total power loss. . The Help Desk is also protected from viruses by limiting outside access to only two pcs used for pc to pc support. These pcs are only connected to the outside world and nothing else. All of the Help Desk pcs have key locks to restrict loading of software or backing up data files by anyone except management or assigned system administrators. Plan A Support - -------------- For bad weather such as snow or ice storms CGS will have the support team stay overnight at a hotel close to the Infomart. Plan B Support - -------------- In case of fire, phone switch failure etc. totally disabling the Help Desk site, the agents and 800 number will be switched to the closest TSR facility. TSR will provide space, phones and Pcs for use by CGS help desk staff to support the RyderFIRST applications. Plan C Support - -------------- In case all of the DFW area is unable to provide support to the RyderFIRST system the 800 number will be transferred to the CGS Atlanta site and trained CGS employees will take over both inbound and outbound dealer support calls. - ------------------------------------------------------------------------------- 28 Attachment B ------------ TELEPHONE PERFORMANCE RESPONSE REPORTS a) Daily, Weekly, and Monthly Report on the following split information: Date Time, half hour Interval (Daily Only) Average speed of answer Average abandon time Number of ACD calls Number abandoned calls Maximum delay Average talk time Average after call % ACD Number of outgoing calls Average out time Number of agents staffing the split % ACD time % Answered Daily Weekly and Monthly Summary Totals (of Applicable items) b) Daily, Weekly and Monthly Reports on the following trunk information: Date Time - half hour intervals only (Daily Only) Number of calls carded (incoming) Number of calls abandoned (incoming) Number of calls answered (incoming) Average hold time Total C.C.S c) Daily total number of calls answered and/or abandoned by time interval Time intervals in five (5) second increments up to forty five(45) seconds Number answered Number abandoned Total Answered/abandoned d) TSR network vendor calls (Currently MCI) and Weekly Blockage Report. It is understood that this report is provided to TSR by MCI. TSR will provide Ryder with this report after receiving it from MCI. - ------------------------------------------------------------------------------- 29 ATTACHMENT C ------------ TELECOMMUNICATIONS TROUBLE SHOOTING, PROBLEM RESOLUTION ESCALATION, ------------------------------------------------------------------ AND TESTING AND TROUBLE REPORTING PROCEDURES --------------------------------------------- Once it has been determined that a telecommunications problem is not caused by the communication software or the modems, at either end of the transmission path, the following steps should be taken: 1. Report the trouble by opening a trouble ticket to the local exchange telephone company (LEC) responsible for the line in question. 2. If the trouble is related to a dealer workstation originating calls and said workstation is identified In the database as making Toll or long distance calls to the District's DCM, also report the trouble to the MCI National Account Service Center (N.A.S.C). 3. Local Exchange Telephone Companies will typically commit to clearing the problem by close of business day. TSR will follow up every four hours after the due time and date. If by close of business the following day the problem has not been resolved for a dealer location, TSR will escalate to LEC's supervisory level and will notify Ryder's Support organization. 4. In accordance with MCI's trouble reporting procedures, an MCI representative will call back when there is a resolution to the trouble reported. Depending upon the priority placed on the trouble, MCI will status the customer every two to four hours. 5. Before MCI closes its trouble ticket, CGS will request from MCI any and all repair action taken by MCI in order to resolve the customer's reported trouble. Network Trouble Reporting I. To report trouble on your MCI Ryder Net lines call MCI's National Account Service center (NASC) 1-800-695-1220. 2. Trouble conditions which are suspected to be RyderNet related should also be reported to Ryder's Rental System Support Group. 3. System, Inc. - CGS will provide the following information to the MCI representative: A. Company name B. Call back telephone number C. Telephone number experiencing trouble D. Trouble symptoms E. Previous occurrence of similar trouble, if any F. End user's name and comments GT Time the calls were made - -------------------------------------------------------------------------------- 30 4. MCI's. N.A.S.C. will generate a trouble ticket to track the progress of the repair. They will inform TSR of the repair trouble ticket number. Retain this ticket number for future reference should any questions arise during the life of the trouble. 5. Should it be necessary to speak with a supervisor concerning any difficulties with MCI RyderNet Service, contact the Floor Supervisor at the N.A.S.C., 1-800-695-1220. For further assistance, a contact list can be obtained from MCI. Network trouble conditions other than MCI should be handled through normal Local Exchange Company (LEC) reporting procedures. These procedures are developed and provided by Ryder System, Inc., and may change from time to time. Note: All References to MCI in this section could be substituted by Ryder with a New Network vendor of choice. In the event that the long distance vendor changes, CGS will be supplied with complete flow procedures. - ------------------------------------------------------------------------------- 31 [LOGO] TeleService Resources TELESERVICE RESOURCES NON DISCLOSURE AND NONCOMPETE AGREEMENT This agreement is made as of the 1st of March, 1996, by and between TeleService Resources (TSR)(the "Providing Party") and Computer Generated Solutions, Inc. (CGS) (the "Receiving Party"). In connection with discussions between TSR and CGS, it will be necessary for CGS to review certain documentation and information considered proprietary by TSR. In view of TSR's desire that such documentation and information be maintained in confidence, it is hereby agreed that for a period of five (5) years commencing on the date of this Agreement, CGS shall not disclose or otherwise make available to a third party any proprietary information and documentation received from TSR that is identified as confidential ("Confidential Information"). All Confidential Information transmitted hereunder shall be and remain the property of TSR, and all such Information and any copies thereof shall be promptly returned to TSR upon request or destroyed at TSR's option. Confidential Information shall mean any non-public, confidential proprietary information, services to be rendered or transactions contemplated hereby, including without limitation, pricing and material terms and conditions of services offered, intellectual property, enabling software, programming, except that Confidential Information does not include any information that: (i) is required by law to be disclosed (ii) was available to the Receiving Party prior to its disclosure by the Providing Party (iii) was known or becomes generally available to the public or to competitors of the parties hereto other than as a result of disclosure by the Receiving Party Furthermore, in the event that TSR and CGS enter into program-specific Agreements whereby CGS will provide help desk call handling services to TSR, those services will be provided for TSR's client programs. CGS agrees not to pursue independent business relations with any of TSR's clients for which it provides services for a minimum period of two (2) years from the end date of the program-specific Agreement(s) /s/ Steve Carter Date: 3/1/96 - --------------------- ------------ Steve Carter, Vice President CMC Division Computer Generated Solutions, INc. /s/ L.L. Curtis Date: 3/1/96 - -------------------------------- ------------ Lauri Curtis, Group President TeleService Resources/Data Management Services EX-10.4 7 AGREEMENT BETWEEN BORLAND INC. AND CGS *EXHIBIT 10.4 ------------ AGREEMENT DATED AS OF SEPTEMBER 15, 1995 BETWEEN BORLAND INTERNATIONAL, INC. AND COMPUTER GENERATED SOLUTIONS, INC. * Confidential treatment is being requested with respect to portions of this exhibit BORLAND No-Nonsense VAR Agreement - -------------------------------------------------------------------------------- This Agreement is between Borland International, Inc., 100 Borland Way, Scotts Valley, CA 95066 ("Borland"), and Computer Generated Solutions, Inc., 1675 Broadway, 31st Floor, New York, New York 11019 ("VAR"). 1. Definitions "Products" means Borland's computer software programs listed in Attachment A, including any related documentation ("Documentation"). "Territory" means the country or countries listed in Attachment A. 2. License a. Borland hereby appoints VAR as a member of Borland's Premier VAR Program (described in Attachment C) and appoints VAR as an authorized Value Added Reseller of the Products in the Territory. Borland hereby grants to VAR a limited, nonexclusive, nontransferable license to distribute and sublicense the Products in the Territory, solely as embedded in or bundled with the value-added software and/or application development services described in Attachment A, and not as standalone products. b. Borland also hereby grants to VAR a limited, nonexclusive, nontransferable license to use Borland's trademarks and trade names solely to the extent reasonably necessary for, the marketing, distribution and support of the Products, and in accordance with guidelines for the protection of such marks and names as may be provided by Borland to VAR from time to time. 3. VAR Obligations a. The license granted above is contingent upon VAR's payment of the annual Premier VAR Program enrollment fee, VAR's commitment to the Annual Net Software Revenue Performance Level set forth in Attachment B. and VAR's employment of at least two persons who are trained and certified in the use and installation of the Products . b. Upon execution of this Agreement, and from time to time within 30 days of Borland's request, VAR agrees to provide Borland with a business plan with respect to the future activities of VAR related to this Agreement. c. VAR agrees to provide Borland with monthly sales, pipeline and forecast reports. 4. Payment and Reports a. VAR will pay Borland the applicable License Fees as set forth on Attachment B and the Premier VAR Program fees set forth on Attachment C. Borland may change the list price of the Products at any time without notice. Borland may change the Premier VAR Program fees annually upon renewal. b. Products are delivered FOB Borland's point of shipment. VAR is responsible for paying all taxes, duties, shipping and other such fees relating to the Products, except taxes on Borland's net income. c. Within fifteen (15) days of the end of each calendar month, VAR shall report to Borland (i) the number of copies of each Product distributed during such month, (ii) the incremental number of users licensed by VAR during the month, and (iii) the amount payable to Borland, along with payment in such amounts. d. All other payments are due within thirty (30) days after the date of Borland's invoice. e. Late payments will be subject to interest at 1.5% per month, or the maximum rate allowable by law, if less. Borland reserves the right to change VAR's credit or payment terms if VAR does not pay in full and on time. 5. Borland Obligations a. Borland will accept orders from VAR for Products, provided each such order includes (i) the number of each Product ordered; (ii) the appropriate pricing and payments terms per the VAR Discount detailed in Attachment B; (iii) the bill-to and ship-to address; (iv) a reference to this Agreement; and (v) and other information reasonable requested by Borland. b. Borland will supply marketing materials for the Products as ordered by VAR in quantity based upon Borland's then-current standard charges for these materials. c. Borland will work with VAR to establish product training for VAR's technical, sales and support staff at the then-current time and rate schedule provided by Borland or a designated third party. 6. Upgrades and Support a. Provided VAR has paid all applicable Premier VAR Program fees as set forth in Attachment C, VAR will be entitled to receive Upgrades to those Products which may become commercially available from Borland during the term of this Agreement. An "Upgrade" is a revised version of a Product with the identical name and with a version number change immediately to either the right or BORLAND No-Nonsense VAR Agreement - -------------------------------------------------------------------------------- left of the decimal. An Upgrade does not include a version of a Product for a different operating system or environment. b. VAR is also entitled to obtain the support and other services from Borland as a member of the Premier VAR Program as described in Attachment C. VAR, and not Borland, is responsible for providing VAR's customers with Upgrades and support. Borland's support programs are subject to change from time to time without notice. 7. Proprietary Rights Borland or its licensers have and will keep title, copyright, trademarks and all other proprietary rights in the Products. VAR has no right to use, examine, re- create, sublicense, or transfer the source code for the Products, which is Borland's trade secret. VAR agrees not to attempt to reverse engineer, decompile, disassemble, or otherwise attempt to derive source code from the Products or to knowingly allow others to do so during or after the term of the Agreement. Unless agreed to in writing by Borland, VAR agrees not to remove or destroy any proprietary or confidential legends or markings placed upon or contained in the Products, or otherwise to modify or alter the Products. 8. Limited Warranty Borland warrants the physical media provided to VAR (but not any media distributed by VAR) to be free of physical defects in materials and workmanship for a period of 90 days after it is first delivered to VAR, and will replace any defective media if notified within the warranty period. THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES TO VAR OR ANY THIRD PARTY, EXPRESS OR IMPLIED, RELATED TO THE PRODUCTS OR ANY SERVICES BORLAND MAY PROVIDE, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ARISING BY STATUTE, LAW OR TRADE DEALING OR USAGE. Without limiting the foregoing, Borland does not warrant that any Product is error-free, or that any errors can or will be corrected. VAR agrees that it will not make any warranty or other representation of any kind to sublicensees or others on Borland's behalf. 9. Limitation of Liability In any event, neither Borland nor VAR will be liable to the other or any third party for incidental, special or consequential damages for any reason (including loss of data or other business or property damage), even if foreseeable, and neither party's liability will exceed the applicable fees paid or payable by VAR to Borland. VAR will require each sublicensee to accept similar warranty and liability limits. 10. Infringement Indemnity a. Borland will defend VAR against any claims by third parties of infringement of United States copyrights arising from VAR's use, as permitted herein, of any Product as furnished by Borland and pay any damages awarded. Borland's obligations are contingent upon VAR notifying Borland promptly of any notice of any actual or threatened claim or suit; giving Borland the exclusive right to control the defense and settlement of such claim or suit; and giving Borland VAR's full cooperation for the defense of same. Following notice of a claim or a threatened claim, Borland may, in its discretion and at its option, procure for VAR the right to continue using any Product or may replace or modify any Product to make it non-infringing. If Borland determines that none of these alternatives is practical, Borland may refund the license fees paid by VAR hereunder for the affected Products (less a charge for depreciation on a three year, straightline basis) and accept the return of the affected Products. b. Borland will have no liability for any claim of infringement of any third party right that is caused by VAR's use of any Product with non-Borland software, products or data if such claim would have been avoided by exclusive use of the Product; modification of the Product by anyone other than Borland if such claim would have been avoided by use of the unmodified Product; or by use of other than the most current release of the Product. c. Paragraphs (a) and (b) of this Section state Borland entire liability to VAR for actual or claimed infringement of intellectual or proprietary rights. 11. Term a. The term of this Agreement shall be one year and it shall be effective on the date set forth below. The Agreement shall automatically renew for not more than two consecutive one year terms unless 30 days' advance written notice is provided by either party. Either party may terminate this Agreement on 30 days' written notice if the other party breaches any material term of this Agreement and fails to remedy such breach within such 30-day notice period. Either party may terminate this Agreement in the event the other party becomes involved in any voluntary or involuntary bankruptcy or other insolvency proceedings, ceases to be actively engaged in business, makes an assignment for the benefit of its creditors, or becomes financially incapable of fulfilling its obligations under this Agreement. b. Upon termination, VAR shall cease distributing and sublicensing the Products, shall destroy or return all originals and copies of the Products, including BORLAND No-Nonsense VAR Agreement - -------------------------------------------------------------------------------- documentation and related materials, and all other reproductions and parts thereof. VAR may retain full-use copies of the Products for which it has purchased an internal use license from Borland. 12. Audit Rights Upon 15 days' written notice, Borland shall have the right, at all reasonable times during normal business hours, to inspect the VAR's sites to determine whether the Products are being used and protected in accordance with the terms of this Agreement. In addition, upon such notice, Borland shall have the right, during normal business hours, to conduct an audit of VAR's records to determine the propriety of royalty reports submitted by VAR and related license fee records. Borland shall bear the expense of such audit; however, in the event any such audit reveals that VAR has understated the amount of fees which VAR is obligated to pay Borland under this Agreement by more than five percent (5%), VAR shall pay, in addition to any fees contractually due, all reasonable third party fees associated with such audit. Audit rights shall terminate one year subsequent to the termination or expiration of this Agreement. 13. Confidentiality "Confidential Information" means non-public business, product, financial and technical information which is disclosed in writing and marked as confidential, or disclosed in any other manner and later identified in writing as confidential. Neither party will use or disclose the Confidential Information of the other except as specifically authorized by the other in writing. Each party will protect the Confidential Information of the other by using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized use, dissemination or publication of the Confidential Information as such party uses to protect its own confidential information of a like nature. 14. Assignment This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and, except as otherwise provided herein, their respective legal successors and permitted assigns, provided however that VAR shall not assign, voluntarily or involuntarily or by operation of law or otherwise, any part of this Agreement without the prior written consent of Borland. 15. General a. This is the full and final agreement between VAR and Borland on this subject, and supersedes any earlier promises, representations or agreements. b. This Agreement may only be changed if VAR and Borland's authorized representative do so in writing. c. No inconsistent, additional, or preprinted terms on VAR's purchase order or other business form will apply. d. Borland reserves the right at any time without liability to change or discontinue any of its products, services or programs. e. VAR and Borland are independent contractors and neither is an agent, partner, franchisee, joint venturer or employee of the other. f. Waivers not given in writing may be revoked at any time without liability. g. Invalid provisions do not affect the enforceability of others. h. Borland is entitled to injunctive relief for violations of Borland's copyrights, trade secrets or other proprietary rights. i. Use, duplication, or disclosure by the U.S. Government of the Products shall be subject to the restricted rights applicable to commercial computer software (under DFARS 252.227-7013 or FAR 52.227-19, as applicable). j. Distribution of the Products is subject to U.S. export control laws. VAR may not in any event export the Products to any country under U.S. Commerce Department restriction. k. Borland reserves all rights not granted specifically in this Agreement. All notices shall be in writing and in English and may be sent by telecopy, courier, or mail, return receipt requested, sent to the attention of the Legal Department at the addresses set forth below, and shall be deemed effective upon receipt. l. This Agreement will be construed, interpreted and governed by the substantive laws of the State of California. Any legal action arising out of or related to this Agreement shall be brought only in a state or federal court of competent jurisdiction located in the Counties of Santa Cruz or Santa Clara, California. BORLAND No-Nonsense VAR Agreement - -------------------------------------------------------------------------------- BORLAND INTERNATIONAL INC. Signed: /s/ Frank A. Vaculin -------------------------- Name: Frank A. Vaculin Reviewed ---------------------------- By Legal Title: V.P. - Sales Dept. --------------------------- /s/ LW EFFECTIVE DATE: 9/15/95 ------------------ VAR: Computer Generated Solutions, Inc. Signed: /s/ Victor Friedman -------------------------- Name: Victor Friedman ---------------------------- Title: Executive Vice-President --------------------------- BORLAND No-Nonsense VAR Agreement - -------------------------------------------------------------------------------- ATTACHMENT A I. PRODUCTS (U.S. English language version): Platform -------- Delphi Client/Server Windows Delphi Client/Server Bundle Windows ReportSmith SQL Windows II. VALUE ADDED PRODUCTS AND/OR SERVICES The license granted in Section 2 of the Agreement is contingent upon VAR providing to the end user the following Value Added software and/or application services with each Product distributed: Delphi Full Project Life Cycle Implementation Support, Training, and Supplemental Staffing. Such Value Added services and/or products must be of equal value to the Products sold with such services and/or products to each customer. lll. TERRITORY With respect to this Agreement the term Territory shall mean the United States, Canada, and the country or countries listed below: IV. APPROVED AGENTS AND RESELLERS Subject to all the terms of this Agreement, The VAR's agents and resellers below are approved by Borland to distribute the Products with the value-added software or services described above. - -------------------------- -------------------------- - -------------------------- -------------------------- 4 BORLAND No-Nonsense VAR Agreement - -------------------------------------------------------------------------------- Attachment B I. LICENSE FEES a. Products. VAR shall pay Borland a per copy license fee for each Product -------- purchased under this Agreement based on a **** discount off of the then- current suggested list price of the Product on the date VAR places each order. b. Upgrades. For each Product Upgrade purchased pursuant to this --------- Agreement as a replacement for a prior version of such Product, VAR shall pay Borland a per copy license fee based on a **** discount off of the then-current Upgrade price of the Product on the date VAR places each order. c. International Uplifts. ---------------------- The license fee for each translated Product shall be **** of the license fees for Products and Upgrades set forth in (a) and (b) above. The license fee for each International English version of the Products shall be **** of the license fees for Products and Upgrades set forth in (a) and (b) above. The license fee for each U.S. English language version of the Products distributed by VAR outside the United States shall be **** of the license fees for Products and Upgrades set forth in (a) and (b) above. II. BORLAND ASSIST SUPPORT PROGRAMS. VAR may accept customer purchase orders for the Borland Assist Support Programs from VAR's customers as value-added to the Products. VAR shall pay to Borland the price set forth in the Borland Assist Price List for each such order. III. PREMIER VAR ANNUAL NET SOFTWARE REVENUE OBJECTIVE VAR agrees to maintain an Annual Net Software Revenue Performance level of at least **** in order to participate in the Premier VAR Program as defined under this Agreement. IV. REBATE SCHEDULE Each calendar quarter during the term of this Agreement, VAR is eligible to receive a Rebate based on VAR's "Purchases to Date" (defined below) during the one-year term of this Agreement, according to the following schedule: Rebate Level Purchases to Date Rebate Percentage - ------------ ----------------- ----------------- I **** **** II **** **** III **** **** IV **** **** V **** **** 5 **** Confidential treatment is being requested for these portions of this agreement. BORLAND No-Nonsense VAR Agreement - -------------------------------------------------------------------------------- Purchases to Date are used to determine the Rebate percentage. To determine the amount of Rebate, multiply the Rebate Percentage by actual "Net Revenues" (defined below) during the quarter. Example: If at the end of a quarter VAR's Purchases to Date are $250,500 (****), and VAR's Net Revenues during such quarter were $50,000, VAR's Rebate for such quarter would be calculated by multiplying $50,000 by ****, for a total Rebate of **** for such quarter. "Net Revenues" means the total of actual shipments of full Products that Borland makes to VAR during a calendar quarter, calculated at the discount off the then- current suggested list price set forth in Paragraph I above and net of return authorizations issued, taxes, shipping and other charges and credits. Net Revenues does not include Upgrades. "Purchases to Date" means the sum of (i) Net Shipments to date under each one- year term of this Agreement plus any order(s) placed by VAR during the quarter which have not yet been shipped by Borland, provided such orders are for Products currently available for shipment by Borland and scheduled for immediate shipment, and provided such orders are not being held because VAR is on credit hold; (ii) any Upgrades ordered to date under this Agreement, less returns; and (iii) any orders placed by VAR for Borland Assist under Paragraph II above. REBATE TERMS AND CONDITIONS. Rebates will be awarded within approximately 30 days after the end of each calendar quarter. Borland will calculate Rebates based on the reports received electronically each month from VAR. Borland will award the Rebate as a reduction against the current balance due Borland from VAR. If no balance is due at the time of the award, VAR may elect to receive the Rebate in the form of a cash payment or as a credit against future payments for Product to Borland. In the event VAR believes any Rebate is incorrect, VAR must notify Borland of such claim in writing in detail, within 5 days of receipt of such award. In the event Borland does not receive such notice, the Rebate will be deemed accepted by VAR. In the event VAR disputes any Rebate award, VAR's management and Borland's will meet to attempt to resolve the dispute, but the final award of any Rebate will be determined in Borland's sole discretion. In no event will any disputed Rebate be deducted from payments due to Borland unless and until such Rebate award has been agreed to in writing by VAR and Borland. No Rebate will be credited or paid if VAR is on credit hold, but only for so long as such credit hold is in place. If VAR and Borland terminate this Agreement prior to the end of any calendar quarter, Borland will credit any Rebate earned toward any outstanding balance due Borland unless there is no balance, in which case Borland will award the Rebate in cash. 6 **** Confidential treatment is being requested for these portions of this agreement. BORLAND No-Nonsense VAR Agreement - -------------------------------------------------------------------------------- ATTACHMENT C PREMIER VAR PROGRAM I. DELPHI CLIENT/SERVER ANNUAL PROGRAM ENROLLMENT FEE: **** per Year, ordered separately by purchase order. II. PROGRAM DELIVERABLES Software (for VAR's internal use only) - -------------------------------------- . 2 Copies of Delphi Client Server (Full Use) with Documentation . 2 Copies of ReportSmith SQL (Full Use) with Documentation . Right to Copy up to ten (10) copies of DELPHI Client/Server and ReportSmith SQL to be used for internal education and demonstration purposes only. . Additional copies: Delphi: **** ea. ReportSmith SQL: **** ea Documentation: DELPHI - **** set ReportSmith SQL - **** set Software Upgrades (for VAR's internal use only) - ----------------------------------------------- . Included with Annual Premier Program Enrollment Fee Borland Assist Telephone Support - -------------------------------- The program includes consultative and Client/Server connectivity support for Delphi, Local InterBase Server and ReportSmith SQL. PRIORITY SUPPORT DELIVERABLES ARE: . 2 Named Contact(s) . **** for each Additional Contact . Immediate Call Response . Unlimited Priority Access to a Senior Support Engineer via a Toll Free number. . Borland KnowledgeBase CD Borland Assist Telephone Support hours are Monday through Friday, 6 a.m. - 5 p.m. PST, not including holidays. 7 **** Confidential treatment is being requested for these portions of this agreement. - -------------------------------------------------- MICROSOFT SOLUTION PROVIDER AGREEMENT This Agreement (the "Agreement") is between Microsoft Corporation ("MS"), a Washington corporation, located at One Microsoft Way, Redmond, WA 98052, and you, the Microsoft Solution Provider ("SP"). DO NOT ALTER OR AMEND THIS AGREEMENT IN ANY MANNER; such alterations, without MS written accceptance, will void this Agreement. 1. PURPOSE SP desires to provide a comprehensive computer solution to certain of its customers, which may include computer hardware, software, product support, and training. MS desires to supply software, service, and/or support to SP to enable SP to provide its customers with the solutions above. 2. APPOINTMENT MS hereby appoints SP as a non-exclusive Microsoft SP in the U.S., excluding U.S. territories, for the services and training listed in this Agreement. 3. TERM AND TERMINATION This Agreement shall take effect on date of SP's signature below ("Effective Date"), and unless terminated earlier as provided herein, shall continue for one year, terminating on the last day of the month the Agreement was signed in that following year. Either party shall have the right to terminate this Agreement at any time, without cause, on the giving of thirty (30) days prior written notice. Neither party shall be responsible to the other for any costs or damages resulting from the termination of this Agreement. Upon expiration or termination of this Agreement, SP shall immediately cease use of all training licenses, internal use licenses, MS trademark, and MS Solution Provider Logo, and cease to represent itself as an MS Solution Provider. 4. PAYMENT TERMS Fee for this appointment is One Thousand Five Hundred Dollars ($1,500). 5. SP OBLIGATIONS (A) TRADEMARKS The appropriate trademark symbol (either "TM" [standard Trademark] or "(R)" [standard Registered] in a superscript following the Product name) shall be used whenever a MS product name is mentioned in any advertisement, brochure, or material circulated by SP. The appropriate trademark symbol must be used at least once for each MS product in each publication, in conjunction with the first reference to such MS product. (B) REPORTING Quarterly sales and service reports, in a format to be prescribed by MS, shall be completed and forwarded to: Attn.: Microsoft Solution Provider Group-- Reporting, Microsoft Corporation, One Microsoft Way, Redmond, WA 98052-6399. Format and further information will be provided to SP by MS. (C) MEMBERSHIP APPLICATION SP represents and warrants that all the information it supplied on its Membership Application is in all material respects true and correct to the best of its knowledge and belief, and undertakes that it will continue to be so during the term of this Agreement. Should there be any changes in such information during the course of this Agreement, SP shall promptly inform MS in writing of such changes. (D) SERVICE ESTIMATE SP's best estimate is that more than 25% of its revenues are generated from provision of technical services to its customers. This estimate shall not include those services, support, training, etc. provided to any of SP's affiliates, subsidiaries, branches, divisions, or other related third parties. 6. SP PROGRAM FEATURES (A) LOGO USAGE SP shall have the right to use the MICROSOFT SP LOGO provided that (i) SP insures that all services it provides as a Microsoft SP are consistent with the quality of skills acquired by those employees of the SP who have obtained the appropriate training from MS or its affiliates; (ii) SP continues to employ a sufficient number of people who are Microsoft Certified Professional personnel; (iii) SP complies with guidelines for use of the MICROSOFT SP LOGO as prescribed by MS from time to time; and (iv) SP is in full compliance with the terms and conditions of this Agreement. In the event that any of the above provisions are not met, SP will cease immediately from use of the MICROSOFT SP LOGO. MICROSOFT/R/ SOLUTION PROVIDER EX-10.5 8 AGREEMENT DATED 11/9/95 BETWEEN BORLAND AND CGS * EXHIBIT 10.5 ------------ Agreement dated November 9, 1995, between Borland International, Inc. and Computer Generated Solutions, Inc. * Confidential Treatment is being requested with respect to portions of this exhibit [LETTERHEAD OF COMPUTER GENERATED SOLUTIONS, INC.] AGREEMENT ------- This Agreement is between Borland International, Inc., 100 Borland Way, Scotts Valley, CA 95066 ("Borland"), and Computer Generated Solutions, Inc., 1675 Broadway, New York, NY 10019 ("CGS"). 1. PURPOSE. ------- This Agreement is intended to establish a relationship between Borland and CGS in order for CGS, as an independent contractor, to provide to Borland services relating to delivering technical support to Borland's customers. 2. CGS SERVICES. ------------ a. Borland hereby appoints CGS as an independent contractor to service Borland's present and future business needs as described in paragraph 1 of this Agreement. Borland retains CGS to provide only those services which are agreed to by the parties in a separate written Attachment to this Agreement which is signed by both parties. b. Borland also hereby grants to CGS a limited nonexclusive license to use Borland's trademarks and trade names solely to the extent reasonably necessary for the performance of such services, and in accordance with guidelines for the protection of such marks and names as may be provided by Borland to CGS from time to time. 3. CGS OBLIGATIONS. --------------- a. CGS agrees to provide Borland with those services described in any Attachment to this Agreement. b. Following the execution of this Agreement, and from time to time within thirty (30) days of Borland's written request, CGS agrees to provide Borland with a business plan with respect to future services of CGS related to this Agreement. 4. PAYMENT. ------- a. Borland will pay CGS the applicable fees as set forth on any Attachment to this Agreement. b. All payments described in any Attachment are due within thirty (30) days after the receipt of CGS's invoice, and any documentation requested by Borland sufficient to substantiate such invoice. 2 5. BORLAND OBLIGATIONS. ------------------- a. Borland aqrees to perform such functions as described in any Attachment to this Agreement. b. Borland will supply to CGS such documentation for as CGS reasonably needs in order to perform the services agreed to. c. As deemed necessary by Borland, Borland will provide training to CGS employees engaged in performance of the services under this Agreement. 6. BORLAND'S SERVICE NEEDS. ----------------------- Provided Borland has paid all applicable fees as set forth in all Attachments, Borland will be entitled to receive the support and other services described in the Attachments. 7. PROPRIETARY RIGHTS. ------------------ Borland or its licensors have and will keep title, copyright, trademarks and all other proprietary rights in its products. CGS has no right to use, examine, re-create, sublicense, or transfer the source code for Borland's products, which is Borland's trade secret. CGS agrees not to attempt to reverse engineer, decompile, disassemble, or otherwise attempt to derive 3 the source code from Borland's products or to knowingly allow others to do so during or after the term of the Agreement. Unless agreed to in writing by Borland, CGS agrees not to remove or destroy any proprietary or confidential legends or markings placed upon or contained in Borland's products, or otherwise to modify or alter the products. 8. LIMITATION OF LIABILITY. ----------------------- In any event, neither Borland nor CGS will be liable to the other or any third party for incidental, special or consequential damages for any reason (including loss of data or other business or property damage), even if foreseeable, and neither party's liability will exceed the applicable fees paid or payable to CGS by Borland. 9. TERM. ---- a. The term of this Agreement shall be one year and it shall be effective on the date set forth below. The Agreement shall automatically renew for not more than two consecutive one year terms unless thirty (30) days' advance notice is provided by either party. Either party may terminate this Agreement on thirty (30) days' notice if the other party breaches any material term of this Agreement and fails to remedy such breach within such thirty (30) day notice period. Either party may terminate this Agreement in the event the other party becomes involved in any voluntary or 4 involuntary bankruptcy or other insolvency proceedings, ceases to be actively engaged in business, makes an assignment for the benefit of its creditors, or becomes financially incapable of fulfilling its obligations under this Agreement. After the initial one year term, either party may terminate this Agreement on thirty (30) days' notice. b. Upon termination, CGS shall destroy or return all originals and copies of Borland's products, including documentation and related materials, and all other reproductions and parts thereof. 10. CONFIDENTIALITY. --------------- "Confidential Information" means non-public business, product, financial and technical information which is disclosed in writing and marked as confidential or disclosed in any other manner and later identified in writing as confidential, or disclosed in any other manner and later identified in writing as confidential. Neither party will use or disclose the Confidential Information of the other except as specifically authorized by the other in writing. Each party will protect the Confidential Information of the other by using the same degree of care, but not less than a reasonable degree of care, to prevent the unauthorized use, dissemination or publication of the confidential information as such party uses to protect its own confidential information of a like nature. 5 11. GENERAL. ------- a. This is the full and final agreement between Borland and CGS on this subject and supersedes any earlier promises, representations or agreements. b. This Agreement may only be changed if Borland's and CGS's authorized representatives do so in writing. c. No inconsistent, additional, or preprinted terms on Borland's purchase order or other business form will apply. d. Borland and CGS are independent contractors and neither is an agent, partner, franchisee, joint venturer or employee of the other. e. Waivers not given in writing may be revoked at any time without liability. f. Invalid provisions of this Agreement do not affect the enforceability of others. g. Borland is entitled to seek injunctive relief for violations of Borland's copyrights, trade secrets or other proprietary rights. 6 h. All notices under this agreement shall be in writing and shall be sent by telecopy, courier, or certified mail return receipt requested, to the attention of the appropriate party, at the address as set forth on the first page of this Agreement and shall be deemed effective upon receipt. i. This Agreement will be construed and governed by the substantive laws of the State of California. This agreement shall be effective on November 9, 1995. BORLAND INTERNATIONAL, INC. Signed: /s/ Eric Ornas ----------------------------- Name: ERIC ORNAS ------------------------------- Title: Director, Technical Support ------------------------------ COMPUTER GENERATED SOLUTIONS, INC. Reviewed By Signed: /s/ Victor Friedman Legal ----------------------------- Dept. Name: VICTOR FRIEDMAN /s/ ------------------------------- Title: Executive Vice-President ------------------------------ Attachment A to Agreement between Borland International, Inc. ("Borland") and Computer Generated Solutions, Inc. ("CGS") Effective November 9, 1995 ---------------------------------------------- End-User ("Help Desk") Support Services --------------------------------------- 1. HELP DESK SERVICES. ------------------ a. CGS will provide Borland's customers ("Customers") with technical support for Borland's software products. These services will be provided by CGS employees from Borland's offices located in Scotts Valley, California, during Monday through Friday, for a minimum of forty (40) hours per week between the hours of 6:00 a.m. to 5:00 p.m., Pacific Time. b. CGS will initially employ and provide to Borland up to six (6) qualified help desk support analysts whose responsibilities include the day to day technical support of Customers, including answering questions and providing solutions to problems for Borland software products. c. To ensure CGS's effective delivery of help desk services, Borland will: (1) Assign a designated contact person, prior to the start of the services, to whom all CGS communications may be addressed and who has the authority to act on Borland's behalf for all aspects of the services CGS is performing. The designated contact will: (a) Assist in establishing a transition project plan for the implementation of the services; (b) Arrange training for CGS employees, if needed; and (c) Provide assistance as needed to the help desk personnel for those instances that require management intervention and action. (2) Provide to CGS operational guidelines for the successful implementation of the help desk services. (3) Provide to CGS product information and data that may be required for the successful implementation of the help desk services. d. Borland may during the term of the Agreement request CGS to provide additional employees for the help desk services, which CGS will on a best efforts basis attempt to provide. 2. Fees. ---- a. Borland will pay CGS at the rate of **** per hour for each hour of service provided by a CGS employee. **** Confidential treatment is being requested for these portions of this agreement. 2 b. During the first five (5) weeks following the start of CGS's employees assignment at Borland, CGS will discount by **** its fees for those employees which require technical training by Borland. 3. Non-Hiring of CGS Employees. --------------------------- a. Borland agrees that it cannot hire a CGS employee, unless and until that employee has completed at least twelve (12) consecutive months of help desk services and Borland has given CGS thirty (30) days' advance notice of its intention to solicit for employment that CGS employee. Thereafter, Borland may hire such CGS employee provided that Borland pays to CGS a fee of 15% of the employee's annual compensation to be paid by Borland if the employee is hired by Borland after the completion of twelve (12) months but before the completion of eighteen (18) months of help desk services, or 10% of the employee's annual compensation to be paid by Borland if the employee is hired by Borland after the completion of eighteen (18) months of help desk services. These fees are to be paid by Borland within thirty (30) days after the employee is hired by Borland. b. Notwithstanding paragraph 3.a. above, but provided that Borland has timely remitted payment of the applicable percentage fee described in paragraph 3.a., if Borland offers CGS the opportunity to replace the hired employee with a new CGS **** Confidential treatment is being requested for these portions of this agreement. 3 employee within sixty (60) days after Borland's hiring and CGS replaces the hired employee, then Borland shall pay to CGS a flat fee of $2,500.00. If Borland has already paid the percentage fee described in paragraph 3.a. above, Borland shall receive a credit against that employee's future billable time, less the $2,500.00 flat fee. c. Notwithstanding paragraphs 3.a. and 3.b. above, Borland cannot, at any time, hire more than 50% of the number of CGS employees who have been assigned to Borland for help desk services. d. Upon thirty (30) days' notice, Borland or CGS may terminate the services of any CGS employee at any time during this Agreement. e. Notwithstanding paragraph 3.d. above, CGS agrees that it will not reassign its employees to other projects without Borland's written consent, and Borland agrees that it will not unreasonably withhold such consent. 4 This Attachment shall be effective on November 9, 1995. BORLAND INTERNATIONAL, INC. Reviewed Signed: /s/ Eric Ornas By ----------------------------- Legal Name: ERIC ORNAS Dept. ------------------------------- /s/ Title: Director, Technical Support ------------------------------ COMPUTER GENERATED SOLUTIONS, INC> Signed: /s/ Victor Friedman ----------------------------- Name: VICTOR FRIEDMAN ------------------------------- Title: Executive Vice-President ------------------------------ 5 EX-10.6 9 AUTHORIZED EDUCATION AGREEMENT DATED 5/23/95 *EXHIBIT 10.6 ------------ Authorized Education Center Agreement dated May 23, 1995, between Lotus Development Corporation and Computer Generated Solutions, Inc. * Confidential treatment is being requested with respect to portions of this exhibit To: Jennifer Davis cc: From: Jennifer Davis Date: 10/19/95 11:48:21 AM Subject: BP new renewal fee for LAEC IMPORTANT REMINDER - ------------------ Business Partner Program Annual Membership Renewal Last June, when Lotus began shipping the quarterly Business Partner Connection CDs to all Business Partners, we announced that an annual membership fee would be required for partners to maintain membership in the program. As you know, one of the requirements of the LAEC Program is membership to the Business Partner Connection. During the last renewal cycle, the LAEC Program provided a complimentary one year's membership for the Business Partner Connection to LAECs. Effective with the July 1, 1995 LAEC renewals, LAECs are responsible for renewing this service. To simplify the process, the renewal fees for both the LAEC Program and The Business Partner Program will be due at the same time and submitted to the LAEC Program, where LAEC Program staff will ensure the Business Partner Program membership renewal is processed. The new amount that should be submitted is ****. The new rate reflects the **** annual per site renewal for the LAEC Program (no change) and the **** subscription fee for the Business Partner Connection. The **** subscription rate was recently increased from **** by the Business Partner group to help fund some of the new program benefits including LNN. As a LAEC you will continue to receive the following program benefits: - Lotus Notes Software for Licensed use in classroom) - Product marketing support and collateral - Educational Referrals - Educational Helpline - Lotus Fax Support - Worldwide Scheduling database - Courseware discounts - Cooperative marketing programs - MAP - Lotus Education Marketing Material - LAEC LiNK (part of Lotus Connects) - Partnering opportunities - Assigned Account Managers Furthermore, as a Lotus Business Partner you will continue to receive the following: - Business Partner Connection (quarterly Info Library and Toolkit CDs) - FirstLook prerelease software (including R4 prerelease) - Inside Edge CDs - Notes applications to help you run your business - Lotus Vision, skill enhancement videotapes and local seminars - Developer consulting assistance - Lotus software for internal use - Marketing toolkits - Solution Symposia and local seminars - Partner Pavilions, PR support and special advertising supplements - Listing in Lotus Business Partner Catalog (product packaging, Notes guide and WWW) **** Confidential treatment is being requested for these portions of this agreement. LOTUS AUTHORIZED EDUCATION CENTER AGREEMENT Lotus Development Corporation Training Company Name and Address: Lotus Education Group American Systems Technology, Inc. ___ 400 River Park Drive 1050 Wilshire Drive Suite 191 _______ North Reading, MA 01864 Troy, MI 48084_______________________ Telephone: 800-346-6409 Telephone: 810-643-0140X23___________ FAX: 617-693-8636 Fax: 810-643-8210____________________ Attention: Manager, Lotus Attn: Laura Kelly____________________ Education - LAEC Program Effective Date: ___________________ - -------------------------------------------------------------------------------- The Lotus Authorized Education Center Agreement between Lotus Development Corporation ("Lotus") and the training company identified above ("LAEC") consists of this cover page and the following: AUTHORIZED SITE SCHEDULE - contains the fees for the LAEC Program and lists the names and addresses of LAEC's training locations which have been authorized by Lotus ("Authorized Sites") AUTHORIZED COURSE SCHEDULE - lists the Lotus-authorized courses available to LAEC under this Agreement ("Authorized Courses") and the current prices STANDARD TERMS AND CONDITIONS - Contains Lotus' standard terms and conditions applicable to the LAEC program The signatures below are those of authorized representatives of the parties and constitute each party's acceptance of this Agreement as set forth in the attached Schedules and Standard Terms and Conditions. LAEC LOTUS DEVELOPMENT CORPORATION - ----------------------------------- (print full corporate name) By:________________________________ By:__________________________________ Name:______________________________ Name:________________________________ Title:_____________________________ Title:_______________________________ LOTUS AUTHORIZED EDUCATION CENTER AGREEMENT AUTHORIZED SITE SCHEDULE 1. Initiation Fees. --------------- One Authorized Site: ****(U.S.) Each Additional Authorized Site: ****(U.S.) The Initiation Fee covers a period of one (1) year from the Effective Date (the "Initial Term") and is payable upon execution of this Agreement. The Initial Term may extent beyond one year for renewal purposes as described below. The Initiation Fee for Authorized Sites added during the term will be prorated to the effective date of LAEC's primary Site. If Lotus does not receive an executed original of this Agreement and all applicable fees within 30 days of the LAEC's receipt of the Agreement, LAEC will not be accepted into the LAEC Program. 2. Annual Renewal Fees. ------------------- Each Authorized Site: ****(U.S.) After the Initial Term, this Agreement may be renewed for additional one (1) year renewal terms upon LEAC's submission and Lotus' acceptance of a Renewal Application and payment of the Annual Renewal Fee and other fees by LAEC. The Renewal Date will be the beginning of the calendar quarter immediately following this Agreement's anniversary date. If Lotus does not receive the Renewal Application and all fees within thirty (30) days of the Renewal Date, this Agreement will automatically and immediately terminate. The annual Renewal Fee is subject to change on 30 days' prior notice. 3. Authorized Sites. ---------------- Please list the names and addresses of LAEC's Authorized Sites (include the address indicated at the top of the previous page, if appropriate). All Authorized Sites must be approved by Lotus in advance. (Attach additional sheet if necessary.) 1050 Wilshire Drive Suite 191__________ ___________________________________ Troy, MI 48084_________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ _______________________________________ ___________________________________ **** Confidential treatment is being requested for these portions of this agreement. Confidential treatment is being requested. LOTUS AUTHORIZED EDUCATION CENTER AGREEMENT AUTHORIZED COURSE SCHEDULE Course Title Duration LAEC Courseware Kit Price in US Dollars Basic Notes Concepts 1 day **** Basic Notes Concepts for Macintosh 1 day **** Notes Technical User 1 day **** Notes Application Development I 2 days **** Notes Application Development II 3 days **** Notes System Administration I 3 days **** Notes System Administration II 2 days **** cc:Mail System Administration I 2 days **** cc:Mail System Administration II 2 days **** Notes API 2 days **** Lotus Forms Development 3 days **** Introduction to Lotus Notes VIP 2 days **** LotusScript Fundamentals 3 days **** Prices, class duration and course names are subject to change. Lotus will provide 30 days prior notice of any price increases. **** Confidential treatment is being requested for these portions of this agreement. LOTUS AUTHORIZED EDUCATION CENTER AGREEMENT STANDARD TERMS AND CONDITIONS 1. Authorization. (a) Lotus appoints LAEC as a non-exclusive Lotus Authorized Education Center only at the locations listed on the Authorized Site Schedule to this Agreement ("Authorized Sites"), for the term and upon the conditions set forth herein. This appointment is limited to providing training to individual users of the Lotus software products ("Lotus Products") which are the subjects of the Lotus- authorized courses listed on the Course Schedule to this Agreement ("Authorized Courses"). Training shall be provided only with respect to versions of the Lotus products that have been released to the public and are currently being supported by Lotus. (b) Except as expressly provided herein, this appointment gives LAEC the right to distribute single units of Authorized Course materials ("Courseware Kits") to individual users only and does not include any right to distribute Courseware Kits to other training centers or to sublicense or otherwise distribute or use Lotus software products or related information. Courseware Kits must be purchased from Lotus at Lotus' LAEC standard prices and terms. The Authorized Course Schedule contains Lotus' current price list for Courseware Kits. 2. Undertakings of Lotus. Lotus agrees to provide the items and/or services described below. (a) Referrals. Lotus will provide to its field sales personnel a listing of all ---------- Lotus Authorized Education Centers to enable such personnel to refer Lotus Authorized Education Centers to Lotus' customers, distributors and/or dealers. In addition, Lotus will maintain a toll free number to refer customers to a Lotus Authorized Education Center in the customer's geographic area. (b) Training Software. Lotus will provide LAEC with installation diskettes (or ----------------- other appropriate media) for Lotus Products. LAEC will also receive commercially-available upgrades to Lotus Products released during the Term of this Agreement. Lotus will supply LAEC with copies of documentation for LAEC's Authorized Sites. Lotus hereby grants LAEC a limited right to install one copy of the Lotus Product on (i) computers located at an Authorized Site solely for the purpose of training individual users taking Authorized Courses and (ii) computers of LAEC's customers solely for the purpose of training such customer's employees taking Authorized Courses. These copies of Lotus Products may only be installed on computers that are designated specifically for (i) education and training, (ii) LAEC's direct communication with Lotus or (iii) administrative tasks of LAEC related to the foregoing. Such copies may not be installed on any other computers or used for general business purposes or any other purpose. LAEC must delete all copies of Lotus Product installed on customer training computers upon conclusion of the Authorized Course. Notwithstanding the foregoing, LAEC may use the Lotus Products obtained under the Lotus Business Partner Program in accordance with the terms of that program or may purchase additional copies of Lotus Products for such other uses. LAEC shall maintain and promptly provide to Lotus accurate written records of all installations of Lotus Products by LAEC pursuant to this section, including Authorized Site location, computer serial number (if applicable), and the name and version of each Lotus Product installed. A breach by LAEC of this Section 2(b) shall be deemed to be a material breach of this Agreement. (c) Training Seminars. From, time to time, Lotus will offer training seminars at ----------------- Lotus field sales offfices and will make such seminars available to a limited number of designated LAEC employees at no charge, provided that space is available. LAEC employees attending such seminars will not be permitted to solicit training business directly or indirectly from other attendees. (d) Product Support. Lotus will make available direct telephone access to Lotus ---------------- customer support personnel by a designated employee of LAEC for an additional charge. 4. Undertakings of LAEC. LAEC assumes the following obligations: (a) Courses. LAEC shall offer training with respect to the Lotus Products to ------- members of the general public on an individual and/or group basis. LAEC shall train a minimum number of students per month per Authorized Site as set forth in its LAEC Program Application. LAEC shall offer Authorized Courses only at Authorized Sites or at a customer site only for such customer's employees. LAEC must offer courses on the most recent public releases of the Lotus Products, and all courses must be listed in all appropriate LAEC brochures and class schedules. LAEC will be responsible for training course administration, including, without limitation, registration and billing, and will supply Lotus in advance with a copy of its standard policies for training classes. LAEC must purchase a Courseware Kit from Lotus for each student. In order to maintain consistent, high-quality standards which customers associate with Lotus Authorized Education Centers, LAEC agrees that it will only use Courseware Kits to teach Authorized Courses. Notwithstanding the foregoing, LAEC may create and use supplementary course materials or custom course materials, but such materials shall not replace Courseware Kits or other materials supplied by Lotus for use with the Authorized Courses. In the event LAEC teaches its own courses, LAEC must clearly differentiate between its curriculum and Authorized Courses in its program and marketing materials and must inform customers that LAEC's courses are not authorized by Lotus. (b) Facilities. Each Authorized Site must comfortably accommodate at least ten ----------- (10) trainees. LAEC must provide each trainee with (i) a personal computer or terminal (with a copy of the Lotus Product which is the subject of the Authorized Course installed thereon), (ii) a student workbook for the Authorized Course, and (iii) the Lotus course completion certificate if such trainee completes the Authorized Course. LAEC must maintain one (1) copy of the documentation for each Lotus Product at each training location. (c) Instructors. All classes for Authorized Courses must be taught by ------------ instructors who have been certified as Lotus Certified Instructors ("LCIs"). The cost of all certification training shall be borne by LAEC. LAEC shall at all times during the term of this Agreement retain at least one LCI as an employee of LAEC. The student-to-LCI ratio for each class must at all times be less than or equal to 12-to-1. LOTUS AUTHORIZED EDUCATION CENTER AGREEMENT STANDARD TERMS AND CONDITIONS (d) Promotion. LAEC will use its best efforts to promote Authorized Courses ---------- through advertising and training seminars. In any such advertising, LAEC may use the logo materials provided by Lotus and shall observe the obligations concerning the use of Lotus trademarks and logos set forth in Section 5 hereof and in guidelines provided to LAEC. In the event that Lotus provides the LAEC with product brochures, LAEC shall prominently display such brochures. (e) Marketing Materials. LAEC shall maintain on its premises in a prominent -------------------- position the plaque provided by Lotus designating LAEC as a Lotus Authorized Education Center . At the request of Lotus, LAEC will distribute to each trainee copies of marketing materials provided free of charge by Lotus. (f) Reports, Audit. LAEC must obtain electronic course evaluations from each -------------- trainee, using the evaluation form provided by Lotus, and will provide electronic copies of such completed course evaluations to Lotus upon completion of the course. Additionally, LAEC shall electronically submit to Lotus (i) a "rolling" ninety (90) day training schedule each month and (ii) quarterly reports regarding LAEC's training activity (as further described in the LAEC Program materials). Lotus shall be entitled to conduct unannounced audits of LAEC's training sites. Such audits may include, but will not necessarily be limited to, classes, facilities, location of Lotus Products installation records, competency of the training staff and other matters related to LAEC's obligations under this Agreement. (g) Compliance. LAEC will at all times comply with the LAEC Program terms as ----------- established by Lotus, which terms will be communicated to LAEC and which are incorporated herein by reference. Lotus may change the Program terms at any time and will notify LAEC of all such changes. LAEC will conduct its activities in an ethical manner and in compliance with all applicable laws. (h) Communications. LAEC must establish a Lotus Notes server to communicate --------------- with Lotus and will communicate with Lotus via Lotus Notes whenever possible. LAEC is responsible for installing appropriate hardware and software to communicate electronically with Lotus and for all LAEC data transmission charges. (i) Services to Lotus. LAEC will admit Lotus employees and employees of Lotus ------------------ customers designated in advance by Lotus to its courses, provided space is available, at a tuition rate equal to no more than forty percent (40%) off of LAEC's current suggested retail tuition rates for such courses. Additionally, LAEC acknowledges that Lotus may from time to time offer to its customers and/or business partners training certificates or other special promotions providing opportunities to attend training courses at reduced tuition rates. LAEC agrees to provide such training at such reduced rates, so long as the rate offered to such customers is no more than forty percent (40%) off of LAEC's current suggested retail tuition rates. All discounted training offered to Lotus customers or business partners shall be billed directly to the customer or business partner, unless Lotus notifies LAEC to bill Lotus. 5. COPYRIGHTS AND TRADEMARKS. (a) During the term of this Agreement, Lotus authorizes LAEC to use the designation "Lotus Authorized Education Center," the trademark "Lotus," and the Lotus logo solely in connection with LAEC's performance under this Agreement and exclusively in connection with Authorized Courses. LAEC shall follow the instructions of Lotus, as given from time to time, with respect to trademark usage. Except as expressly provided in Section 2(b) and this Section 5(a), nothing in this Agreement confers upon LAEC any interest in or licenses under any of Lotus' patents, trademarks, logos, copyrights, trade names or designations. (b) In the event LAEC becomes aware of unauthorized copying of Lotus products or courseware, whether by employees of LAEC, customers or students, it must immediately notify Lotus and take all reasonable measures to halt such unauthorized copying. (c) A violation by LAEC of any Lotus copyright or other intellectual property right shall be suffficient grounds for immediate termination of this Agreement by Lotus. 6. Confidentiality. (a) For five (5) years from and after the Effective Date of this Agreement, LAEC shall hold in confidence all confidential and/or proprietary information disclosed to LAEC by Lotus. The foregoing obligation shall not apply to information that (i) is publicly known at the time of its disclosure to LAEC, (ii) is lawfully received by LAEC from a third party not bound in a confidential relationship to Lotus, (iii) is published or otherwise made known to the public by Lotus, (iv) was already known to LAEC at the time of disclosure by Lotus, (v) was generated independently by LAEC before its receipt from Lotus, or (vi) is required to be disclosed pursuant to a valid court order or subpoena, provided that LAEC gives Lotus prompt notice of any such court order or subpoena. (b) LAEC shall not reveal the terms of this Agreement to any third party without the prior written consent of Lotus, except that LAEC may disclose this Agreement to its accountants and attorneys or as may be required by law. (c) LAEC acknowledges and agrees that any breach of this Section 6 would cause irreparable harm to Lotus, and that Lotus shall be entitled to specific performance or injunctive relief to enforce this Section 6 without having to post a bond. (d) The provisions of this Section 6 shall survive the expiration or earlier termination of this Agreement. 7. TERMINATION. (a) Except as otherwise provided in this Agreement, either party may terminate this Agreement (i) for any reason upon thirty (30) days prior written notice to the other party, (ii) fourteen (14) days after written notice of a material breach of this Agreement if such breach is not cured to the other party's reasonable satisfaction within such period, or (iii) immediately if the material breach is not curable. (b) Lotus may terminate this Agreement immediately upon written notice to LAEC if LAEC ceases conducting business in the ordinary course, becomes insolvent, makes a general assignment for the benefit of creditors, suffers or permits the appointment of a receiver for its business or assets, or files or LOTUS AUTHORIZED EDUCATION CENTER AGREEMENT STANDARD TERMS AND CONDITIONS has filed against it a petition under the U.S. Bankruptcy Code or any other law relating to insolvency or the protection of the rights of creditors. (c) Upon any expiration or termination of this Agreement, LAEC shall return to Lotus all materials supplied to LAEC by Lotus including, without limitation, all copies of Lotus Products, training materials, plaques, logo materials, stickers and any other materials furnished by Lotus hereunder. 8. Indemnity. LAEC shall indemnify, defend and hold Lotus harmless from and against all liabilities, claims or demands (including reasonable attorneys' fees) arising out of or in connection with LAEC's performance of this Agreement. 9. No Warranty. LOTUS MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY SOFTWARE, COURSEWARE OR OTHER MATERIALS OR SERVICES SUPPLIED BY LOTUS HEREUNDER. 10. Limitation of Liability. IN NO EVENT SHALL LOTUS BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND LOTUS' LIABILITY TO LAEC SHALL IN ALL EVENTS BE LIMITED TO REFUND OF THE FEES PAID BY LAEC TO LOTUS HEREUNDER. 11. Notices. All notices provided for in this Agreement shall be given in writing and shall be effective (i) when served by personal delivery, (ii) three days after deposit, postage prepaid, in the United States mail addressed to the parties at their respective addresses set forth herein or (iii) two days after deposit with an overnight courier addressed to the parties at their respective addresses set forth herein, or to such other address or addresses as either party may later specify by written notice to the other. 12. Relationship of the Parties. The parties hereto are independent contractors and neither party is an employee, agent, partner or joint venturer, of the other. Neither party shall have the right to bind the other to any agreement with a third party or to incur any obligation or liability on behalf of the other party, and neither party shall represent that it has the power to do so. 13. Miscellaneous. The services to be provided by LAEC are personal in nature. Neither this Agreement nor any interest herein may be assigned in whole or in part by LAEC without the prior written consent of Lotus. This Agreement constitutes the entire agreement of the parties with respect, to the subject matter hereof and supersedes all prior negotiations, communications, understandings, and agreements, written or oral. Any additional or conflicting terms contained in any purchase order, invoice, acknowledgment or other similar document will be of no effect. This Agreement may only be amended, supplemented or modified in a writing duly executed and delivered by each party. This Agreement is binding upon the parties, their successors and permitted assigns. If any provisions of this Agreement shall be held by a court of competent jurisdiction to be contrary to law or public policy, the remaining provisions shall remain in full force and effect. No term or provision hereof shall be deemed waived and no breach consented to or excused, unless such waiver, consent or excuse shall be in writing and signed by the waiving or consenting party. No consent, waiver or excuse shall constitute a consent to, waiver of, or excuse of any different or subsequent breach, whether or not of the same kind as the original breach. This Agreement shall be governed by and construed in accordance within the laws (excluding the conflict of laws rules) of The Commonwealth of Massachusetts. The provisions of Sections 6 through 10 will survive termination or expiration of this Agreement in accordance with their respective terms. EX-10.7 10 1996 PARTNER AGREEMENT BTWN IBM AND CGS *EXHIBIT 10.7 ------------ 1996 Business Partner Agreement dated June 1, 1996, between International Business Machines Corporation and Computer Generated Solutions, Inc. * Confidential treatment is being requested with respect to portions of this exhibit IBM 1996 BUSINESS PARTNER AGREEMENT INDUSTRY REMARKETER EXHIBIT [Letterhead of International Business Machines Corporation] June 24, 1996 Mr. Phillip Friedman Computer Generated Solutions, Inc. 1675 Broadway New York, NY 10019 Dear Mr. Friedman: Based on your performance during your current contract period, IBM is offering you a new contract for the period, July 1, 1996 through June 30, 1997. Your current IBM Credit Corporation approved line of credit remains in effect unless otherwise notified by IBM or IBM Credit Corporation. All IBM Credit Corporation financial relationships are subject to change. You are also required to maintain a satisfactory payment trend and record. Please review the enclosed Agreement documents and sign the NSP Signature Page. This document can be returned to me via fax at 1-800-426-9880. To allow for sufficient processing time, return your contract to us by June 27, 1996. Your ability to place orders may be interrupted if contracts are received after this date. Upon acceptance, an executed copy will be returned for your file. If you have any questions, you can contact me or your IBM Marketing Representative, Bob Torres. Sincerely, /s/ Cindy Clark Cindy Clark Customer Contracts Representative IBM BUSINESS PARTNER AGREEMENT IBM LOGO BUSINESS National Solution Provider Signature Page PARTNER - -------------------------------------------------------------------------------- As our National Solution Provider, we approve you as our NSP/Application Specialist. We may also approve you as our Industry Remarketer. We approve you for the same Products as an Application Specialist that we approve you for as an Industry Remarketer, and both of us agree that you will perform as an Industry Remarketer unless you unilaterally decide not to do so and advise us of this by presenting us with a Remarketer Statement of Election. If we decide to authorize you to perform Marketing Activities as an NSP/Application Specialist, we will use a Prospect (or Project) Form, or allow you to use our central order facility. For each relationship, copies of the applicable documents are included. Please make sure you have them and notify us if any are missing. Authorized Relationship Approved yes NSP/Application Specialist - --- As our NSP/Application Specialist, for Prospects who acquire Products from us, you agree to perform Marketing Activities according to the terms of the following (collectively called the "NSP/Application Specialist Agreement"): 1) the NSP/Application Specialist and AS Profile (Z125-4906-12 12/95); 2) the Marketing Assistant General Terms (Z125-5111-03 12/95); 3) the NSP/Application Specialist and AS Attachment (Z125-5123-02 12/95); and 4) the NSP/Application Specialist Central Order Attachment (Z125-5125-01 11/94). The NSP/Application Specialist Agreement and its applicable Transaction Documents are the complete agreement regarding this relationship. Authorized Relationship Approved (yes/no) yes Industry Remarketer - --- As our Industry Remarketer, you agree to market our Products with your value-added enhancement, at the prices and terms you set, according to the terms of the following (collectively called the "Industry Remarketer Agreement"): 1) the Industry Remarketer Profile (Z125-4804-23 12/95); 2) the Remarketer General Terms (Z125-4800-08 11/95); and 3) the Industry Remarketer Attachment (Z125-4805-09 07/95). The Industry Remarketer Agreement and its applicable Transaction Documents are the complete agreement regarding this relationship. By signing below, each of us agrees to the terms of this Signature Page, the NSP/Application Specialist Agreement, and the Industry Remarketer Agreement (if approved), which replace any prior oral or written communications between us. Any reproduction of this page or the included documents made by reliable means (for example, photocopy or facsimile) is considered an original. Agreed to: (IBM Business Partner name) Agreed to: COMPUTER GENERATED SOLUTIONS, INC. International Business Machines NEW YORK, NY 10019 Corporation By /s/ Jay Hakami By ------------------------------------ ---------------------------------- Authorized signature Authorized signature Name (type or print): Jay Hakami Name (type or print): Date: 6/25/96 Date: IBM Business Partner address: IBM Office address: COMPUTER GENERATED SOLUTIONS, INC. 4111 Northside Parkway 1675 BROADWAY Atlanta, GA 30327 NEW YORK, NY 10019 - -------------------------------------------------------------------------------- After signing, please return a copy of this page and the Profiles to the local "IBM Office address" shown above. Note: Since you must sign this page, you need not sign the Profiles. - -------------------------------------------------------------------------------- Z125-5122-01 11/94 (MKA02) Page 1 of 1 Industry Remarketer Profile - -------------------------------------------------------------------------------- We welcome you as an IBM Business Partner. This Profile covers the details of your authorization to market our Products with your value-added enhancements to End Users. Like you, we are committed to providing the highest quality Products to the Customer. As our industry remarketer, please let us know if you have any questions or problems with our Products. By signing below, each of us agrees to the terms of the following (collectively called the "Agreement"): (a) this Profile; (b) Remarketer General Terms (Z125-4800-08 11/95); and (c) the applicable Attachments referred to in this Profile. This Agreement and its applicable Transaction Documents are the complete agreement regarding this relationship, and replace any prior oral or written communications between us. Once this Profile is signed, 1) any reproduction of this Agreement or a Transaction Document made by reliable means (for example, photocopy or facsimile) is considered an original and 2) all Products you order and Services you perform under this Agreement are subject to it. Revised Profile (yes/no): no Date received by IBM: ---- ------------------ Agreed to: (IBM Business Partner name) Agreed to: COMPUTER GENERATED SOLUTIONS, INC. International Business Machines Corporation By JAY HAKAMI By ----------------------------------- ------------------------------------- Authorized signature Authorized signature Name (type or print): /s/ Jay Hakami Name (type or print): Date: 6/25/96 Date: IBM Business Partner address: IBM Office address: COMPUTER GENERATED SOLUTIONS, INC. 4111 Northside Parkway 1675 BROADWAY Atlanta, GA 30327 NEW YORK, NY 10019 - -------------------------------------------------------------------------------- Industry Remarketers-Mid Range are required to sign this Profile, only if it is being revised. After signing, please return a copy to the "IBM Office address" shown above. Page 1 of 17 1. Contract-Period Start Date (month/year): 06/96 Duration (months): 12 ------- ---- The start date is always the first day of a month. The start date does not change with a revised Profile. 2. Relationship Approval/Acceptance of Additional Terms: For each approved relationship, each of us agrees to the terms of the applicable Attachment by signing this Profile. Copies of those Attachments are included. Please make sure you have them (and the Remarketer General Terms) and notify us if any are missing. Approved Authorized Relationship (yes/no) Attachment 1) Industry Remarketer yes Z125-4805-09 07/95 ---- 2) K-12 Education Remarketer no Z125-5177-02 02/95 ---- The following Offerings have additional terms in the applicable Attachment: 1) Electronic Data Interchange no Z125-5207-00 03/94 ---- 2) Marketing Programs for Use on non-IBM Machines no Z125-5241-00 07/94 ---- 3) IBM RISC System/6000 - North American no Z125-5308-01 02/95 ---- 4) IBM PC Server System/390 no Z125-5338-00 05/95 ---- 3. Name and Address of Your Aggregator, if applicable: You may receive Dealer Exhibit Products through this Aggregator. By selecting this Aggregator, you agree that it (and not we) will provide the functions identified in the Remarketer General Terms as the Aggregator's responsibility. None Selected ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Page 2 of 17 4. Name and Address of Your K-12 Education Systems Integrators for K-12 Education Products: If you are a K-12 Education Remarketer, you may acquire K-12 Education Products on the Dealer Exhibit from either the Primary or Secondary K-12 Education Systems Integrator named below. If a particular configuration involving K-12 Education Products also requires other Products on the Dealer Exhibit, you may acquire such other Products 1) from either of these Integrators provided such other Products are ordered in conjunction with the K-12 Education Products, or 2) separately through your Aggregator. By selecting these Integrators, you agree that they (and not we) will provide the functions identified in the Remarketer General Terms as an Aggregator's responsibility. Primary K-12 Education Systems Integrator: NOT APPLICABLE ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Secondary K-12 Education Systems Integrator: NOT APPLICABLE ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 5. Approved Only for Development System (yes/no): no ---- You are approved to use the Products identified in this section, including their associated Programs and peripherals, for development purposes. This section is approval for development use and is not approval to market these Products. Section 7 is approval for both marketing and development. Development System Products: -------------------------- ------------------------- ---------------------- Page 3 of 17 The following Products are listed in the Dealer Exhibit, the Software Remarketer Exhibit, or the Industry Remarketer Exhibit, unless otherwise noted. The terms of an Exhibit apply to the Products listed in it. Approval to market the Products includes approval for you to acquire them for development purposes. Certain Products may not be available to you directly from IBM. Such Products may be sourced from an IBM Authorized Distributor. Approved to Market Approved to Market to End Users to End Users as an IR-MR (1) as an IR-PC (2) System Types (yes/no) (yes/no) 1) IBM System/390 no N/A ---- 2) IBM RISC System/6000 (3) no N/A ---- 3) IBM Scalable POWERparallel no N/A ---- Systems 9076 SP2 (4) 4) IBM AS/400 yes N/A ---- 5) IBM Networking Products yes N/A ---- System Units 1) IBM PC (5) N/A no ---- 2) Item 1 above as workstations (6)(7) yes N/A ---- 3) IBM PC Server (5) N/A no ---- except IBM PC Server System/390 4) Item 3 above as workstations (6)(7) yes N/A ---- 5) IBM PC ServerSystem/390 N/A no ---- 6) ThinkPad (5) N/A no ---- 7) Item 6 above as workstations (7) yes N/A ---- 8) IBM Retail POS Products no N/A ---- Models 468x and 469x (except 4694) 9) IBM 4694 Retail POS Products no N/A ---- 10) IBM 465x Restaurant POS Products no N/A ---- 11) K-12 Education System Units (8) N/A no ---- Product Categories 1) Graphics no N/A ---- 2) Finance Products Category Jl no N/A ---- 3) K-12 Education Programs (8) N/A no ---- 4) IBM Storage Products no ---- Category S1 products yes N/A ---- Category S2 Products (10) yes N/A ---- Category S3 Products (10) no N/A ---- Category S4 Products yes N/A ---- 5) IBM Entry System License Programs (11) N/A no ---- Products and Offerings 1) Printers from the IBM Printing Systems Company (7)(12) yes N/A ---- (1) "IR-PC" means you are an industry remarketer of mid-range computer Products. When we approve you for Products listed in the Industry Remarketer Exhibit, you are also approved for their associated Programs and peripherals listed in the Industry Remarketer, Software Remarketer and Dealer Exhibits. When we approve you to market personal computer Products, you are also approved for their associated Programs and peripherals listed in the Dealer and Software Remarketer Exhibits. (2) "IR-MR" means you are an industry remarketer of personal-computer Products. When we approve you for Products listed in the Dealer Exhibit, you are also approved for their associated Programs and peripherals listed in the Dealer, Software Remarketer and Industry Remarketer Exhibits. (3) This approval authorizes you to market the IBM RISC System/6000 in the United States and Canada, subject to terms of the IBM RISC System/6000 North American Remarketer Attachment. (4) Your approval to market the IBM RISC System/6000 is a prerequisite for approval to market the SP2. However, approval for the IBM RISC System/6000 does not constitute approval for you to market the SP2. (5) May be available from an Aggregator. (6) May only be used, in conjunction with your value-added enhancement, as 1) peripherals to system types, 2) peripherals to Point of Sale (POS) systems, or 3) controllers for POS systems. (7) You are approved to market these Products only if you have been approved to market a System Type as an IR-MR. (8) Available only from a K-12 Education Systems Integrator. (9) Category F and J2 Products in the Industry Remarketer Exhibit are not available to IR-PC's. (10) You are also approved for Category S1 Products. (11) These Products are listed in IBMLink. (12) See Section 10 "Additional Terms." Page 4 of 17 Products. - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- 7. Authorized Locations: Total number of Authorized Locations listed in this Profile: 1 ----- Authorized Location Loc. ID Loc. Type (a) (street address, city, state, ZIP code) - ------- ------------- --------------------------------------- 63818 IRMR 1675 BROADWAY NEW YORK, NY 10019 - ------------------------------------------------------------------------ Minimum Renewal Criteria (4) ------------------------------------------------------------ Product Name Volumes/Revenue/Other ------------------ --------------------- AS/400, Networking $1,000,000 ------------------ --------------------- ------------------ --------------------- ------------------ --------------------- Minimum Number of Trained Personnel ------------------------------------------------------------ Product/Course Name Mgmt Sales Prog Support Service ------------------- ---- ----- ------------ ------- ------------------- ---- ----- ------------ ------- ------------------- ---- ----- ------------ ------- ------------------- ---- ----- ------------ ------- ------------------- ---- ----- ------------ ------- ------------------- ---- ----- ------------ ------- ------------------- ---- ----- ------------ ------- ------------------- ---- ----- ------------ ------- Certification (2) (3) ------------------------------------------------------------ 04 59 67 68 69 79 256 332 347 --- --- --- --- --- --- --- --- --- N N N N N N N N N --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- (1) A location type of "IR--MR" means an industry remarketer of mid-range computer Products; "IR--PC" means an industry remarketer of personal computer Products. (2) As an IR--PC, the location must be certified for you to market certain Products or (when also approved as an IBM Premier Personal Computer Servicer) to service certain Products. A "Y" means certified; an "N" (or anything other than a "Y") means not certified. As an IR--MR, certification does not apply (regardless of whether anything is entered under the certification groups). The group to which each Product is assigned is specified in the Dealer and Software Remarketer Exhibits. (3) As a K-12 Education Remarketer, you agree to notify us in writing if (at any time) any of your locations no longer satisfies our certification requirements. (4) If you are assigned a MRC for the IBM RISC System/6000, your MRC includes sales made in the U.S. and Canada. CERTIFICATION GROUPS: 04 = IBM Premier Personal Computer 79 = IBM VoiceType Servicer (a) 256 = K-12 Education Products 59 = IBM THINKable Products 332 = IBM Premier Personal Computer 67 = NetWare (b) -- Basic Servicer -- Fixed Fee (a) 68 = NetWare -- Gold 347 = IBM PC Server System/390 69 = NetWare -- Platinum (a) While certified, you may not assign Warranty Service responsibility for any Machines. (b) Registered trademark of Novell, Inc. Z125-4804-23 12/95 (MKA02) Page 5 of 17 - --------------------------------------------------------------------------------- Loc. ID Loc. Type(a) Authorized Location (street address, city, state, ZIP code) - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Minimum Renewal Criteria ------------------------------------------------------------------------- Product Name Volume/Revenue/Other ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Minimum Number of Trained Personnel ------------------------------------------------------------------------- Product/Course Name Mgmt Sales Prog Support Service ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Certification (2) (3) ------------------------------------------------------------------------- 04 59 67 68 69 79 256 332 347 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- -------------------------------------------------------------------------
- --------------------------------------------------------------------------------- Loc. ID Loc. Type(a) Authorized Location (street address, city, state, ZIP code) - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Minimum Renewal Criteria ------------------------------------------------------------------------- Product Name Volumes/Revenue/Other ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Minimum Number of Trained Personnel ------------------------------------------------------------------------- Product/Course Name Mgmt Sales Prog Support Service ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Certification (2) (3) ------------------------------------------------------------------------- 04 59 67 68 69 79 256 332 347 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- -------------------------------------------------------------------------
Page 6 of 17 A) This section identifies by System Type (1), your ......... (2); its Applicable Discount Percentage (3); and, the Minimum Revenue Attainment you are required to achieve at the mid-point of your Contract Period, in order to maintain the current discount percentage (4). At your request we will review your Revenue Attainment, any time during the contract period to determine if you qualify for a higher discount percentage. At the mid-point of your contract period, IBM will review your Revenue Attainment by System Type. If it is less than the amount specified in column (4), your discount percentage will be adjusted downward one level for the remainder of the contract period.
- -------------------------------------------------------------------------------------- (1) (2) (3) (4) System Type System Revenue Applicable Discount Six Months' (1) Minimum or Commitment Percentage Revenue Attainment to System Unit Maintain Current (as applicable) Discount Percentage - --------------------------------------------------------------------------------------- IBM RISC System/6000 (2) N/A N/A N/A ------- ------- ------- Federal (3) Discount for: Machines N/A Programs N/A ----- ----- IBM SP/2 N/A N/A N/A ------- ------- ------- - --------------------------------------------------------------------------------------- IBM AS/400: **** **** ------------ ------------ 9402 **** ------- 9404 **** ------- 9406 **** ------- I/O and SW **** ------- - --------------------------------------------------------------------------------------- IBM Point of Sale Products N/A N/A N/A ------- ------- ------- - ---------------------------------------------------------------------------------------
(1) 12 Months if you have a 24-month contract (2) Your System Revenue Commitment is the aggregate of such Commitment for the U.S. and Canada. Your Applicable Discount Percentage is based on the aggregate of your System Revenue Commitment for the U.S. and Canada. The Six Month Minimum Revenue Attainment review includes the aggregate of your Attainment in the U.S. and Canada. (3) The Products eligible for the Federal discount are identified in the Industry Remarketer Federal Discount Schedule F. B) This applies only to those Products listed in the Industry Remarketer Exhibit which require a quantity commitment. Product Committed Quantity of Category Products by Category N/A ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ **** Confidential treatment is being requested for these portions of this agreement. Page 7 of 17 9. You assign to us, or an IBM Premier Personal Computer Servicer, Warranty Service responsibility for the following Dealer Exhibit Machines. Type/Model Type/Model Type/Model Type/Model ----------------- ------------------ ------------------ ----------------- ----------------- ------------------ ------------------ ----------------- ----------------- ------------------ ------------------ ----------------- ----------------- ------------------ ------------------ ----------------- ----------------- ------------------ ------------------ ----------------- Unless you are assigning to us, please specify the name of the IBM Premier Personal Computer Servicer: 10. Additional Terms: The following terms apply to the IBM Printing Systems Company. 1) End User Support We will provide End User support. Your End User satisfaction responsibilities are limited to the responsibilities specified below. You agree to: 1. select Products that best meet the End User's needs; 2. inform the End User of how to obtain ongoing support; 3. assist us, when requested, in ensuring End User satisfaction, and 4. provide us within 10 days of installation of a product the following information: a. End User name and address; b. Machine type/model and serial number; installation date and location; and c. date of sale. 2) Demonstration Products For use as demonstration Products, we may make IBM Printing Systems Company Products available to you at lower charges. You agree to: 1. use a demonstration Product primarily in support of your Product- marketing activities; 2. not resell, lease, or transfer a demonstration Product for 6 months after its Date of Installation, without prior written consent; and 3. pay an adjustment charge if you use a demonstration Product other than as described above. The charge is the difference between what you paid and the full charge for the Product. You may not combine this offering with any other discount or allowance. We may limit the quantity of demonstration Products you acquire. Page 8 of 17 The following is a description of each of your value-added enhancements. If we list certain Programs as your complete value-added enhancements, this section is approval for you to market those Products as your value-added enhancements to End Users. ACS OPTIMA ACS Optima for the apparel industry to operate on the IBM AS/400 to include at a minimum: graphical user interface for easy PC navigation with point and click technology; executive information system for senior management graphic Presentation; quick image for viewing a sketch and a screen on-line simultaneously; EDI/400 for integration with the Prememos EDI translator; order management/distribution for complete order fulfillment emphasizing customer service; sales automation for up-to-the minute information to to remote salespeople; PKMS for automation of the DC with electronic pick tickets, manifesting, UCC labeling and ASN with links to ACS Optima; import management for tracking from PO generation to receipt of goods; product management for overseeing the production of domestic, 807 and contractor WIP/PO operations IPCS shop floor system for factory control, Piece rate payroll, Plant loading and scheduling; accounts receivable for cash flow monitoring, returns and allowances with ties to other credit checking in order management accounts payable and general ledger. ******************************************************************************** JD EDWARDS FINANCIAL SOLUTION The JDE Financial Solution for use on the IBM AS/400 (9402 only) to include at a minimum: Worldcase/Foundation Environment*, general ledger and FASTR. (*Worldcase/Foundation Environment includes JDE address book, electronic mail, menu manager, dream writer, security officer, documentation system, next number, user defined category codes, data directory, world writer and unattended night operations.) ******************************************************************************** Page 9 of 17 Value-Added Enhancement Descriptions (Continued) JD EDWARDS DISTRIBUTION SOLUTION The JDE Distribution Solution for use on the IBM AS/400 will include at a minimum: Worldcase/Foundation Environment*, general ledger, inventory management, and purchase order processing. (*Worldcase/Foundation Environment includes JDE address book, electronic mail, menu manager, dream writer, security officer, documentation system, next number, user defined category codes, data directory, world writer, and unattended night operations.) ******************************************************************************** JD EDWARDS MANUFACTURING SOLUTION The JDE Manufacturing Solution for use on the IBM AS/400 will include at a minimum: Worldcase/Foundation Environment*, general ledger, inventory management, and product data management. (*Worldcase/Foundation Environment includes JDE address book, electronic mail, menu manager, dream writer, security officer, documentation system, next number, user defined category codes, data directory, world writer, and unattended night operations.) ******************************************************************************** JD EDWARDS CONSTRUCTION SOLUTION The JDE Construction Solution for use on the IBM AS/400 will as IO include at a minimum: Worldcase/Foundation Environment*, general ledger, accounts receivable, accounts payable, and property management. (*Worldcase/Foundation Environment includes JDE address book, electronic mail, menu manager, dream writer, security officer, documentation system, next number, user defined category codes, data directory, world writer, and unattended night operations.) ******************************************************************************** JD EDWARDS PROPERTY MANAGEMENT SOLUTION The JDE Property Management Solution for use on the IBM AS/400 (9402 only) will include at a minimum: Worldcase/Foundation Environment*, general ledger, accounts receivable, accounts payable, and property management. (*Worldcase/Foundation Environment includes JDE address book, electronic mail, menu manager, dream writer, security officer, documentation system, next number, user defined category codes, data directory, world writer, and unattended night operations.) ******************************************************************************** JD EDWARDS HUMAN RESOURCES MANAGEMENT SOLUTION The JDE Human Resources Management Solution for use on the IBM AS/400 (9402 only) will include at a minimum: Worldcase/Foundation Environment* and human resources. (*Worldcase/Foundation Environment includes JDE address book, electronic mail, menu manager, dream writer, security officer, documentation system, next number, user defined category codes, data directory, world writer, and unattended night operations.) ******************************************************************************** Page 10 of 17 JD EDWARDS PAYROLL SOLUTION The JDE Payroll Solution for use on the IBM AS/400 (9402 only) will include at a minimum: Worldcase/Foundation Environment* and payroll. (*Worldcase/Foundation Environment includes JDE address book, electronic mail, menu manager, dream writer, security officer, documentation system, next number, user defined category codes, data directory, world writer, and unattended night operations.) ******************************************************************************** FACTS VALUE ADD The FACTS Value Add for operation on the IBM AS/400 (9402 only) to include at a minimum: accounts payable integrates with FACTS general ledger, provides multi- company support, allows single or batch invoice entry, provides bank reconciliation, has automatic or manual check production capabilities, selects payments by vendor, due date or discount date, integrates multiple bank accounts, allows for on-account payments, creates vendor master using user- defined fields, allows recurring entries and multiple distributions, provides vendor history with user-selected options, creates cash requirement project report; general ledger integrates with FACTS accounts payable, integrates with sales, accounts receivable, finished goods, and raw material inventory, allows multi-company and multi-division within a company, has account and sub-account structure, provides flexible, user defined accounting periods, allows multiple open periods and recurring vouchers, provides on-line review of general ledger account's current, YTD, and future (regular and recurring) postings in summary and detail, contains a flexible, user-defined report writer for financial reports. ******************************************************************************** PKMS PKMS for operation on the IBM AS/400 in the wholesale distribution and retail industries to include at a minimum: work order download capability; receive/stock locate for creating put-away label to help track inventory within DC, cross doccks pre-packs for faster throughput, automatically directs priority SKU's to active pick sites or special processing, provides receipt verification against ASN for better DC planning and shipment reconciliation at host; Pick for batching picktickets into "waves," eliminating manual selection and sorting, prints Picktickets in best picking sequence for improved productivity, identifies and Processes "hot" picks and rush orders immediately, pre-cubes orders and prints carton-level Picktickets to support pick/pack operations; pack/verify verifies picking accuracy via bar code scanning which reduces chargebacks and improves sales, Performs weight verification of cartons to doublecheck picking accuracy, creates UCC-128 shipping labels and carton content info for EDI ASN, eliminates effort and errors associated with keypunch invoicing; ship/manifest ensures shipping integrity of order, identifies best shipment routing based on freight charges and customer requirements, automatically generates shipment documents Page 11 of 17 Value-Added Enhancement Descriptions (Continued) including shipment manifest and bills of lading, processes shipping zone and rate tables to automatically derive shipping charges for certain carriers; bulk storage tracks and manages inventory in all areas of DC including bulk storage and active pick sites, handles suggested put-away in bulk and directed replenishment from bulk to active, keeps system up-to-date with real time updates using RF devices. ******************************************************************************** PREMENOS Premenos, an EDI translator for cross industry to operate on the IBM AS/400 (9402 only) to include at a minimum: mapping functions with conditional mapping, code conversion, logical operations and interfacting with other applications; communication functions for sessions with public and private networks, and direct connections to trading partners; audit and reporting functions for access of trail activity and reports from EDI/E tracking files and data base for compliance checking; routing functions; support. ******************************************************************************** AS/400 NEW PLACEMENT VALUE ADD The implementation of the IBM AS/400 9402 models 200 and 20S New Account Solution installed at an enterprise location to include at a minimum: An end user enterprise is defined as "any legal entity (such as a corporation) and the subsidiaries it owns by more than 50%." A new account is defined as an end user enterprise in the United States or Puerto Rico that meets the following criterion: - - Prior year revenue of less than $15 million or less than 150 employees (revenue and employee size will be verified by/with Dun and Bradstreet) - - No AS/400, S/36, S/38, RISC/6000 or ES/9000 installed or on order. Final net invoiced, Industry Remarketer billed IBM hardware, software and services to the end user must be equal to or greater than the published (single unit) IBM retail price of the IBM content of the AS/400 9402 2XX system solution sold to the same end user in the same transaction. The single unit price includes additional memory, DASD, IBM software, but excludes displays and printers. The net invoice can include all your "Industry Remarketer billed services," which shall mean any of the following provided directly by you to your end user: - - Consulting services - - System analysis and design services - - Application solution development services - - Integration services - - End user training services This VAE does not restrict your flexibility in pricing these products Page 12 of 17 to your end user as you, in your sole discretion, deem appropriate. You are responsible for maintaining all necessary records to substantiate compliance with this VAE requirement and agree to make such records available to IBM upon request for purposes of auditing your compliance with this VAE requirement. IBM may use an independent auditor for this audit. S/3X TO AS/400 MIGRATION Computer Generated Solutions System/3x to AS/400 Migration Value Add is for the purpose of migrating currently installed IBM System/3X end user applications to the IBM AS/400, model 9402 only, and will include at a minimum: - - Hardware and software component selection configuration and ordering - - Hardware and software installation - - Migration of end-user application programs to S/3X mode or AS/400 native based on customer requirement - - Systems Integration (if applicable) - - AS/400 operational training plus ongoing application and systems support In addition, Computer Generated Solutions will make available release/version updates and provide ongoing technical support service for hardware, software, and application programs. Computer Generated Solutions will report end user sales via end user reporting to IBM. This report must specify the serial number of the IBM System/3X which was replaced and certify that it was specifically replaced by the AS/400. ******************************************************************************** COMPETITIVE CONVERSION VALUE ADD The Computer Generated Solutions Conversion Value Add for the Purpose of migrating currently installed Computer Generated Solutions end user applications to the IBM AS/400, only from non-IBM systems. The Conversion Value Add will include at a minimum: - The conversion assistance from the currently installed system - System sizing of files and libraries - Hardware and software configurations - IBM AS/400 Operation and programming education - Conversion of presently installed application programs to the IBM AS/400 In addition, Computer Generated Solutions will make available release/version updates and provide ongoing technical support service for hardware, software and application programs. Computer Generated Solutions will report end user IBM AS/400 sales via end user reporting to IBM. Page 13 of 17 Value-Added Enhancement Descriptions (Continued) ******************************************************************************** AS/400 Local Area Network - Client Server Local Area Network - Client Server Value Add for use on the IBM AS/400 9402 only will include at a minimum: - - Network design and component selection - - The network must be designed using Ethernet, Token Ring, or wireless connection - It must support OS/2, Windows, MacIntosh or Unix clients - The network must be implemented using APPC/APPN or TCP/IP protocols. (LocalTalk may be used in a MacIntosh client environment.) - - Installation of three or more AS/400 enabled nodes. - - End user training and support - - Implementation of at least two (2) of the following, or with exception approval, a functionally equivalent product offering: - Client Access/400 (for OS/2 and Windows clients) - MacIntosh Connections (for MacIntosh clients) - DAL Client and DAL Server (for MacIntosh clients) - Connection Program/400 for Unix environments - Adstar Distributed Storage Manager/400 (ADSM/400) - LAN Server/400 - LAN Resources Extension Services/400 (LANRES/400) - Manageware/400 - TCP/IP File Server Support/400 The initial installation of the Value Add must consist of a minimum of three (3) nodes. In a situation where an end user has one LAN node installed, a minimum of two additional nodes must be added to the existing network prior to the implementation of the Value Add. The LAN-C/S Value Add must be the primary justification for the acquisition of AS/400 products. ******************************************************************************** HUB VALUE ADDED ENHANCEMENT (NETWORK INTEGRATOR) The Network Integrator Value Added enhancement for use on IBM Network Systems in a LAN or LAN/WAN environment will include at a minimum: - - The remarketer's network implementation to include one or more of the following requisite IBM networking systems products: - IBM 8250 Intelligent Hub - IBM 8260 Intelligent Switching Hub - IBM 8244 FDDI Concentrator - Ethernet Stackable Hub - IBM 8271 EtherStreamer Switch - IBM 8282 ATM Workgroup Concentrator - IBM 8282 ATM LAN Switch AND - - Logical Network Design Page 14 of 17 - - Define the network configuration -- gather and analyze network data to define capacity and networking product requirements - - Define LAN topology as required (Token Ring, Ethernet, ATM or FDDI) - - Define the TCP/IP requirements as required to support the installation of Hub Management Modules and their SNMP agents to allow communications to the appropriate Hub Management Platform - - Physical network design - Design hub networks that conform to the architectural guidelines of Ethernet, Token Ring, ATM or FDDI utilizing the appropriate combination of modules and hubs to meet customer requirements - Configure networking hardware and software products; install and test to meet customer requirements - Establish connections and test network transport facilities - - Product optimization and performance - Collect network data and analyze traffic flows, congestion points and networking product performance - - End user support - Provide on-site or remote access to network product configuration changes, network information and problem determination - Provide networking products, hardware upgrades and software upgrades and fixes to keep the installed network products operational. ******************************************************************************** ROUTER VALUE ADDED ENHANCEMENT (6611) The Network Integrator Value Added Enhancement for use on IBM Networking systems in a LAN or LAN/WAN environment will include at a minimum: - - The remarketer's network implementation to include one or more of the following requisite IBM networking systems products: -- IBM 6611 Network Processor -- IBM 2210 Nways Multiprotocol Router -- TRM Routexpander/2 with IBM Wide Area Connector AND - - Requirements - understand the customer's current and future network requirements in the following areas: -- Transport Protocols (TCP/IP APPN, SNA, IPX, Netbios, Appletalk, (DECNet, Vines, XNS) -- Bridging and filtering -- Perfomance - traffic volumes and response time -- LAN Technologies and WAN services from carriers Page 15 of 17 -- Applications and equipment interoperation -- Education - - Logical Network Design - Define: -- Network configuration, including addressing schemes and every router node -- Comprehensive network verification tests - - Physical Network Design - Define: -- Hardware node configurations -- LAN technologies -- Wiring and cabling topology -- Reliability and backup facilities -- Network interfaces: LAN and WAN (modems, DSU/CSUs) -- WAN services from carriers (Frame Relay, Pt to Pt, X.25) - - Operation and Support Process Design - Define: -- Problem isolation, diagnosis, determination, and fix processes -- Software configuration change process -- Network Management processes, including status and performance. (For large networks, includes NV/6000 with AIX R&B Mgr/6000 or equivalent.) - - Installation -- Monitor hardware installation -- Install and configure software -- Test fully -- Analyze and tune network performance (according to network size) - - Support - Provide: -- Onside and/or remote problem determination -- Hardware and software upgrades and fixes -- Guidance for other operation and support processes -- Guidance for hardware configuration changes and expansion ******************************************************************************** AS/400 CLIENT/SERVER (NETWORKING) Looking at the proposed AS/400 sale and other sales by the reseller to the same end user in the past six months, the sum of all (1) net invoices IR billed services (as defined below) and (2) list price of authorized IB products and services (as defined below) must be equal to or greater than 40% of the list price of the relevant base AS/400. - -- "Base AS/400" means without additional memory, disk drives, displays, adapters or operating system. This Value Added Enhancement does not restrict flexibility in pricing these products by the business partner. Implementation of this Value Added Enhancement must include network design and component selection, installation, end user training, and Page 16 of 17 end user support. - - "Industry Remarketer Billed Services" shall mean the following products and services provided directly by the IR to their end user: -- Consulting services -- Systems analysis and design services -- Application/solution development services -- Integration services -- End user training services -- Third-party software (non-IBM) or your software, none of which is acquired or purchased from IBM. - - "Authorized IBM products and services" shall mean the following IBM products and services sold by the IR to their end user: -- IBM software (non-operating system) -- IBM Support Family of Services -- IBM 82XX Hub products -- IBM 6611 Network Processor -- IBM 2210 Nways Multiprotocol Router -- IBM Communications Adapter cards ******************************************************************************** Page 17 of 17 PLEASE RETAIN THESE DOCUMENTS FOR YOUR USE/REFERENCE. THANK YOU. IBM Business Partner Agreement [LOGO] IBM Business Partner NSP/Application Specialist and AS Profile - -------------------------------------------------------------------------------- We welcome you as an IBM Business Partner. Based on your knowledge of our Products, and your skill and experience in providing solutions that use our Products, we have chosen you to perform Marketing Activities for us. We are committed to providing our customers with the highest quality Products. As our National Solution Provider/Application Specialist (NSP/AS) or Application Specialist (AS), we look to you to help us fulfill this commitment. You are responsible for establishing and maintaining customer satisfaction with all your activities. This includes promoting customer satisfaction with all the Products. Your activities should reflect positively on your firm, us, and the IBM Business Partner Programs. You should not use your relationship with us to take unfair advantage of other solution providers. In conducting your activities, you should strive for results that are judged by those involved to be fair and mutually beneficial. By signing below, each of us agrees to the terms of the following (collectively called the "Agreement"): (a) this Profile; (b) Marketing Assistant General Terms (Z125-5111-03 12/95); and (c) the applicable Attachments referred to in this Profile. This Agreement and its applicable Transaction Documents are the complete agreement regarding this relationship, and replace any prior oral or written communications between us. Once this Profile is signed, any reproduction of this Agreement or a Transaction Document made by reliable means (for example, photocopy or facsimile) is considered an original. Revised Profile (yes/no): no ---------------
Agreed to: (IBM Business Partner name) Agreed to: COMPUTER GENERATED SOLUTIONS, INC. International Business Machines Corporation By /s/ Jay Hakami By ------------------------------------------- ------------------------------------------- Authorized signature Authorized signature Name (type or print): JAY HAKAMI Name (type or print): Date: 6/25/96 Date: IBM Business Partner number: IBM Office address: IBM Business Partner address: 4111 Northside Parkway COMPUTER GENERATED SOLUTIONS, INC. Atlanta, GA 30327 1675 BROADWAY NEW YORK, NY 10019
- -------------------------------------------------------------------------------- After signing, please return a copy of this Profile to the local "IBM Office address" shown above. - -------------------------------------------------------------------------------- Page 1 of 7 1. Contract-Period Start Date (month/year): 07/96 End Date: June 30, 1997 ------- ---------------- The start date is always the first day of a month and may not be earlier than the month we sign this Profile. The start date does not change with a revised Profile. The end date is December 31 of the current year. However, if you are a National Solution Provider and also our industry remarketer, the end date in your IR Profile prevails over this end date. 2. Relationship Approval/Acceptance of Additional Terms: For each approved relationship, each of us agrees to the terms of the applicable Attachment by signing this Profile. Copies of those Attachments are included. Please make sure you have them (and the Marketing Assistant General Terms) and notify us if any are missing. Approved Authorized Relationship (yes/no) Attachment 1) Application Specialist (AS) no Z125-5123-02 12/95 ------ 2) National Solution Provider/AS (NSP/AS) (1) yes Z125-5125-01 11/94 ------ Z125-5123-02 12/95 3) NSP/AS Segment Solution Pilot (2) no Z125-5424-00 01/96 ------ 3. Approval of your Title: As an Application Specialist, you are authorized to use the title of "IBM Authorized Application Specialist." As a National Solution Provider, you are authorized to use the title of "IBM Authorized National Solution Provider." 4. Confidential Information Disclosure: You may have access to our confidential information and must sign the IBM Agreement for Exchange of Confidential Information (Z125-4322). Has the agreement been signed? (yes/no) yes ------- If the answer above is no, a copy of the agreement is included. Please sign it and return a copy to us (or notify us if it is missing). 5. Internal-Use Percent: 10% This is the percent upon which we base your internal-use acquisition of a Product. (1) See Section 7 for approved segment solution. You must sign the National Solution Provider Signature Page (Z125-5122). Note: Since you must sign the Signature Page you need not sign this Profile. (2) See Section 7 for approved and eligible segment solution. Page 2 of 7
AS AS NSP/AS Approved Approved Approved to Market to Market to Market Products Programs Products (yes/no) (yes/no) (yes/no) (3) (4) System Products N/A no yes 1) IBM AS/400 9402 System Units (5) ----- ----- N/A no yes 2) 18M AS/400 9404 System Units (5) ----- ----- N/A no yes 3) IBM AS/400 9406 System Units (5) ----- ----- no no no 4) IBM System/390 (6) ----- ----- ----- N/A no no 5) IBM RISC System/6000 (includes Power Personal) (5) ----- ----- N/A no no 6) IBM 9076 POWERparallel Systems SP2 ----- ----- N/A no no 7) IBM PS/2 (programs only) ----- ----- N/A N/A no 8) IBM 8690 Kiosk (6) ----- Industry Products N/A no no 1) IBM PS/2 Store Controllers ----- ----- N/A no yes 2) IBM 6611 Network Processors/ ----- ----- IBM 2210 Nways Multiprotocol Router N/A no yes 3) IBM 317X Interconnect Controllers ----- ----- N/A no no 4) IBM 389X Document Processors ----- ----- N/A no no 5) IBM 465X Restaurant POS Systems ----- ----- N/A no no 6) IBM 468X POS Terminal ----- ----- N/A no no 7) IBM 47XX Branch Automation Systems ----- ----- N/A no no 8) IBM 5086 Graphics Processor ----- ----- N/A no no 9) Multimedia ----- ----- no no no 10)IBM 763X Terminals ----- ----- -----
(3) You are approved to market the programs, peripherals, and other offerings associated with the System or Industry Product. This excludes the programs listed under the Application Programs section of this Profile, for which specific approval is required. You are not approved to market the System or Industry Product, unless you are also approved as an Application Specialist for the System or Industry Product. (4) Approval for the System or Industry Product includes approval for the programs, peripherals, and other offerings associated with it. This excludes the programs listed under the Application Programs section of this Profile, for which specific approval is required. (5) Prospect Form not required when marketing with an eligible segment solution. (6) Not available for Central Order. A Prospect Form is required. Page 3 of 7 PRODUCT APPROVAL (CONTINUED) APPROVED TO MARKET (yes/no) Non-IBM Products no 1) Local Vendor Program (LVP) Products (7) ----- Service Offerings no 1) Business Recovery Services ----- yes 2) Project Support Services (8) ----- yes 3) Customized Operational Services ----- yes 4) IBM Support Family Services (excluding PS) ----- no 5) IBM PS Support Family Services ----- Other Offerings Available to an NSPIAS only. no 1) IBM 38XX Printers ----- no 2) IBM 75XX Data Collection Terminal ----- no 3) IBM 927X Voice Response Units ----- yes 4) IBM Printers (Twinax) from the IBM Printing Systems Co. ----- IBM 4028 Model AS1 IBM 4230 Models 101, 102, 111, 1S2, 10Y, and 10Z IBM 4224 Models 1E3 and 1C2 IBM 4234 Models 008, 012, 00Y, and 01Z IBM 6252 Models T08, T12, TOZ, and T1Z IBM 6262 Models T12, T14, and T22 yes 5) IBM Printers (ASCII) from the IBM Printing Systems Co. ----- IBM 4224 Models 301, 302, 3C2, and 3E3 IBM 4234 Models 009, and 013 IBM 6252 Models AP2, AP8, AS2, and AS8 IBM 6262 Models A12, A14, and A22 yes 6) IBM Printers (Coax) from the IBM Printing Systems Co. ----- IBM 4028 Model NS1 IBM 4224 Models 2C2 and 2E3 IBM 4230 Models 201 and 202 IBM 4234 Models 007 and 011 IBM 6252 Models 014, 022, D12, D14, and D22 yes 7) IBM Printers (Non-IBM Attachments) from the IBM Printing Systems ----- Co. IBM 6252 Models P08 and P12 IBM 6262 Models P12, P14, and P22 yes 8) IBM Printers (Other) from the IBM Printing Systems Co. ----- IBM 3816 Models 01D and 01S (requires Coax approval) (7) We will specify each LVP Product that applies to you. (8) Project Support Services include Consulting Services, Hourly Services, Custom Services, and Systems Integration Services. Project Support Services offered by ISSC, EduQuest, and Education and Training are excluded. An Integrated Services Offering (ISO) is a packaged offering which includes one or more of the Services identified above. We will specify each ISO that applies to you, if any. (9) IBM BESTeam participants only. Page 4 of 7 APPROVED TO MARKET (yes/no) Other Offerings Available to an NSP/AS only. yes 9) General Storage (10) ----- IBM 7131 SCSI Multi-Storage Tower IBM 7134 High Density SCSI Disk subsystem IBM 7137 Disk Array Subsystem IBM 7202 RISC System/6000 Expansion Rack IBM 7203 Portable Disk Drive IBM 7204 External Disk Drive IBM 7206 External 4MM Tape Drive IBM 7207 1/4-lnch Cartridge Tape Drive IBM 7208 8MM Tape IBM 7210 CD-ROM Drive IBM 7331 8MM Tape Library IBM 7332 4MM Tape Autoloader IBM 9334 SCSI Expansion Unit IBM 9348 Magnetic Tape Drive IBM 9427 8MM Tape Library yes 10) High-End Tape (10) ----- IBM 3490 Tape Subsystems IBM 3494 Tape Library Dataserver IBM 3590 Tape Subsystem no 11) High-End UNIX Disk (10) ----- IBM 7135 RADiant Array yes 12) Optical Library (10) ----- IBM 3995 Optical Library Dataserver (10) You are also authorized to perform marketing activities for the System Product features required to attach the storage Product. Page 5 of 7 Product Approval (Continued) Application Programs Approved to Market (yes/no) IBM RISC System/6000 CAD/CAM Programs (11) no 1) APT Workstation/6000 ----- no 2) CAMkit/6000 ----- no 3) CATIA (12) ----- no 4) IGES Processor/6000 ----- no 5) Numerical Control PostProcessor Generator ----- no 6) Product Manager ----- no 7) PROFESSIONAL CADAM (13) ----- no 8) Valisys (14) ----- You are also approved for the programs (if any) listed below: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (11) A Complex Operating Environment addendum must be completed. (12) Registered trademark of Dassault Systems. (13) Registered trademark of Dassault Systems of America. (14) Registered trademark of Valisys Corporation. Page 6 of 7 If you are approved segment solutions. If you are also authorized in Section 2 under the NSP/AS Segment Solution Pilot, your approved and eligible segment solution for this Pilot is specified below. (Please note that a segment solution can be approved, but not eligible under this Pilot.) If you have an approved Value Added Enhancement (VAE), to be eligible under this Pilot it must be an industry-specific or cross-industry application software VAE as defined in the VAE Criteria document in the BPLIBRARY in IBMLink under the INFOLink category. See Industry Remarketer Profile, Value Added Enhancement section. Page 7 of 7 Remarketer General Terms - ------------------------------------------------------------------------------- Table of Contents Section Title Page 1. Definitions.............................................. 2 2. Agreement Structure...................................... 3 3. Our Relationship......................................... 4 4. Marketing Funds and Promotional Offerings................ 5 5. Status Change............................................ 5 6. Export of Products....................................... 6 7. Federal Reporting Requirements........................... 6 8. Ordering and Delivery.................................... 6 9. Inventory Adjustments.................................... 7 10. Prices and Price Changes................................. 7 11. Invoicing, Payment, and Taxes............................ 8 12. Title.................................................... 8 13. Risk of Loss............................................. 9 14. Engineering Changes...................................... 9 15. Licensed Internal Code................................... 9 16. Programs.................................................10 17. Installation and Warranty................................10 18. Warranty Service.........................................11 19. Marketing of IBM Maintenance Services....................12 20. Patents and Copyrights...................................12 21. Liability................................................13 22. Trademarks...............................................13 23. No Property Rights.......................................13 24. Changes to the Agreement Terms...........................14 25. Ending the Agreement.....................................14 26. Waiver of Noncompliance..................................14 27. Electronic Communications................................15 28. Geographic Scope.........................................15 29. Governing Law............................................15 Page l of 15 ==== BUSINESS PARTNER AGREEMENT Remarketer General Terms - ------------------------------------------------------------------------------- 1. Definitions Aggregator is our remarketer who we authorize to acquire Products from us to supply to its Customers who are also our remarketers. In addition, we may authorize a remarketer to supply our Products to others (for example, our industry remarketers). An Aggregator is responsible for ordering, delivery, invoicing, payment, taxes, price reductions, and inventory adjustments. In your Profile, we specify 1) the identity of your "Aggregator," if any, or 2) if we approve you as an "Aggregator." Authorized Location is a site, controlled and operated by you, at which we authorize you to perform your responsibilities under this Agreement. We may specify in your Profile certain requirements to which you must adhere at each Authorized Location (such as, minimum renewal criteria and minimum number of trained personnel). Customer is either an End User, or a reseller who does not market to other resellers. We specify in your Profile if we authorize you to provide Products to End Users, resellers, or both. Customer-set-up Machine is an IBM Machine that you (or your Customer) set up according to our instructions. End User is anyone, unaffiliated with you (except if you are a qualified educational institution), who acquires Products for its own use and not for resale. Machine is an IBM or non-IBM machine, its features, conversions, upgrades, elements, accessories, cables, or any combination of them (provided by us or your Aggregator) that we approve you to provide to your Customers. Product is a Machine, Program, or Service. Program is an IBM or non-IBM licensed program (provided by us or your Aggregator) that we approve you to provide to your Customers. The term "Program" does not include Licensed Internal Code. Service is assistance (for example, Product maintenance) that we approve you to perform or market. The term "Service" includes use of a resource (such as a network) that we approve you to provide to your Customers. Page 2 of 15 The Remarketer General Terms apply to all our remarketers. Profiles We specify the details of our relationship (for example, the type of remarketer you are) in a document called a "Profile." Each of us agrees to the terms of the Profile, the Remarketer General Terms, and the applicable Attachments referred to in the Profile, (collectively called the Agreement), by signing the Profile. Attachments We describe additional terms that apply to our relationship in documents called "Attachments." For example, we describe the additional terms that apply specifically to dealers in an Attachment. Several Attachments may apply to you. We specify in your Profile the Attachments that apply. Transaction Documents We will provide to you the appropriate "Transaction Documents" that confirm the details of your order or provide additional information about our relationship. The following are examples of Transaction Documents, with examples of the information they may contain: 1. invoices (item, quantity, price, and amount due); 2. addenda (trial period and trial Products); and 3. exhibits (eligible Products, warranty information, and other Product- specific information). We may change the terms of an exhibit on written notice. Conflicting Terms If there is a conflict among the terms in the various documents, those of an Attachment prevail over those of the Remarketer General Terms. The terms of a Profile prevail over those of both of these documents. The terms of a Transaction Document prevail over those of all the documents. Our Acceptance of Your Order A Product becomes subject to this Agreement when we accept your order by: 1. sending you a Transaction Document; or 2. providing the Product to you. Acceptance of the Terms in a Transaction Document You accept the terms in a Transaction Document by doing any of the following: 1. signing it; 2. accepting the Product described in the Transaction Document; 3. providing the Product to your Customer; or 4. making any payment for the Product. Page 3 of 15 Mutual Responsibilities Each of us agrees that under this Agreement: 1. the Products we approve you to market are complex in nature and require that you provide high quality support, both before and after the sale, to ensure Customer satisfaction; 2. we offer a money-back guarantee to End Users for certain Products. You agree to inform the Customer of the terms of this guarantee before the applicable sale. For any such Product, you agree to 1) accept its return within the time frame we specify, 2) refund the full amount paid to you for it, and 3) dispose of it (including all its components) as we specify. We will pay transportation charges for return of the Product to us and will give you an appropriate credit; 3. you are an independent contractor. Neither of us is a legal representative or agent of the other. Neither of us is legally a partner of the other (for example, neither of us is responsible for debts incurred by the other), and you are not our employee or franchisee; 4. each is free to enter into similar agreements with others, to market competitive Products, and to conduct its business in whatever way it chooses, provided there is no conflict with this Agreement. We may increase or decrease the number of our remarketers, the types of distribution channels, and the number of participants in such channels; 5. each is free to establish its own prices and terms and neither of us will discuss its customer prices and terms in the presence of the other; 6. all information exchanged is nonconfidential. If either of us requires the exchange of confidential information, it will be made under a signed confidentiality agreement; 7. we will provide you with access to our information systems only in support of your authorized marketing activities. Programs associated with these systems are subject to the terms of their applicable license agreements, except that you may not transfer them; 8. neither of us will bring a legal action against the other more than two years after the cause of action arose; and 9. you may acquire an insignificant number of Products for your own internal use. Your Other Responsibilities You agree not to do any of the following: 1. assign, or otherwise transfer, this Agreement or your rights under it, delegate your obligations, or appoint another reseller (including a related company) or agent to represent you or to market our Products, without our prior written consent. Any attempt to do so is void; 2. assume or create any obligations on our behalf, or make any representations or warranties about us or our Products, other than those we authorize; or 3. conduct your business in a way (for example, failure to maintain the highest quality professionalism in all your dealings with Customers) that adversely affects our reputation or goodwill. You agree to: 1. sell only to End Users, unless otherwise specified in this Agreement; 2. be responsible for Customer satisfaction with our Products and all your related activities, and participate in Customer-satisfaction programs as we determine. For example, if we request, you agree to provide us with the names and addresses of all End Users who have acquired our Products from you; 3. actively and diligently promote our Products; 4. ensure that your compensation or incentive plans for your employees who market our Products are not unfair to us in comparison with your plans for competitive products you market; Page 4 of 15 6. maintain trained personnel and comply with any certification requirements; 7. provide us with relevant financial information about your business enterprise on request; 8. furnish sales receipts to your Customers before or upon delivery of Products. You agree to specify on the sales receipt your Customer's name and address, the Machine type/model and serial number, installed location, date of sale, any non-IBM alterations or attachments made, and the Warranty Service provider; 9. provide us with any Customer documents we require, within 10 days of the applicable transaction (for example, End User signing of our license or maintenance agreement); 10. provide us with sales and inventory information for our Products on request; 11. retain records by location of each Product transaction (for example, a sale or credit) for five years and of each warranty claim for three years. Records must include (as applicable) Machine type/model and serial number, Authorized Location to which distributed, and Customer name and address; 12. assist us in tracing and locating Products; 13. provide us with sufficient, free, and safe access to your facilities, at a mutually-convenient time, for us to fulfill our obligations. If you become aware of any unsafe conditions or hazardous materials to which our personnel would be exposed at any of your facilities, you agree to notify us promptly; and 14. comply with all laws and regulations (such as those governing consumer transactions). Our Review of Your Compliance with this Agreement We may periodically review your performance under this Agreement. You agree to provide us with relevant records on request. We have the right to reproduce them, retain the copies, and audit your compliance with this Agreement on your premises during your normal business hours. We may use an independent auditor for this. 4. Marketing Funds and Promotional Offerings You agree to use any marketing funds and promotional offerings according to our guidelines. For Products you provide to resellers, you agree to administer and disburse these funds or offerings in a proportional and equitable manner. You also agree to keep records of such funds or offerings for three years. We may withhold or recover marketing funds and promotional offerings if you breach any of the terms of this Agreement. Upon notice of termination, any marketing funds and promotional offerings will no longer be available for use by, or accrual to, you. 5. Status Change You agree to give us prompt written notice (unless precluded by law or regulation) of any change, or anticipated change, in your financial condition, business structure, or operating environment (for example, a material change in equity ownership or management, closing or relocation of an Authorized Location, or any change to information supplied in your application). Such change or failure to give notice may result in termination of this Agreement. Page 5 of 15 You are not authorized to actively market Products outside the geographic scope of this Agreement, and you agree not to use anyone else to do so. If a Customer acquires a Product for export, our responsibilities under this Agreement no longer apply to that Product. You agree to use your best efforts to ensure that your Customer complies with United States export laws and regulations, and any import requirements of the destination country. Before the sale of a Product, you agree to prepare a support plan for it and obtain your Customer's agreement to that plan. Within one month of sale, you agree to provide us with the Customer's name and address, Machine type/model and serial number, date of sale, and destination country. We exclude these Products from: 1. attainment of your minimum renewal criteria; 2. attainment of your committed quantities; 3. qualification for applicable promotional offerings and marketing funds; and 4. qualification for any lower prices. We may also reduce future supply allocations to you by the number of exported Products. The license agreement of certain Programs state the country in which the license is valid. Such Programs may not be exported. 7. Federal Reporting Requirements To comply with Federal law, you agree not to employ or compensate any individuals to perform activities under this Agreement (without our prior written approval) who were, within the last two years: 1. members of the armed forces in a pay grade of 0-4 or higher; or 2. civilians employed by the Department of Defense with a pay rate equal to, or greater than, the minimum rate for a qrade GS-13. You agree to provide us with any information that we need to comply with this law. 8. Ordering and Delivery You may order Products either from us or your Aggregator. We accept orders for withdrawn Products subject to their availability. On our request, you agree to make reasonable efforts to use our automated order-entry system. You agree to pay all expenses associated with it. We will mutually agree to a location to which we ship Products. We will use reasonable efforts to meet your requested delivery dates for Products you order from us. We select the method of transportation and pay associated charges for Products we ship. You agree to notify us within 20 days of receipt, of any discrepancies between our shipping manifest and the Products received from us. We will work with you to reconcile any differences. Page 6 of 15 You may cancel an order for a Product before we ship it. We may charge you a cancellation charge. We determine this charge by multiplying the amount we charge you for the Product by the cancellation-charge percent. We will inform you in writing of that percent. The cancellation charge does not apply to a Product if 1) we postpone its shipment for more than 15 days from its estimated shipment date and 2) you cancel your order before shipment. We may not be able to honor a cancellation request received less than 10 business days before the Product's estimated shipment date. If you return such Product, our inventory-adjustment terms apply. Delayed Shipment of a Product Circumstances may arise where we delay the shipment of a Product due to our inability to meet the original estimated shipment date. If this delay causes the estimated shipment date to be after the end of your contract period, the terms of this Agreement apply to that Product. It will be treated as if you had acquired it during the contract period. 9. Inventory Adjustments For purposes of rebalancing your inventory, we will inform you in writing which Products you may return to us for credit, their inventory-adjustment categories, and any terms associated with these categories. We will issue a credit to you when we accept the returned Product. You may use the credit only after we issue it. We may charge you a handling charge for returned Products. We determine this charge by multiplying the inventory-adjustment credit amount for the Product by the handling-charge percent. We will inform you in writing of that percent. You agree to pay shipping charges for Products you return. They must be in our original, undamaged packages (unopened for Machines), and without any non-IBM labels. Certain Products may be acquired only as Machines and Programs packaged together as a solution. These Products must be returned with all their components intact. However, we do not require the shipping container to be unopened for some of these Products (for example, Selected Academic Solutions), as we determine. Returned Products must be unused and in new condition. You agree to ensure that the Products are free of any legal obligations or restrictions that prevent their return. We accept them only from locations to which we ship Products. We will reject any returned Product that does not comply with these terms and send it back to you at your expense. 10. Prices and Price Changes We will specify the prices for each Product and inform you of any changes. Price increases do not apply to you if we receive your order before the effective date of the increase. You receive the benefit of a price decrease for Products we ship on or after the effective date. Price-Reduction Credits If we decrease the price for a Product, you may be eligible to receive a price-reduction credit for eligible Products in your inventory. We will specify the Product's price-reduction credit category and associated terms in writing, and will inform you periodically of any changes. You may use the credit only after we issue it. Page 7 of 15 Depending on the circumstances, additional charges may apply. For example, if we perform a Service for you, we charge an additional amount. We will notify you in advance if these charges apply. Fee Payments When you perform certain activities, such as those we may specify in exhibits, we will pay you a fee. 11. Invoicing, Payment, and Taxes Payment in full is due upon receipt of our invoice. You agree to pay as we specify in the invoice. We may offset any amounts due you, or designated for your use (for example, marketing funds or promotional offerings), against amounts due us or any of our subsidiaries. You agree to pay amounts equal to any applicable taxes resulting from any transaction under this Agreement. This does not include taxes based on our net income. You are responsible for personal property taxes for each Product from the date we ship it to you or the End User. You agree to provide us with valid reseller-exemption documentation for each applicable taxing jurisdiction to which we ship Products. Otherwise, we will charge you all applicable state and local taxes or duties. You agree to notify us promptly if this documentation is revoked or modified. You are liable for any claims or assessments that result from any taxing jurisdiction refusing to recognize your exemption. Failure to Pay Any Amounts Due If your account becomes delinquent, you agree that we may do one or more of the following: 1. impose a finance charge, up to the maximum permitted by law, on the delinquent portion of the balance due; 2. require cash payment on or before delivery of any Products; 3. repossess any Products. If we do so, you agree to pay all expenses associated with repossession and collection, including reasonable attorney's fees. You agree to make the Products available to us at a site that is mutually convenient; 4. terminate this Agreement; or 5. pursue any other remedy available at law. In addition, if your account with any of our subsidiaries becomes delinquent, we may invoke any of these options allowable by law. 12. Title As an Aggregator, when you order a Machine from us, we do not transfer title to you. As any other remarketer, when you order a Machine, we transfer title to you when the Machine is shipped by us or your Aggregator. Any prior transfer of title to a Machine to you is void from its inception when 1) it is accepted as a returned Machine, or 2) the End User finances it through the IBM Credit Corporation. We do not transfer title to Programs. Page 8 of 15 We reserve a purchase money security interest in a Machine, and you grant us a purchase money security interest in your proceeds from the sale of, and your accounts receivable for, a Product, until we receive the amounts due. For a feature, conversion, or upgrade involving the removal of parts that become our property, we reserve the security interest until we receive the amounts due and the removed parts. You agree to sign an appropriate document (for example, a "UCC-1") to permit us to perfect our purchase money security interest. End User Lease Financing If an End User obtains a lease for a Machine for legitimate financing purposes, you may transfer title to the Machine to the lessor. You may finance End Users' Product acquisitions. 13. Risk of Loss We bear the risk of loss for a Product until its initial delivery from us. 14. Engineering Changes You agree to allow us to install, at a mutually-convenient location, mandatory engineering changes (such as those required for safety) on all Machines in your inventory, and to use your best efforts to enable us to install such engineering changes on your Customers' Machines. Mandatory engineering changes are installed at our expense and any removed parts become our property. During the warranty period, we manage and install engineering changes at: 1. your or your Customers' locations for Machines for which we provide Warranty Service; and 2. your location for other Machines. Alternatively, we will provide you with the parts (at no charge) and instructions to do the installation yourself. We will reimburse you for your labor at a rate we specify. 15. Licensed Internal Code Certain Machines we specify (called "Specific Machines") use Licensed Internal Code (called "Code"). The IBM Corporation owns copyrights in Code and owns all copies of Code, including all copies made from them. We will identify each Specific Machine in writing. We grant the rightful possessor of a Specific Machine a license to use the Code (or any replacement we provide) on, or in conjunction with, only the Specific Machine, designated by serial number, for which the Code is provided. We license the Code to only one rightful possessor at a time. You agree that you are bound by the terms of the separate license aqreement that we will provide to you. Your Responsibilities You agree to inform your Customer, and record on the sales receipt, that the Machine you provide is a Specific Machine using Licensed Internal Code. You agree to 1) provide the applicable license agreement to your Customer before the sale and 2) ensure that the agreement is signed before a sale to an End User. Page 9 of 15 For certain Programs, we require End Users to sign our license agreements. You agree to ensure those signatures are obtained and the appropriate supplements are issued before those Programs are provided. All other Programs (called "Program Packages") are licensed under the terms of the agreements provided with them. When you make authorized copies of Programs, you agree to reproduce the copyright notice and any other legend of ownership on the copies. When we provide you with service materials for Programs, you agree to copy and distribute those materials to End Users. You agree to refund the amount paid for: 1. an IBM Program Package returned to you because the End User does not accept the terms of the license (for example, by not opening the media envelope or not using the Program). However, if such Program is packaged together with other Programs or Machines as a solution, all components must be returned. In this case, you agree to refund the amount paid for all the components; and 2. any defective IBM Program returned to you under the terms of its warranty. In either case, you may return the IBM Product to us, at our expense, for credit. 17. Installation and Warranty For a Machine to function properly, it must be installed in a suitable physical environment. For a machine we install, we will ensure that it is in good working order and meets the criteria specified in its Official Published Specifications before we consider it installed. We provide instructions to enable the setup of Customer-set-up Machines. We are not responsible for the installation of Programs or non-IBM Machines. With each IBM Machine we ship, we include a copy of our statement of limited warranty. We will provide a copy to you. You agree to make it available to the End User for review before the sale. We provide non-IBM Products on an "AS IS" basis. However, non-IBM manufacturers, suppliers, or publishers may provide their own warranties to you. Date of Installation We calculate the expiration of an IBM Machine's warranty period from the Machine's Date of Installation. The Date of Installation for a Machine we are responsible for instaliing is the business day after the day 1) we install it or 2) we make it available for installation, if you (or the End User) defer installation. Otherwise (for example, if others install it or break its warranty seal), it is the day we deliver the Machine to you (or the End User). The Date of Installation for a Customer-set-up Machine: 1. that we ship to the End User (or to you for your own use), is the fifth business day after the day the Machine is received; 2. that you ship, is the earlier of 1) the second business day after the End User receives the Machine or 2) the day you or your Customer place the Machine in use; or 3. is the same as the Date of Installation for a Machine that we install, if the Customer-set-up Machine is being installed with, and attached to, it. If we authorize you to install Programs on a Machine at an Authorized Location (and therefore you set up the Machine), we do not consider this as the Date of Installation, as long as you promptly ship the Machine to the End User. You (or your Customer, if other than an End User) must record the Machine's Date of Installation on the End User's sales receipt. You must also notify us upon our request. Page 10 of 15 18. Warranty Service sp p4 We will inform you in writing who is responsible for providing Warranty Service for Machines. We do so by specifying the Warranty Service category for each Machine. When We Are Responsible for Servicing Machines When we are responsible for providing Warranty Service, we do so for the IBM Machine during its warranty period at no charge to keep it in, or restore it to, good working order. In this case, you are not authorized to perform Warranty Service. You agree to convey all (or the remaining portion) of our warranty to your Customer. WHEN YOU ARE RESPONSIBLE FOR SERVICING MACHINES When you are responsible for providing Warranty Service, you agree to do the following according to the Service support guidelines we provide: 1. maintain Warranty Service capability; 2. ensure that it is performed only by personnel trained to our standards and consistent with our service terms and statement of limited warranty; 3. provide it even for Machines that the End User did not acquire from you (unless you have assigned all units of such Machine type); and 4. submit only valid warranty-reimbursement requests to us that are within the specified time limits. We will: 1. train you to provide Warranty Service. We provide training, at no charge, for the minimum number of your Service personnel that we require. Additional training may be provided for a fee; 2. provide you with necessary technical information, and 3. pay you for Warranty Service performed and exchange (or reimburse you for) parts. Maintenance Parts We sell maintenance parts for use in providing Warranty Service and for maintaining Machines. You may sell such parts to others for use in maintaining Machines. Assignment of Warranty Service Responsibility You may assiqn Warranty Service responsibility to us or anyone else authorized by us to provide it. You agree to: 1. ensure that the assignee accepts Warranty Service responsibility for each Machine assigned to it; 2. provide a copy of the sales receipt to the assignee; 3. notify your Customer of the assignment; and 4 remain responsible for your Customer's satisfaction with that Service. If you assign Warranty Service responsibility for all units of a Machine type to us or an IBM Premier Personal Computer Servicer, you are no longer required to be Warranty Service capable for that Machine type. When you accept Warranty Service responsibility from another of our remarketers, you may not reassign that responsibility and are responsible for Customer satisfaction with that Service. Page 11 of 15 For non-IBM Products that we do not warrant any other non-IBM equipment that a Customer may reasonably believe is warranted by us, you agree to inform your Customer in writing, before the sale, that we do not warrant them. You also agree to inform your Customer 1) that, the Products or equipment are non-IBM, 2) of the applicable warranty (if any), and 3) of the procedure to obtain any warranty service. 19. Marketing of IBM Services for a Fee When you have marketed a Machine you are approved to market, to an End User, you may market our Services on eligible machines in that account and receive a fee from us for marketing the Services on those machines. We may specify additional terms in a relationship Attachment (for example, an Industry Remarketer Attachment). We provide Services to the End User under the terms of our applicable agreement, signed by the End User. You agree to provide us with any required documents signed by you or the End User, as applicable, and inform the End User of our service procedures. We will not pay you the fee if the machine is already under our Service or if the Service had been terminated on the machine within the prior six months at the same account. Services may be marketed on eligible non-IBM machines regardless of whether you marketed a Machine in that account. 20. Patents and Copyrights For purposes of this section only, the term "Product" includes Licensed Internal Code and excludes Services. If a third party claims that a Product we provide under this Agreement infringes that party's patent or copyright, we will defend you against that claim at our expense and pay all costs, damages, and attorney's fees that a court finally awards, provided that you: 1. promptly notify us in writing of the claim; and 2. allow us to control, and cooperate with us in, the defense and any related settlement negotiations. If such a claim is made or appears likely to be made, about a Product in your inventory, you agree to permit us to either enable you to continue to market and use the Product, or to modify or replace it. If we determine that none of these alternatives is reasonably available, you agree to return the Product to us on our written request. We will then give you an appropriate credit, as we determine, which will be either 1) the price you paid us for the Product (less any price-reduction credit) or 2) the depreciated price. This is our entire obligation to you regarding any claim of infringement. Claims for Which We Are Not Responsible We have no obligation regarding any claim based on any of the following: 1. your modification of a Product, or a Program's use in other than its specified operating environment; 2. the combination, operation, or use of a Product with any product, data, or apparatus that we did not provide, or 3. infringement by a non-IBM Product alone, as opposed to its combination as part of a system of Products that we provide. Page 12 or 15 Circumstances may arise where, because of a default or other liability, one of us is entitled to recover damages from the other. In each such instance, regardless of the basis on which damages can be claimed, the following terms apply. Our Liability We are responsible for: 1. payments referred to in our patent and copyright terms described above; 2. bodily injury (including death), and damage to real property and tangible personal property caused by our Products; and 3. the amount of any other actual loss or damage, up to the greater of $100,000 or the charges (if recurring, 12 months' charges apply) for the Product that is the subject of the claim. Items for Which We Are Not Liable Under no circumstances are we liable for any of the following: 1. third-party claims against you for losses or damages (other than those under the first two items above); 2. Loss of, or damage to, your records or data; or 3. economic consequential damages (including lost profits or savings) or incidental damages, even if we are informed of their possibility. Your Liability In addition to damages for which you are liable under law and the terms of this Agreement, you will indemnify us for claims by others made against us (particularly regarding statements, representations, or warranties not authorized by us) arising out of your conduct under this Agreement or as a result of your relations with anyone else. 22. Trademarks We will provide you with advertising guidelines for our logos, trade and service marks, trade names, emblems, and titles (collectively called "Trademarks"). We will notify you in writing of the title you are authorized to use. You may also use the IBM Business Partner emblem associated with that title. You may use the Trademarks only as described in the guidelines and only in association with the Products we approve you to market. On our request, you agree to change or stop using any advertising or promotional material that does not comply (as we determine) with our guidelines or this Agreement. When this Agreement ends, you agree to promptly stop using our Trademarks. If you do not, you agree to pay any expenses and fees that we incur in getting you to stop. You agree that any goodwill attaching to our Trademarks as a result of your use of them belongs to us. You agree not to register or use any mark that is confusingly similar to any of our Trademarks. 23. No Property Rights Your rights under this Agreement are not property rights and, Therefore, you cannot transfer them to anyone else or encumber them in any way. For example, you may not sell your authorization to market our Products or your right to use our Trademarks. Z125-4800-08 11/95 Page 13 of 15 In order to maintain flexibility in our relationships, we may change the terms of this Agreement by giving you one month's written notice. However, these changes are not retroactive. They apply as of the effective date we specify in the notice. If you do not accept a change, you must inform us in writing before its effective date. If you do so, any future change will not apply to you. However, if you sign a revised profile, then all prior changes become effective. Otherwise, for a change to be valid, both of us must sign it. Additional or different terms in any order or written communication from you are void. 25. Ending the Agreement This Agreement ends when terminated or when the contract period ends. You may terminate this Agreement, with or without cause, on one month's written notice. We may terminate this Agreement, with or without cause, on three months' written notice. If the termination is for cause, we may (at our discretion) allow you a reasonable opportunity to cure. If you fail to do so, the date of termination is that specified in the notice. However, certain acts or omissions are so serious as to warrant immediate termination. If you repudiate this Agreement, materially breach any of its terms, or make any material, misrepresentation to us, we may terminate this Agreement at any time, on written notice. Examples of a material breach are violation of our status-change terms, violation of our trademark terms, submission of a false warranty claim, unauthorized sale to a reseller, and failure to maintain Customer satisfaction. You agree that our only obligation is to provide the notice called for in this section and we are not liable for any claims or losses if we do so. At the end of this Agreement, you agree to: 1. pay for or return to us, at our discretion, any Products for which you have not paid; and 2. allow us, at our discretion, to repurchase any other Products in your possession or control at the price you paid us, less any credits issued to you. Products to be returned must be unused, in new condition, and in your inventory (or in transit from us) on the day this Agreement ends. We will inspect the Products and reserve the right to reject them. You agree to pay all shipping charges. Products returned to you under our money-back guarantee terms may be used and we pay their shipping charges. At the end of this Agreement, you must immediately pay us all amounts due. We may offset any amounts due you against amounts due us or any of our subsidiaries. Any terms of this Agreement, which by their nature extend beyond the day this Agreement ends, remain in effect until fulfilled, and apply to respective successors and assignees. We may permit you to continue to provide Products after this Agreement ends. If we do so, you agree to provide those Products under the terms of this Agreement. 26 Waiver of Noncompliance Failure by either of us to insist on strict performance or to exercise a right when entitled, does not prevent us from doing so at a later time, either in relation to that default or any subsequent one. Page 14 or 15 Each of us may communicate with the other by electronic means. Therefore, you agree to utilize electronic communications with us, if and as we specify. In such case, both of us agree to the following for all electronic communications: 1. an identification code (called a "USERID") contained in an electronic document is legally sufficient to verify the sender's identity and the document's authenticity; 2. an electronic document that contains a USERID is a signed writing; and 3. an electronic document, or any computer printout of it, is an original when maintained in the normal course of business. ELECTRONIC DATA INTERCHANGE We may provide Electronic Data Interchange (called "EDI") Options to you. Electronic invoicing and electronic payment are examples of these Options. When using EDI Options, each of us agrees: 1. when a bank is involved, to pay our respective bank charges and to promptly notify the other of any changes to the bank payment process; and 2. to promptly notify the other of any changes to the technology, process, or information upon which the EDI transactions are based. We will specify respective responsibilities for the EDI Option you choose. 28. Geographic Scope All your rights and all our obligations are valid only in the United States and Puerto Rico. 29. Governing Law The laws of the State of New York govern this Agreement. Z125-4800-08 11/95 Page 15 of 15 Industry Remarketer Attachment 1. Value-Added Enhancement You agree to market Products only with your value-added enhancement that we approve as part of an integrated solution for End Users. Certain Products we specify to you may not require a value-added enhancement. However, you may provide up to 25% of the personal computer system units, including associated features and options, in each transaction without such enhancement. If we withdraw approval of any such enhancement, we also withdraw your authorization as our industry remarketer with regard to that specific enhancement. You are responsible for your enhancement, (and we are not). You agree to market Products only to End Users for whom your enhancement is the primary reason for acquiring Products (a sale without a required value-added enhancement is an additional example of a material breach). Unless we specify otherwise in writing, you will market only to such End Users who intend ongoing use of that enhancement as a significant part of their business operations. Your enhancement is not required to be the primary reason for acquiring upgrades to systems you have installed with your enhancement and where your enhancement is still in productive use. Upgrades include peripherals, programs and processor upgrades. However, your enhancement must be the primary reason for a processor upgrade requiring a processor serial number change. You agree to assist the End Users to achieve productive use of Products promptly after acquisition. If we inform you in writing of a specific industry code, you agree to market only to End Users within that code. We may provide certain installation planning assistance. We provide Product support to you (and not to End Users). You agree to: 1. provide facilities to demonstrate your enhancement; 2. verify the operation, and explain the functions and expected performance, of the Products and your enhancement to End Users; 3. provide support (such as documentation and technical assistance) for the Products, your enhancement and other products it requires; and 4. select, develope, procure, integrate, and install all elements of your enhancement and any updates to it. 2. Use of Agents To assist you in the successful installation, and your ongoing End User support requirements for the Products you are approved to market as an Industry Remarketer-Mid-Range, you may contract for the necessary skills with IBM Authorized Business Partners, who may perform such activities directly for your End User. However, you are responsible for your End User's satisfaction with such installation and support activities. You agree to indemnify IBM from any liability for the activities performed by such parties. Additionally, you may select IBM to perform such activities. In that event, IBM assumes customer satisfaction responsibilities for its activities We may allow you to use an agent to represent you for other activities. If so we will provide written guidelines to you. Page 1 of 8 3. Marketinq of Products You agree to: 1. select Products that best meet the End Users' needs; 2. order Products in sufficient time to be shipped during the contract period for them to count toward your minimum renewal criteria or any Commitment; 3. receive Products (listed in the Industry Remarketer Exhibit) only at Authorized Locations or ship-to locations (including End Users' locations); 4. inform the End Users, upon their request, of applicable courses that we provide and how to enroll in them: 5. assist the End Users with the installation of Products; and 6. if you are approved as an industry remarketer of mid-range computer Products, notify us within 10 days of the installation of Products. For Products listed in the Dealer Exhibit, you also agree to: 1. market, support (including setup and test), and service them only at Authorized locations, or at End Users' locations; and 2. receive and place them (and their maintenance parts) in inventory only at Authorized Locations or ship-to locations (and not at End Users' locations). Maintenance parts are only available for Machines listed in the Dealer Exhibit. For Products listed in the Dealer Exhibit which we announce as withdrawn from marketing, you may market them to resellers and to End Users without your value-added enhancement. However, you may not market withdrawn certified Products to resellers. When you market withdrawn Products to resellers you agree to: 1. distribute Products fairly; 2. require your resellers to retain the necessary records (such as sales and credit receipts); 3. identify the resellers to us; and 4. notify the resellers in writing that such Products are made available for marketing only in the United States and Puerto Rico. 4. Association with an Aggregator If you acquire IBM Personal System Products from an Aggregator, your Aggregator is authorized to set up and test those Products for you on your request. If the setup includes preloaded IBM Programs, you must ensure that the End User has agreed to the terms of the applicable license agreement prior to the preload. Page 2 of 8 If we authorize you as an industry remarketer of mid-range computer Products, we allow you to acquire certain of those Products which you are approved to market, for your own internal use within your remarketing operations only and not for any other use including End User productive use, even if such use is managed within your business enterprise. Your value-added enhancement is not required for such acquisitions. The Industry Remarketer Exhibit includes further details. You may acquire Products for your internal use at your discount level at the time we ship the Products. You agree not to remarket such Products for 24 months from their Date of Installation. These Products do not count toward your minimum renewal criteria or any Commitment. 6. Prices and Price Changes for Industry Remarketer Exhibit Products The following terms apply for Products listed in the Industry Remarketer Exhibit. A price decrease is effective on the date specified in our notice to you. We apply the associated discount to the decreased single-unit price for Products not yet shipped, provided you accept any related changes in terms. Otherwise, you may select 1) the decreased price without discount or 2) the discounted price available to you before the decrease. Prices increases do not apply to you if we receive your order prior to the effective date of the increase and if we ship your order within six months of the date we receive it. We may increase a recurring charge at any time. However, the effective date of the increase may not be less than 90 days from the date of our notice to you, and will be effective on the first day of the applicable invoice period specified in the notice. Discounts We provide a discount schedule for Products listed in the Industry Remarketer Exhibit. Some discount schedules have deeper discounts available when you agree to acquire, as applicable, 1) a specific quantity of Products from a specific Product Category, or 2) a minimum revenue amount as specified in the Exhibit. We call this your "Commitment". If you change your Commitment, you may subject to a higher or lower discount, as applicable. The discount applies only to Products acquired after the effective date of your Commitment change. To determine your discounted price, we apply the applicable discount to the Products lowest single-unit price in effect between the date we receive your order and our date of shipment, if such shipment is within six months of our receipt of your order. For Products shipped beyond the six months period, the discount is applied to the single-unit price in effect on our date of shipment. Unless we specify otherwise, discounts do not apply to Program upgrades, accessories, or field-installed Machine features, conversions, or upgrades. If during our review of your compliance with this Agreement, we find you have materially breached the terms of our relationship, in addition to our rights under law and the terms of this Agreement, for the applicable transactions, you will refund the discount you received from us and reimburse us for all administrative expenses associated with our compliance review activity. Page 3 of 8 If you alter, defer, or cancel an order for Products and we incur expenses to re-work the Products, we will invoice you for the actual expenses incurred. For orders cancelled after shipment, the re-work charge is in addition to the inventory adjustment handling charge specified in the Industry Remarketer Exhibit. 8. Installation of Machine Features, Conversions, and Upgrades For Machines listed in the Industry Remarketer Exhibit, we may require that Machine features, conversions, and upgrades be installed only on designated, serial-numbered Machines. You represent that you have the permission of the owner (if you are not the owner of the Machine) and any lien holders to 1) install features, conversions, and upgrades and 2) transfer removed parts to us. Some of these transactions (called "Net-Priced" transactions) include associated replacement parts. We provide these parts on an exchange basis. All removed parts in a Net-Priced transaction become our property. Replacement parts assume the service status of the parts they replace. For a Net-Priced transaction, you or your Customer must allow us to install it within 30 days of its delivery and to recover the removed parts. Otherwise, we may terminate the transaction, and the feature, conversion, or upgrade must be returned to us at your expense. 9. IBM Industry Remarketer Exhibit Programs You agree to have one license for each Program you provide to End Users, that is listed in the Industry Remarketer Exhibit. A Program which we provide to you at no charge and which is licensed for use with a Development System fulfills this requirement. You are responsible for copying and distributing the Programs you provide to End Users. On our request, you agree to also distribute documentation. You agree to: 1. ensure that, when required, the applicable license agreement is signed by the End User and the completed supplement is issued (with a copy sent to us) before you copy and distribute the Program. Failure to provide us with the signed agreements promptly after they are signed is a material breach of this Agreement and cause for its immediate termination; 2. promptly notify us if you become aware of any violation (or threatened violation) of the license terms, and give us reasonable assistance in enforcing our rights; 3. promptly notify us if the End User provides you with any required notices under the license; 4. provide the End User with all Program Services we make available to you; and 5. copy and distribute to the End User any defect-correction information and subsequent Program releases we provide. COPYING AIX PROGRAMS CONTAINING THIRD-PARTY CODE If you are approved to market IBM RISC System/6000 AIX Programs containing third-party code, you may neither 1) delegate your right to copy these Programs nor 2) make copies that contain modifications you created from the use of UNIX(R) or OSF1(R) source code. We do not grant you any rights to any trademarks of AT&T Technologies, Inc., UNIX System Laboratories, Inc., or any of their affiliates. Page 4 of 8 You agree to: 1. maintain accurate records of the number of copies made; 2. provide us quarterly statements of the number of copies made in that calendar quarter; and 3. annually, upon request, make all relevant records available for audit by us, AT&T Technologies, Inc., UNIX System Laboratories, Inc., and Open Software Foundation, Inc.(R). PAYMENT The following are the bases on which we may require the amount payable for a Program to be paid: 1. one-time; 2. recurring (for example, a monthly license charge); or 3. a combination of both (for example, an initial charge and an annual license charge). We will specify the amount and basis for the particular Program. Programs licensed to you on a recurring-charge basis are licensed for the period indicated in our invoice. You may market such Programs only on the same basis as licensed to you. You may not charge an End User a one-time charge for a Program you license from us on a recurring-charge basis. However, you may charge the End User whatever amount you wish for the recurring charge. (R) UNIX is a registered trademark of UNIX System Laboratories, Inc. (R) OSF/1 and Open Software Foundation are registered trademarks of Open Software Foundation, Inc. 10. DEVELOPMENT SYSTEMS We may allow you to acquire Products for use primarily in developing, testing, supporting, or demonstrating your value-added enhancement. We call these "Development System" Products. We may also approve you to acquire Products under these terms, for the exclusive use of development, support and testing your value-added enhancement. Such Products may not be used for demonstration purposes. If you have a Development System Product that is a Machine for which there is a field upgrade available, and you have acquired the maximum number of Development System Products vou may acquire for the contract period, you may acquire the field upgrade (but not a replacement Machine) as a Development System Product. You agree not to resell, lease, or transfer a Development System Product for 12 months from the Date of Installation of the Product (or its Machine upgrade). For a Development System Product listed in the Industry Remarketer Exhibit (other than Programs), we will specify either a Development System price or a Development System discount. We make Programs, and their upgrades if applicable, available to you at a 100 percent discount, for use on an authorized Development System. Certain Programs may require your payment of a fee. We will specify such Programs and their fee. You agree not to resell, lease or transfer Programs you acquire under these terms. Page 5 of 8 System price. We will specify, in the applicable Exhibit, the maximum quantity of each Development System Product that you may acquire. If you are an industry remarketer of mid-range computer Products, you must have a Development System for each system type that you are approved to market. We will provide applicable Warranty and Program Services for Development System Products listed in the Industry Remarketer EXhibit. You are responsible for these Services for Development System Products listed in the Dealer Exhibit. Development System Products do not count toward your minimum renewal criteria or any Commitment. If you use a Development System Product in a manner that does not comply with these terms, we may charge you the difference between what you paid and the full price. You may not combine this offering with any other discount or allowance. 11. Preload of Programs For certain Machines specified in the applicable Exhibit, we will, on your request, preload Programs you select onto those on-order Machines. We will: 1. send you a utility program and a kit containing blank tapes and instructions so you can provide us with tapes containing the programs selected for preload; 2. make production copies of the tapes you send us, use those copies to load the Machine, and verify that the process is successfully completed; 3. verify that the Machine is successfully delivered in a preloaded condition; and 4. retain the tapes for at least three months following the shipment of the last Machine for Which preloading is ordered. You may request a shorter retention period in writing. At the end of that period, we will erase the programs from all tapes in our possession. You agree to: 1. have a license for each IBM Program for which you order preloading; 2. ensure that the applicable license agreement is signed by the End User and the completed supplement is issued (with a copy sent to us). You must do this before we ship the Machine; Page 6 of 8 a. make as many copies as we may need to support the preload process, and b. reproduce, in each copy, only those copyright notices that appear within the program; 4. provide us with programs and documentation according to the instructions that (accompany the kit we send to you. You agree to return the entire kit and utility program; 5. provide us with tapes at least four weeks before the scheduled shipment of the Machine for which you require preloading; 6. not send us any information that is confidential or proprietary to anyone; and 7. pay any applicable charges for preloading. Any discount that applies to the machine also applies to preload charges. 12. Trial Products We may offer certain Products as "Trial Products." If you are approved for a Trial Product, you may provide it to End Users for evaluation purposes, or (if we agree) you may use it as part of a Development System. you may either return or retain a Trial Product. If you do not wish to retain it, you must notify us in writing before the end of the trial period. Otherwise, we will consider the Product to be retained. We will list in an Addendum the specifics of a trial, such as trial period, Trial Products, and, if applicable, the End User. We reserve the right to withdraw a trial at any time. If the End User is participating in the trial, you agree to ensure that we receive the applicable agreement signed by you and the End User. You agree to provide the End User with the necessary details of the trial. We do not transfer title to Trial Products during the trial period. We will service and support them, and bear the risk of loss (except for theft or vandalism). You agree: 1. to inform us of each Trial Product's location; 2. that the Product may not be moved to another location or altered, without our prior written approval. However, you may attach a non-lBM product or device to an IBM Machine without notice. You may not make any alteration or attachment that creates a safety hazard or renders maintenance of the Machine impractical; 3. to return, at the end of the trial period, all Products (including any copies of Programs) not retained. The Products should be returned unaltered and in the same condition as when delivered to you. Alternatively, for Programs, you may destroy all copies; and 4. to furnish all labor for unpacking and packing. If you retain a Trial Product, payment is due on the business day following the last day of the trial period. For a Machine, we transfer title to you and no longer bear the risk of loss as of that day. However, the warranty period begins on the Date of Installation. Page 7 of 8 13. Trade-In Machines We may specify certain Machines as eligible for trade-in. We will list in an Addendum such items as the Machine you agree to purchase (called the "Replacement Machine") and the Machine you agree to return to us (called the "Replaced Machine"). When we accept a Replaced Machine, we give you credit towards the purchase from us of other, eligible Machines. You agree to ensure that the same End User who was using the Replaced Machine, acquires the Replacement Machine. A Trial Machine may qualify as a Replacement Machine. For the Replaced Machine, you agree to: 1. restore an IBM Machine to its unaltered condition; 2. have it in operating condition on the day before it is available for pickup; 3. furnish all labor for packing; and 4. ensure that title to it is free of any legal obligations or restrictions on the day it is picked up, unless the IBM Credit Corporation owns both the Replacement and Replaced Machines. For the Replaced Machine, we will: 1. arrange for its pickup at your or the End User's location; 2. bear the risk of loss after it is picked up; and 3. pay normal transportation charges. The credit we give is in addition to any other discount for which the Replacement Machine may be eligible. The Replacement Machine counts toward your Commitment, unless the Replaced Machine was previously counted toward that Commitment. You agree to pay the full amount due for the Replacement Machine. You may not reduce your payment in anticipation of receiving the credit. If both Machines in a trade-in are used as part of a Development System, the Replaced Machine is not subject to Development System adjustment charges. 14. Marketing of IBM Services for a Fee We approve you to market, and will pay you a fee, for eligible Services you market 1) as our industry remarketer to End Users, or 2) as our managing industry remarketer, to resellers. You, or if you are a managing industry remarketer, your reseller, may market Services on any eligible machine in an account when 1) the End User to which the Service is marketed acquired your IBM approved value-added enhancement from you, or if you are a managing industry remarketer, from your reseller, and the enhancement is installed on one or more Machines you are approved to market, regardless of who marketed the Machine to the End User, or 2) you, or if you are a managing industry remarketer, your reseller, marketed a Machine to the End User under an IBM Business Partner relationship which did not require an IBM approved value-added enhancement. Services may be marketed on eligible non-IBM machines regardless of whether an IBM approved value- added enhancement is installed on a Machine in the account. We specify the eligible Services, and the percentages used to determine your fee, in an Exhibit. We will not pay you the fee if the machine is already under the Service or if the Service had been terminated on the machine within the prior six months at the same account. Page 8 of 8 Industry Remarketer Exhibit IBM Business Partner Agreement Exhibit No.: RMKT-l8 Effective Date: June l, 1996 Page General Information 2 Eligible Product Table 8 IBM RISC System/6000 Annual System Revenue Performance Discount Schedule 9 RISC System/6000 Machines 9 RISC System/6000 Licensed Programs 10 Value-Added Enhancement Qualifying Licensed Programs 12 I B M AS/400 Annual System Revenue Performance Discount Schedule 13 AS/400 Machines 13 AS/400 Licensed Programs 14 System 35/38 Licensed Programs 17 AS/400 Advanced 36 Licensed Programs 17 Client Series Software 18 Additional AS/400 Licensed Programs 19 IBM Point of Sale Products Annual System Revenue Performance Discount Schedule 20 Point of Sale Machines 20 Point of Sale Licensed Programs 21 IBM Network Integration Products 22 IBM System/390 Machines 24 IBM Customer Agreement Licensed Programs 26 IBM Finance Industry Licensed Programs 29 Complementary Products Displays, Storage Media 29 Graphics Products, Finance Industry Products 30 Miscellaneous Products 30 IBM Printers, Uninterruptible Power Systems 31 RISC System/6000 Licensed Programs 32 AS/400 Licensed Programs . 33 Network Integration, Data Collection Licensed Programs 33 IBM Storage Products 35 IBM Service Offerings 37 General Information Eligible Products IBM Authorized Industry Remarketer, you are approved to market selected Product types. When you are approved for a Processor or Category, you are also approved for its associated peripherals and programs, unless otherwise noted. Selected Products require unique approval for authority to market. Please refer to the Eligible Product Table for details. Price Reduction and Discount Increase Credits Unless otherwise stated, the Price Reduction Credit (PRC) and Discount Increase Category 5 applies to all eligible Products listed in this Exhibit. Category 5: Price Reduction and Discount Increase Credit--Applies to machine type/models and associated field installable features and model conversions shipped from IBM as MES orders. For a product to qualify for the Price Reduction and Discount Increase Credit, the following criteria must be met: . The Product's Date of Installation must not have occurred as of the effective date of the price decrease. . The Product was not ordered for use in a Development system. . You must certify your inventory position to IBM in writing within 30 days of the effective date of the price or discount change. IBM will determine the amount of the Credit by first establishing the total amount you paid for the Product, less any previously granted credit for price decreases or discount increases. From this number, IBM will subtract the amount which would be payable after the price decrease or discount increase as determined by your selection under the provisions of section 5 of the Industry Remarketer Attachment (Z125-4805). The result is your Price Reduction Credit. Price Reduction Credit Categories 1, 2, and 3 are stated in the Dealer Exhibit and do not apply to Products listed in this Exhibit. IBM LIcense Programs are not eligible for Price Reduction credits. Products ordered for use in a Development System do not qualify for Price Reduction Credits. Adjustments to discounts based on Annual System Revenue Performance, revenue, or volume attainment levels do not qualify for discount incentive protection. Inventory Adjustment Categories A) Hardware The Inventory Adjustment Category for each product is identified in the "IAC" column of the Eligible Product Categories. Category 5: 3-Month Look Back. . As a Category 5 Product, only machine type/models may be returned. Category 6: 4-Month look back. . As a Category c Product, machine type/models and associated field installable features and model conversions shipped from IBM as MES orders may be returned. Category 7: 4-Month look back. . As a Category 7 Product, only machine type/models may be returned. Category 10: Prior Calendar Quarter . As a Category 10 Product, machine type/models and associated field installable features and model conversions shipped from IBM as MES orders may be returned. You may return up to 5% of the prior quarter's net billings for a product category free of Inventory Adjustment Charges, and an additional 5% of the prior quarter's net billings subject to a 3% handling charge. This limits your investor adjustment returns to a total of 10% of your prior quarter's net billings for a product category for Category 10 designated products. Aggregation across product categories to determine net billing is not allowed. Category 10 Products must be returned within 60 days of IBM's announcement of a Product's withdrawal from marketing. Rework charges do not apply to a Product returned as an inventory adjustment after shipment from IBM. Rework charges continue to apply for any charges incurred as a result of late cancellations, alterations, or reschedules that occur prior to the Product shipping. In a given calendar month, the maximum number of units of a Product you may return to IBM is equal to the number of units of such Product shipped to you by IBM during the applicable Look Back Period, less any returns of the Product during that period. The Product being returned must have been shipped to you during the Look Back Period. The amount of credit will be determined by IBM. The amount will be based on the amount you paid for the Product, including Adjustment Charges, less any amount paid you by IBM for any Price Reduction Credit applicable to the Product. The number of units or the associated revenue amount of the returned product will be subtracted from your attainment during the Contract Period in which it is returned. IBM License Programs shipped from IBM as PRE-LOADED on a processor may be returned under the Inventory Adjustment Provisions when the associated processor is also returned. The PRE-LOADED License Program is subject to the same Inventory Adjustment provisions as the processor on which it was shipped. C) Inventory Adjustment Provision Exclusions The following are NOT eligible for return under the Inventory Adjustment provisions: - -Products ordered for Development System use - -any Product which has had its Date of Installation - -non Pre-loaded IBM Licensed Programs. Inventory Adjustment Categories 1, 2, and 3 are stated in the Dealer Exhibit and do not apply to Products listed in this Exhibit. D) Inventory Adjustment Handling Charge With the exception of Inventory Adjustment Category (IAC) 10 Products, all Hardware and pre-loaded IBM Licensed Programs are subject to a 5% handling charge. For IAC 10 Products, returns up to 5% of the prior calendar quarter's net billing for all IAC 10 Products are not assessed a handling charge. IAC 10 returns that exceed 5% of the prior calendar quarter's net billing (for all IAC 10 Products) are assessed a 3% handling charge on the portion of the return in excess of the 5%. Cancellation Charges: = 0% Re-work Charges Although Cancellation Charges are currently set at 0%, unless otherwise noted, Products and MESs included in this Exhibit are subject to re-work charges. The charges are Product specific and may be applicable when orders are altered, deferred or cancelled. Re-work charges are not eligible for a discount. Licensed Internal Code Products which contain Licensed Internal Code (LIC) are indicated with a "Y" in the "LIC" column of the Eligible Product Categories. Remarketing to IBM At our request, you may provide us new Products for resale to our customers. With each such transaction, we will notify you of any additional terms that apply. Warranty Service Information Warranty Service Category A Machines included in this Exhibit are Warranty Service Category A machines unless specified otherwise in the Eligible Product Category. IBM does not authorize you to perform warranty service for Category A machines. You will convey all, or the remaining portion of, the IBM Warranty Period for a Category A machine to the End User of the machine. You may only do so consistent with the terms and conditions of the applicable IBM Statement of Limited Warranty and Section 18 of the IBM Business Partner Agreement, Remarketer General Terms. For Machines included in this Exhibit, you must ensure that the End User understands and agrees to all applicable terms and conditions. Warranty Service Category B Selected machines included in this exhibit are Warranty Service Category B machines, and as such, remarketers may be authorized to perform Warranty Service on them. Those products which are Warranty Service Category B are indicated in the Eligible Product Category. Customer Carry in Repair (CCR) Customer Carry in Exchange (CCE) The following provisions apply to Machines on the Dealer Exhibit identified as CCR, CCR/CCE or CCE and for which you have IBM's approval to Market. Warranty service which you provide for a machine must be consistent with the terms and conditions of the Agreement and the applicable IBM Statement of Limited Warranty. After you provide such service, IBM will, for selected Machines, reimburse you for labor and/or credit you for selected IBM parts, or exchange of such parts used by you. The selected Machines and the Reimbursement Schedules and selected parts are specified in the IBM Service Support Guide in effect at the time of such activity. You agree to and will: 1. Provide warranty service under the terms of the applicable IBM Statement of Limited Warranty and its Warranty Exhibit, if any; 2. Validate all warranty claims presented to you; 3. Maintain the capability to provide warranty service according to the requirements and procedures specified in the IBM Service Support Guide; and 4. Submit a Waranty Reimbursement Request, if applicable, to claim (a) reimbursement for labor and/or b) credit for IBM parts or exchange of such parts, used by you in providing authorized warranty service for a Machine, all as specified in the IBM Service Support Guide. IBM will: 1. Provide for each Machine, at no fee, either service training in a classroom or self-education materials for that purpose. IBM will provide classroom training at an IBM designated location. IBM will provide classroom training or self-eduction materials for the applicable minimum Number of Trained Personnel for each Authorized Location. IBM will specify the minimum Number in the applicable Addendum; 2. Provide, as part of service training, selected service materials; 3. Make available to you, for a fee, additional a) service training for service personnel, b) copies of service materials, and c) service materials not provided under the provisions of items (1) and (2) of this paragraph; 4. Sell you maintenance parts for your use in providing warranty service. The purchase prices of such parts will be as specified in the IBM Service Support Guide in effect at time of shipment of the parts; 5. Provide you with applicable warranty service and technical information for Machines as available; and/or 6. For selected machines, honor your valid claims for a) reimbursement for labor and/or b) IBM parts credits, or exchange of such parts, for parts used by you in providing authorized warranty service, all as specified in the IBM Service Support Guide. IBM On-Site Repair (IOR)/IBM On-Site Exchange (IOE) The following provisions apply to Machines on the Dealer Exhibit identified as IOR or IOE and for which you have IBM's approval to market You may choose to assign the responsibility for warranty service to IBM, another remarketer/Authorized Personal System Servicer (Assignee). The Assignee must be authorized by IBM to provide warranty service for the Machine. The Assignee must agree with you to accept the responsibility to provide warranty service for each assigned Machine. You may choose to assign the responsibility for warranty service for all units of a machine type to IBM or an Authorized Personal System Servicer by specifying that choice in the Addendum or the Profile. Alternatively, you may, at the time of sale to the End User, choose to assign the responsibility for warranty service for an individual Machine to either IBM or an Assignee. You must specify on the sales receipt for each assigned machine you market, the name and location of the party responsible for providing warranty service. If you fail to indicate an Assignee name or location on the sales receipt, or indicate an unauthorized name or location, you will be responsible for warranty service for that Machine. If you have specified either IBM or an Assignee on a sales receipt, you must provide IBM or the Assignee, as applicable, with a copy of the sales receipt. Such sales receipt must specify the End User's name, the machine type/model and serial number, the date of sale, the date of delivery, and the Machine's installed-at location. Your assignment of responsibility for warranty service does not relieve you of your responsibility for End User satisfaction. The responsibility for warranty service reverts to you, if the End User is not satisfied with the warranty service provided by your Assignee or if the Assignee loses its authorization to provide such warranty service. You may subsequently reassign such responsibility consistent with the provisions of this subsection. In such event, you are responsible to provide the End User and the new Assignee with written notice of the change. ????? assigned warranty service for all units of a machine type to IBM or an Authorized Personal System Servicer in the Profile, you will not be required to maintain the capability of providing warranty service for that machine type. If you, as an Assignee, agree with another Dealer of Industry Remarketer (Assignor) to be responsible to provide warranty service for an assigned Machine marketed by the Assignor the provisions of this Section applicable to an Assignee apply to you. As an Assignee, you accept such responsibility for each Machine for which your name is specified on the End User's sales receipt. You may not reassign such responsibility. If, at a later date, the Assignor loses its IBM authorization for the Machine, you will have the additional responsibility for End User satisfaction. Maximum Discount Provisions When a maximum discount is indicated for a specific product, the total of all available discounts may not exceed the stated maximum discount. Field Installed Features and Model Conversion Discount Provisions Field installed features and model conversions for products included in this Exhibit may qualify for a discount percent and are so noted in the applicable Eligible product Categories. Field installed features and model conversion for those products that are not specifically identified as being eligible for a discount percent are available at the IBM Single Unit Price. When model conversions are available at a discount, the discount will be the same as the MES discount of the converted-to model, unless otherwise noted. IBM Licensed Programs Permission to Copy: The Industry Remarketer is granted permission to copy IBM Licensed Programs available under the terms of the IBM Customer Agreement and the IBM License Agreement for Programs and Licensed Internal Code that are included in this Exhibit unless otherwise noted. Only IBM Licensed Programs acquired for development system installation are eligible for the IBM testing period. Upgrade Charges: For IBM Licensed Programs included in this exhibit, you may order upgrades, where available, for your Development System and your end user's systems. Upgrades are available at the same discount as the installed licensed program for which the upgrade is being ordered unless otherwise specified in the eligible product category. Licensed Program Upgrade orders are included in the calculation of Minimum Renewal Criteria as well as Annual System Revenue Performance unless otherwise noted in the Eligible Category. Upgrades for purposes of this section are defined as Group to Group and any other field installable features available for the license. When Version to Version upgrades to a licensed program are available, and are indentified in this exhibit as available for a discount, they are eligible for the same discount as an initial license order for the upgraded-to program. Products installed under the Monthly License Charge option are excluded from any Upgrade Discounts. Process charges associated with IBM Licensed Programs are not eligible for a discount. Programs licensed under a Monthly License Charge (MLC) are not eligible for a discount, but may be eligible for a fee. Details are indicated in individual Program announcements. For IBM Licensed Programs available with a Primary License Charge (PLC) and Annual License Charge (ALC), discounts, if any, apply only to the Primary License Charge. Annual License Charges may have unique industry Remarketer pricing available. DEVELOPMENT SYSTEM PRODUCTS - --------------------------- Unless otherwise specified in this Exhibit or by IBM in writing, Industry Remarketers may obtain the quantity of Development System Products identified below for the Products they are approved to market within an Approved Processor Category for use in their Development System. If an Industry Remarketer has a Development System Product that is a Machine for which there is a field upgrade available and the remarketer has acquired the maximum quantity specified below, the remarketer may acquire the field upgrade (but not a replacement machine) as a Development System Product. The maximum number of products in other Categories that may be obtained for Development System use is the maximum specified by IBM that may be attached to each Development System type. Exceptions are noted in the Exhibit. The indicated quantities may be acquired during each 12-month contract period. PRODUCT QUANTITY RISC System/6000 Processors 5 Power Parallel Processor 5 AS/400 processors 2 System/390 Processors 1 Finance Industry Processors 1 Network Integration Products* 5 Point of Sale Products* 10 Storage Systems Products** 10 Remarketers may be acquire the quantities indicated for each MACHINE TYPE they are approved to market in these categories. Remarketers authorized for the Storage Remarketer relationship may acquire up to 10 of the products they are approved to market. IBM Licensed Programs are available for Development System installation at a 100% discount. One copy of each authorized licensed program is available for each Development System. Process or media charges associated with IBM LIcensed Programs are not eligible for a discount. INTERNAL USE OF PRODUCTS - ------------------------ Unless otherwise specified in this Exhibit or by IBM in writing, you may obtain Products from this Exhibit for internal use within your firm. The amount and types of Products that can be purchased will be governed by the following: 1. Internal use products are available to remarketers at the same discount as products acquired for resale. 2. The Remarketer Value-Added Enhancement need not be installed with the internal machines. 3. One license of each eligible licensed program authorized for the Remarketer approved mid-range processor category may be acquired. 4. Products must be retained for 24 months. 5. The IBM stated maximums of eligible I/O per system Type/Model may be acquired. 6. Internal use Products are only to be used in the industry Remarketer business. 7. Remarketer may only acquire, for internal use, Products that are listed in the IR Exhibit. 8. Products acquired for internal use do not count in determining any contract period attainment. ADDITIONAL DISCOUNT INCENTIVES - ------------------------------ Certain products included in this Exhibit may be eligible for additional discount incentives as defined by IBM. These additional discount incentives are in addition to the remarketing discount specified in this Exhibit. However, they may not, when combined, exceed any maximum discounts specified in this Exhibit. may change or withdraw additional discount incentive programs at any time. INSTALLATION REQUIREMENTS - ------------------------- Products included in this Exhibit are identified as Installation by IBM (IBI) or Customer Set Up (CSU) in the "INST" column of the Eligible Product Categories. End User Installation Reporting END USER INSTALLATION INFORMATION MUST BE REPORTED TO IBM FOR ALL PRODUCTS INCLUDED IN THIS EXHIBIT AS DESCRIBED IN SECTION 3 OF THE INDUSTRY REMARKETER ATTACHMENT TO THE IBM BUSINESS PARTNER AGREEMENT. Managing Industry Remarketer Product Availability All Products included in the RISC System/6000 and AS/400 sections of this Exhibit, as well as associated Products included in the Complementary Products section, are available to Managing Industry Remarketers at the discounts indicated in this Exhibit, unless otherwise noted. Products that are available at the discounts specified in MIR Schedule "A" rather than the discounts in this Exhibit are identified by an "A" in the MIR columns of this Exhibit. Legend MIR Where indicated with an "A" in this column, the Product is available at the discount specified in the MIR Schedule A. LIC Products indicated with a "Y" in the LIC column require a License for Internal Code PRC Price Reduction Credit Category IAC Inventory Adjustment Category INST Installation Requirement IBI Installation by IBM CSU Customer Set Up VAE Value-Added Enhancement CERT Certification Required NA Products indicated with a "Y" in the NA column are eligible for export between the United States and Canada under the terms and conditions announced by IBM.
Remarketer Project Discount Guidelines Industry Remarketers, System-Integrator Remarketers and Managing Industry Remarketers may be eligible for the IBM Project Discount in addition to their base discount identified in their Profile and this exhibit. The Project Discount is applicable to all products included in this exhibit. In addition, Industry Remarketers, System-Integrator Remarketers, and Managing Industry Remarketers approved to sell IBM networking products may be eligible for a Networking Products Project Discount in addition to their base discount. 1. IBM Project Discount A Project is defined as an engagement by an IBM remarketer with a single End User Customer which results in IBM revenue from that remarketer of at least One Million Dollars for that specific End User engagement spanning a period of up to two years. The Project Discount may be 1%, 3%, or 5% based on the total amount of IBM revenue (based on net billed amount) realized for products ordered directly from IBM for one "project." However, for any given Product, the sum of the remarketer's base discount and the project discount may not exceed 38%. Eligible products will be price protected for the term of the project, not to exceed two years from the start date of the project, at the IBM net price available to the remarketer at the date the first order is received by IBM for the first order for the project. . Project Discount Schedule --1% when IBM project revenues are equal to or greater than $1.0M, but less than $2.5M. --3% when IBM project revenues are equal to or greater than $2.5M, but less than $5.0M. --5% when IBM project revenues are equal to or greater than $5.0M. All Current Discount Maximums indicated in this exhibit continue to apply. The project discount is applicable for qualifying engagements for end user installations in OTHER than Federal Government Accounts. Please refer to IBM announcement letter 595-035 dated May 9, 1995, for additional details. 2. IBM Industry Remarketers, Systems-Integrator Remarketers, and Managing Industry Remarketers, approved to sell IBM networking products may be eligible for the IBM Project Discount for Networking Products in addition to their base discount. A Project is defined as an engagement by one of IBM's remarketers with a single end user to develop, re-engineer, or migrate a well-defined business solution which results in IBM networking product revenue from that remarketer of $500K or more over a period of up to two years. The Project Discount for Networking Products may be 3%, 5%, or 7%, based on the total amount of IBM revenue for networking products ordered directly from IBM for one project. For any given product, the sum of the remarketer's base discount and the earned Project Discount for Networking Products may not exceed 45%. Networking Products Project Discount Schedule . 3% when IBM project revenues are equal to or greater than $500K, but less than 1.0M or . 5% when IBM project revenues are equal to or greater than $1.0M, but less than $2.0M, or . 7% when IBM project revenues are equal to or greater than $2.0M Only IBM networking products ordered directly from IBM, which are remarketed for a project, count toward the Total IBM Networking Project Revenue. Products ordered through IBM Direct or IBM PC Direct on behalf of the end user, and products ordered from other remarketers, are excluded. THe project discount applies only to networking products included in the Industry Remarketer Exhibit Categories D, D1, and G2 (excluding the IBM 3174). The remarketer may aggregate IBM networking product revenue for adapter cards and 82xx LAN hubs not included in the Industry Remarketer Exhibit towards the revenue levels. However, these aggregation products are not eligible for the additional project discount. The Networking Products Project Discount is applicable for qualifying engagements for end user installations OTHER than Federal Government Accounts. All Current Discount Maximums indicated in this exhibit continue to apply. Net prices for the specific project will be maintained from the time IBM receives the first order through the term of the project, not to exceed two years, unless the additional project discount is changed at the half-way review. IBM Single-Unit Purchase Price reductions that occur during the project period will be available to the remarketer. Remarketers submitting a project discount request for IBM products can also utilize the IBM Networking Products Project Discount if the IBM networking revenue content exceeds the revenue levels described in this announcement. IBM Networking project revenue will aggregate towards the achievement of the total IBM product project revenue levels as described in Remarketer Announcement 595- 035, dated May 9, 1995. If the project revenue IBM receives from the remarketer meets the IBM networking project revenue levels, the remarketer should submit two Project Discount Forms. Please refer to IBM announcement letter, 595-097, dated October 10, 1995, for additional details. IBM Printing Systems Company Printers - ------------------------------------- IBM Printing Systems Company Printers are automatically available to Industry Remarketers for marketing under the terms, conditions and discounts specified in the IBM Printing Systems Company Remarketer (PCR) Exhibit (Z125-5066). Please refer to the PCR Exhibit for specific details. The printers from the IBM Printing Systems Company may be marketed to end users without the standard Value-Added Enhancement requirement. Eligible Product Table: Categories by Processor Type
SYSTEM SYSTEM TYPES UNITS ELIGIBLE PRODUCT CATEGORIES NETWORK PRODUCT RISC SYSTEM IBM POS GRAPHICS INTEGRATION STORAGE CATEGORIES 6000* AS/400 PRODUCTS SYSTEM/390 PS/2 PRODUCTS PRODUCTS PRODUCTS Primary A B C E D C1 E1 Complementary Products: Displays G1 G1 G2 G2 G2 G2 H2 S1 S5 H1 S1 H1 S1*** S1 S4 Storage Products H3 S2 H2 S2 H2 S2 S2 S5 S3 S4 S3 S4 Graphics Products 11 11 11 Finance Ind. J1* J1* J1* J1* Products K1 K1 K1 K1 Miscellaneous K2 K2 K2 K2 K5 K5 K5 Printers K4 K4 K4 K4 K4 IBM Licensed A B C E2 F N/A D1 SS Program D1 B1 C2 F Q M Categories: F F O N M N Y O O O SS P P SS X X Y
Miscellaneous IBM Licensed Program Categories: ?? Value-Added Enhancement Qualifying Licensed Programs -A1 * Selected IBM Products may required unique approvals *** 9348 only
IBM RISC SYSTEM/6000 Products included in this section are available to IBM Authorized Industry Remarketers approved for the IBM RISC System/6000. Category A Products are eligible for the discounts identified in the RISC System/6000 Discount Schedule below. Individual remarketer's specific discounts are identified in their Industry Remarketer Profile. RISC System/6000 Industry Remarketers may so acquire Products from the Complementary Products section of this Exhibit in Categories D1, F, G1, G2, H2, H3, I1, J1, J2, K1, K , K4, K5, M, O, P, S1, S2, S3, S4, S5, SS, X, and Y. Products acquired from this section, as well as Products acquired from the Complementary Products section, aggregate toward the RISC System/6000 Annual System Revenue Performance unless otherwise noted. Hardware Development Annual System Revenue Performance Remarketing Discount Discount Entry (less than $500K) 25% 50% $500,000 - 999,999 30% 50% $1,000,000 - 1,499,999 31% 50% $1,500,000 - 2,499,999 32% 50% $2,500,000 - 4,999,999 34% 50% $5,000,000 - 9,999,999 35% 50% $10,000,000 - 14,999,999 36% 50% $15,000,000 and over 37% 50%
Category A Machines(/1/) MES orders for machines included in this Category are available at a 35% discount.
MACHINE TYPE DESCRIPTION NA MIR LIC IAC INST NOTES * 7013 models J01 and 6094(8) Spaceball 3-D Input Device (Model 030) Y A N 6 CSU J30 are CSU. MES features and model 7006 RISC System/6000 Graphic Workstation Y A Y 10 CSU conversions remain IBI. **The 0562 and 0463 are NOT eligible for Price 7009 RISC System/6000 Compact Server Y A Y 10 CSU Reduction Protection and are not eligible for return to 7011 POWERstation/POWERsvr Y A Y 10 CSU IBM. The 7231 is not eligible for 7012 POWERstation/POWERsvr Y A Y 10 CSU return to IBM. 7013* POWERstation/POWERsvr Y A Y 10 IBI (1) You are authorized to initially install 7015(11) POWER/SERVER Y A Y 6 IBI your programs and related IBM Licensed Programs, at your 7016 POWERstation N A Y 6 IBI authorized location, on RISC System/6000 processors 7024 RISC System/6000 Server Y A Y 10 CSU subject to the provisions of Section 17 on the IBM Business 7025 RISC System/6000 Server Y A Y 10 CSU Partner Agreement, Remarketer 7030 RISC System/6000 Graphic Workstation Y A Y 10 CSU General Terms. 7237** RISC System/6000 Graphic Accelerator Y A N -- IBI (8) These Products are available for marketing 7247 ThinkPad Power Series 820 N A N 10 CSU without the standard value-added 7248(8) RISC System/6000 43P PowerPC Workstation Y A N 10 CSU enhancement requirement. 7249 ThinkPad Power Series 850 N A N 10 CSU (9) Individual authorization is 7250 Power GXT1000 Graphic Accelerator Y A Y 6 IBI required for IBM RISC System/6000 remarketers to be 7318 Serial Communications Network Server Y A Y 6 CSU eligible to market the IBM PowerParallel System Type 9076. This 7319 Fiber Channel Switch/Adapter Y A Y 6 IBI Product is not eligible for the 7596(10) IBM Cross-Platform Server N -- Y c IBI Project Discount. 0463(6)** Software Customization/Factory N -- N -- CSU (10)The 7596 is available at a single Installation Option Remarketing Discount of 20% for both new machines and field 0562(6)** Prestoserve N A N -- CSU installed features and model 9076(9) IBM PowerParallel System 2 (SP2) Y A Y 6 IBI conversions. Scalable Parallel Processor (11)The 7015 Model ROO System Rack is available in Category S5.
Note: Software Customization for (6) 0463-001 AIX/6000 Prestoserve Factory 0463-002 Installation Option CCS Software Package 0463-SW1 Solutions 0562-004 Prestoserve for AIX/6000
IBM RISC System/6000 (Continued) Category A (Continued) IBM Licensed Programs
PROGRAM NUMBER PROGRAM DESCRIPTION NA MIR NOTES AIXwindows 5601-257(4) Environment/6000 Y A * Maximum Remarketing Discounts: AIX Personal Computer 5601-263* Simulator/6000 Y A 5601-263 Processor Categories D5 & E5 = 30% 5601-457(7) AIX XStation Manager Y A 5765-083 = 20% AIX Optimization 5621-013 Subroutine Library/6000 N A 5621-027 = 10% 5621-027* Resource License Manager N A Permission to copy is NOT granted for the following Licensed Programs: DB2 Client Application 5622-129 Enabler/2 N A 5696-623 IBM NetView FTP Client 5622-242 for AIX Y -- 5696-624 IBM Intelligent Miner 5648-127 for AIX N A 5696-735 IBM Software Upgrade Protection Plan for AIX 5692-ADV and UNIX Y A 5696-925 IBM Realtime Interface 5696-038 Co-Processor AIX N A 5765-083 5696-523(7) SDE Integrator/6000 N A 5765-421 5696-524(7) SDE WorkBench/6000 Y A 5765-423 5696-551(7) FORTRAN POWERbench Y A 5765-448 AIX Performance 5696-623(7) Toolbox/6000 Y A 5765-496 AIX Performance 5696-624(7) Aide/6000 Y A 5756-526 AIX HIPPI Driver 5696-658(7) Group/6000 Y A 5765-598 AIX File Storage 5696-708(7) Facility/6000 Y A 5765-599 AIX Ultimedia 5696-709 Services/6000 Y A 5765-628 5696-733(7) C+ + POWERbench V2 N A 5765-651 AIX Distributed 5696-735 SMIT/6000 Y A 5799-QQP 5696-761(7) COBOL POWERbench/6000 Y A 5696-868 IBM AIX X.25 V1.1 Y A + These IBM RISC System/6000 AIX Programs are IBM InfoCrafter for AIX 5696-893(7) V2 Y -- subject to unique terms and conditions. Please IBM InfoExplorer 5696-898 Licensed Extension V1 Y -- refer to the Industry Remarketer Attachment 5696-899(7) IBM Performance Aide V2 Y A (Z125-4805), Section 8, for details. IBM Performance Toolbox 5696-900(7) V2 Y A IBM Distributed SMIT for 5696-902(7) AIX V2.1 Y A (3) Aggregation toward Annual System Revenue IBM AIX Windows Display 5696-904 PostScript V1.1 Y A Performance does not apply. IBM Multimedia Services 5696-906(7) V2.1 for AIX Y A PEX and PHIGS V4.1 for 5696-907(7) AIX Y A (4) When ordered for installation on an IBM 9076, IBM Hypertext Information Base 5696-919 Libraries V1 Y -- this Product receives the same discount as the 5696-923(7) AIX HACMP/6000 Y A IBM 9076 processor. 5696-925 MultiView Mascot N A 5696-926 IBM AIXlink/X.25 V1.1 Y A (7) When Version to Version upgrades to a licensed 5696-933(7) HACMP for AIX V4 Y A program are available, they are eligible for the OpenGL and GL 3.2, V4.1 5696-939(7) for AIX Y A same discount as an initial license order for the IBM SNA Application 5696-943 Access for AIX Y A upgraded-to program. IBM SNA Client Access 5696-944 for AIX Y A 5697-021(7) IBM Netware for AIX Y A 5697-024(3) IBM Lan Server for AIX Y A IBM Wireless Network 5697-204 Access Server N A Multimedia Server for 5697-213 AIX Y -- AIXwindows Interface 5756-027(7) Composer/6000 N A 5756-030+(4) AIX For RISC System/6000 Y A 5765-001(7) IBM AIX Direct Talk/6000 Y A Numerical Control Post Processor Generator 5765-003 Library/6000 N -- AIX X-Windows 3270 5765-001(7) Emulator/6000 Y A 5765-012 AIX APL 2/6000 Y A AIX XL Fortran Runtime 5765-019(7) Environment/6000 Y A IBM AIX Consumer Transaction 5765-022 Definition/6000 N A 5765-042(7) IBM AIX ESSL/6000 Y A IGES Processor for AIX 5765-083* and UNIX N A 5765-091(7) AIX Host Link/6000 N A AIX Communications 5765-092(7) System/6000 N A 5765-093(7) AIX Tools/6000 N A AIX Communications 5765-094 Protocol Programs/6000 N A AIX Data Collection 5765-096 Device Support/6000 N A AIX Entry Communications 5765-097(7) System/6000 N A 5765-145(4) IBM Loadleveler Y A
For Processor Group Information refer to Exhibit IBM RISC System/6000 Machines (Z125-8309). Category A (Continued) IBM Licensed Programs Program Number Program Description NA MIR Notes AIX XL Fortran * Maximum Remarketing Discount: 5765-176(7) Compiler/6000 Y A 5765-526=30% ** Standard Remarketing Discount: 5765-186 C Set + + for AIX/6000 Y A 5765-496=30% (3) Aggregation toward Annual AIX 5086 Connectivity System Revenue Performance does 5765-195 Enabler/6000 V1 N A not apply. (4) When ordered for installation on an IBM 9076, this Product receives the same discount as IBM 5765-198 IBM AIX Query/6000 N A 9076 processor. (5) Single Remarketer Discount 5765-207(7) IBM CMVC for AIX Systems Y A for 5799-QQP=20%. 5765-217 DB2 Client Application N A (7) When version to Version Enabler/DOS upgrades to a licensed program are available, they are eligible for the same discount as an initial license order for the upgraded-to program. 5765-218 DB2 Client Application N A Enabler/6000 AIX XL Pascal 5765-245 Compiler/6000 Y A 5765-247 IBM AIX SNA Server/6000 V2 N A AIX 5080 Emulation Y A 5765-249 Program/6000 5765-261 IBM AIX SNA Gateway/6000 V2 N A 5765-266(7) IBM AIX CallPath Y A Server/6000 IBM AIX Async Terminal Server-Accelerator/6000 5765-268 for Ethernet Y A 5765-273 IBM Printing Systems Manager for AIX N A AIX Parallel System Y -- 5765-296 Support Program V1 5765-315(7) Wabi for AIX V2 Y A 5765-326 IBM Visualizer Query for N A AIX/6000 DB2 Parallel Edition for 5765-328 AIX/6000 Y -- 5765-382 IBM AIX NetBIOS and IPX and SPX Support/6000 Y A IBM Parallel OSL for Y A 5765-392 9076/SP2 and SP1 Systems 5765-393(7) IBM AIX Version 4.1 Y A 5765-398(7) IBM 3270 Host Connection N A for AIX 5765-400(7) IBM UIM/X for AIX Y A 5765-418 IBM Data Encryption Y Standard Library Routines A 5765-419 Desktop SNA for AIX Y A 5765-421(7) IBM C Set + + for AIX Y A 5765-422(3,7) IBM Parallel ESSL for Y A AIX V4 5765-423 IBM C for AIX Y A 5765-435 IBM NetView FTP Server for AIX Y -- IBM Recoverable Virtual Y A 5765-444 Shared Disk for AIX 5765-448 C Set + + for Solaris Operating System N A 5765-449 IBM MERVA for AIX N -- IBM Automatically Programmed Tool for AIX 5765-496**(7) (APt/WS) N A 5765-505(7) Print Services Facility for AIX V2 N A 5765-509(7) Soft5080 for AIX V3 Y A 5765-526*(7) IBM XL FORTRAN Runtime Environment for AIX Y A 5765-528(7) Soft 5080 for AIX V4 Y A AIX Parallel System 5765-529 Support Program V2 Y -- 5765-541 IBM Printing Systems Manager GUI for AIX N A 5765-542 IBM Soft 5080 for AIX V2 N A 5765-543(3,7) Parallel Environemnt for AIX V2 Y A 5765-544(3,7) IBM PVME for AIX V2 Y A 5765-550(7) IBM NetBIOS and IPX/SPX Y A 5765-551 AIX HIPPI/6000 Y A 5765-552 Starworks for AIX V2 N A 5765-560(7) 5086 Connectivity Enabler for AIX V2 Y A 5765-582 SNA Server for AIX V3.1 Y A IGES Doctor for AIX and 5765-588 UNIX N A 5765-598(3) IBM NWAYS Campus Manager-ATM for HP-UX V1 N A IBM NWAYs Campus Manager N A 5765-599(3) Suite for HP-UX V1 5765-603 ESCON Channel Connectivity Y A 5765-604 Block Multiplexer Y A Channel Netscape Commerce Server 5765-624 V1 N A 5765-628(3) IBM NWAYS Campus Manager-LAN for HP-UX V1 N A IBM Internet Connection N A 5765-638 Server for AIX 5765-645 IBM Parallel ESSL for AIX V3 N A 5765-651 Windows NT Y A IBM Communications 5765-652 Server for AIX V4 N A 5765-653(7) Solaris V2 Desktop Operating System Y A IBM Performance Toolbox N A 5765-654 for AIX V2 5765-655 AIX V4 N A 5765-659 Open GL and GL 3.2 for N A AIX 5765-660 PEX and PHIGS for AIX N A 5765-591 IBM Soft 5080 Hostconnect for AIX N A IBM AIX Speech Y A 5777-WCN Client/6000 5777-WCP IBM Speech Client/2 Y A 5777-WCQ IBM AIX Speech Server/2 Y A 7596 Distributed 5799-QQP(5) Resource Broker PS0156 N N
Note: For Processor Group Information refer to Exhibit IBM RISC System/6000 Machines (Z125-8309). IBM RISC SYSTEM/6000 (CONTINUED) Category A1 Value-Added Enhancement Qualifying Licensed Programs The following IBM Licensed Programs are available to RISC System/6000 Industry Remarketers who have been approved for products as their Approved Value-Added Enhancement. These Products are eligible for the discounts specified in this subsection and are aggregated toward the RISC System/6000 Annual System revenue Performance. These products are available to MIRs when their IRA is approved for the Products as their VAE. IBM Licensed Programs Program Remarketing Number Program Description Discount MIR Notes Professional CADAM: If a Program is offered under a Primary License Charge/Annual License Charge, the 5696-041* View 38% -- indicated discount applies only to the Primary 5696-138* Drawing Mark-Up Facility 38% -- License Charge. 5696-706* Variational Design System 38% -- Note: The 100% Development Discount is 5696-885* Graphics Enabler 38% -- applicable to the OTC only. 5696-938* MCX Translator 38% -- * Permission to copy is not granted for this 5697-166(1) Total Info and Plan Sys FM 35% A program. 5697-258* Hybrid Raster 38% -- (1) When Version to Version upgrades to a 5756-091* 3D Surface Design 38% -- licensed program are available, they are 5756-092* Manufacturing System 38% -- eligible for the same discount as an initial 5756-093* Machining Center 38% -- license order for the upgraded-to program. 5756-094* Interactive Design 38% -- 5756-095* Access IUE 38% -- 5756-096* Interactive Solids Design 38% -- 5756-295* CADEX: Intelligent Data Integrator 38% -- 5756-296* MCAE Interfaces 38% -- 5756-297* AEC Schematics 38% -- 5765-020 Numerical Control Post Processor 38% -- Generator/6000 5765-068 CAMkit/6000 38% -- 5765-474* IBM 3D Interaction Accelerator 30% -- CATIA: 5626-CCD* CADAM Drafting 38% -- 5626-IUE* CADAM IUE 38% -- 5626-MU2* CATIA/CADAM 2D Mark and Annotation 38% -- 5626-MCX* CATIA/CADAM MCX Translator 38% -- 5626-RAS* CATIA/CADAM Hybrid Raster 38% -- IBM Architecture & Engineering Series: 5696-054(1) Graphics Application 35% A 5696-055(1) Rendering Application 35% A 5696-057(1) HVAC Application 35% A 5696-060(1) Structural Application 35% A 5696-061(1) Piping Application 35% A 5765-227 Loadleveler to SUNOS SparCstation Systems 38% -- 5765-228 Loadleveler for Silicon Graphics, IRIX 38% -- 5765-287 Loadleveler for HP-UX Systems 38% --
Note: For Processor Group Information refer to Exhibit IBM RISC SYstem/6000 Machines (Z125-8309). IBM AS/400 Products included in this section are available to IBM Authorized Industry Remarketers approved for the IBM AS/400. Category B Products are eligible for the discounts identified in the AS/400 Discount Schedule below. Individual remarketer's specific discounts are identified in their Industry Remarketer Profile. AS/400 Industry Remarketers may also acquire Products from the Complementary Products section of this Exhibit in Categories F, G1, G2, G3, H1, H2, J1, J2, K1, K2, K4, K5, N, O, P, S1, S2, S4, ??? X. Products acquired from this section, as well as those acquired from the Complementary Products section, aggregate toward the Annual Revenue Performance unless otherwise noted.
HARDWARE REMARKETING DISCOUNT DEVELOPMENT DISCOUNT ANNUAL SYSTEM REVENUE PERFORMANCE 9401 9402 9404 9406 I/O & SW ALL PRODUCTS(1) Entry (Less than $1,000,000) 15% 31% 29% 27% 28% 50% $1,000,000 - 2,999,999 15% 33% 31% 29% 30% 50% $3,000,000 and over 15% 35% 33% 31% 32% 50%
CATEGORY B Machines MES orders for Machines included in this Category are available at the Remarketing Discount indicated below and at the same Development Discount as the base machine on which it will be installed, unless otherwise noted. NOTES * The 9402 Model 200,
Model 400, and Model MACHINE 40S are CSU. The 9402 TYPE DESCRIPTION MES MIR LIC IAC INST Models 236 and 436 are available at a 22% 9401 AS/400 Portable One 29% -- Y 6 CSU discount for new ma- 9402* System Unit 29% A Y 6 IBI* chine orders and a 29% 9404 System Unit 29% A Y 6 IBI discount for MES or- 9406(3) System Unit 29% A Y 6 IBI ders. The 9402 Model 5299** Terminal 30% A N 5 CSU 236 is available for Multiconnector Model marketing without the 003 standard Value-Added 9331 Diskette Unit 30% A N 7 IBI Enhancement require- 9337(2) Disk Array Subsystem 30% A Y 7 IBI ment. 9480 AS/400 Wireless LAN 30% A N 6 CSU Access Points 2482 AS/400 Wireless 30% A Y 6 CSU Portable Transaction Computer (PTC) 2483 AS/400 Integrated 30% A Y 6 CSU Laser PTC 2484 AS/400 Industrial PTC 30% A Y 6 CSU 2486 AS/400 Wireless Data 30% A N 7 CSU Collection Portable Transaction Computer
** 5299 Development Sys- tem Products avail- able via Special Bid Note: You are authorized to initially install your programs and related IBM Licensed Programs on the AS/400, at your authorized location, subject to the provisions of Section 17 of the IBM Business Partner Agreement, Remarketer General Terms. (1) Development System Discounts for AS/400 Processors (any models not listed are available at a 50% Development Discount). The Development System Discount for a model conversion will be the same as the discount percent associated with the converted-to-model. Exception approval is required for eligibility to order 9406 Models 320, 53S, and 530 as development systems.
PROCESSOR DISCOUNT % 9401 P03 Remarketers may acquire up to ten 9401 Model P03's for Development System use each contract period. 9406 F60, F70, F80, F90, F95, F97 35% 9406 310, 320, 530, 53S 35%
(2) The 9337 is available at a 40% remarketing discount and 50% development discount. 9337 Models 040 (See Sales Manual) and 140 do not contain LIC. Industry Remarketers authorized for the 9406 may market the 9337 without the standard Value-Added Enhancement requirement. (3) Maximum Remarketing discount for the 9406 Model 53S = 27%. IBM AS/400 (Continued) Licensed Programs Version to Version upgrades to a licensed program are available, they are eligible for the same discount as an initial license order for the upgraded-to program.
PROGRAM NUMBER PROGRAM DESCRIPTION MIR NOTES 5620-WCL** Win400 for Clipper A ** Permission to copy is not granted for these licensed programs. 5620-WIN** Win400 Full Product A 5636-PUB AS/400 CD-ROM Collection Kit A 5716-AF1 Advanced Function Printing Utilities for OS/400 A 5716-BR1 Backup Recovery and Media Services for OS/400 A 5716-CB1 Integrated Language Environment COBOL for OS/400 A 5716-CF1 Point-of-Sale Communications Utility for OS/400 A Application Development ToolSet Client Server 5716-CL1 for OS/400 A 5716-CM1 Communications Utilities for OS/400 A 5716-CP2 CallPath for OS/400 A 5716-CR1 Cryptographic Support for OS/400 A 5716-CX2 Integrated Language Environment C for OS/400 A 5716-CX4 VisualAge C++ for OS/400 A 5716-DB1 System/38 Utilities for OS/400 A 5716-DCT Language Dictionaries for OS/400 A 5716-DFH CICS for OS/400 A DataPropagator Relational Capture and Apply for 5716-DP1 OS/400 A 5716-DS1 Business Graphics Utility for OS/400 A 5716-ES1 System View OMEGAMON Services/400 A 5716-FNT Advanced Function Printing Fonts for OS/400 A 5716-FN1 Advanced Function Printing DBCS Fonts for OS/400 A 5716-FS1 OSI File Services for OS/400 A 5716-JS1 Job Scheduler for OS/400 A 5716-MG1 SystemView Managed System Services for OS/400 A 5716-MQ1 MQSeries for OS/400 A 5716-MS1 OSI Message Services for OS/400 A 5716-MW1 ManageWare for OS/400 A 5716-OS1 OSI Communication Subsystem for OS/400 A 5716-PD1 Application Program Driver for OS/400 A 5716-PT1 Performance Tools for OS/400 A 5716-PW1 Application Development ToolSet for OS/400 A 5716-QU1 Query for OS/400 A 5716-RG1 Integrated Language Environment RPG for OS/400 A 5716-SM1 SystemView System Manager for OS/400 A 5716-SS1 Operating System/400 V3R6 A 5716-STK SOMobjects Developer ToolKit for OS/400 A DB2 Query Manager and SQL Development Kit for 5716-ST1 OS/400 A 5716-SV1 ADSTAR Distributed Storage Manager for OS/400 A 5716-UB1 Ultimedia Business Conferencing for OS/400 A 5716-US1 Client Access Ultimedia Tools for OS/400 A 5716-VG1 VisualGen Host Services for OS/400 A 5716-WP1 OfficeVision for Os/400 A 5716-XA1 Client Access A 5716-XZ1 LAN Server for OS/400 A 5733-CSM** BrioQuery Designer--Macintosh V3 A 5733-CSN** BrioQuery Explorer--Macintosh V3 A 5733-CLP** BrioQuery Navigator--Macintosh V3 A 5733-CSQ** BrioQuery Designer--Windows V3 A 5733-CSV** BrioQuery Explorer--Windows V3 A 5733-CSW** BrioQuery Navigator--Windows V3 A 5733-CS8** DAL Server A 5733-080 IBM Application Dictionary/400 A IBM Distributed Computing Environment Base 5733-167 Services/400 A IBM Report/Data Archive & Retrieval System for 5733-218 OS/400 - IBM Image Plus Workfolder Appl Facility V3 for 5733-228 OS/400 A
NOTE: For Processor Group Information, refer to the Exhibit - IBM AS/400 Machines (Z125-4125). IBM AS/400 (Continued) Category B (Continued) IBM Licensed Programs (Continued)
M PROGRAM I NUMBER PROGRAM DESCRIPTION R NOTES 5763- Advanced Function Printing Utilities/400 A AF1 5763-BA1 AS/400 Basic A 5763-BR1 Backup Recovery and Media Services/400 A 5763-CB1 Integrated Language Environment COBOL/400 A 5763-CD1 CoOperative Development Environment/400 A 5763-CF1 Point-of-Sale Communications Utility/400 A 5763-CL1 Application Development ToolSet Client Server/400 A 5763-CM1 Communications Utilities/400 A 5763-CP2 CallPath/400 A 5763-CR1 Cryptographic Support/400 A 5763-CX2 Integrated Language Environment C/400 A 5763-DB1 AS/400 System/38 Utilities A 5763-DCT Language Dictionaries/400 A 5763-DFH CICS/400 A 5763-DM1 SystemView Information Warehouse DataHub Support/400 A 5763-DP1 DataPropagator Relational Capture and Apply/400 A 5763-DS1 AS/400 Business Graphics Utility A 5763-ES1 SystemView OMEGAMOM Services/400 A 5763-FNT Advanced Function Printing Fonts/400 A 5763-FN1 Advanced Function Printing DBCS Fonts/400 A 5763-FS1 OSI File Services/400 A 5763-MC1 RM/COBOL-85 for the AS/400 A 5763-MG1 System Managed System Services/400 A 5763-MQ1 Message Queue Manager/400 A 5763-MS1 OSI Message Services/400 A 5763-MW1 SystemView ManageWare/400 A 5763-OS1 OSI Communications Subsystem/400 5763-PD1 Application Program Driver/400 A 5763-PL1 AS/400 PL/I A 5763-PS1 AS/400 Pascal A 5763-PT1 Performance Tools/400 A 5763-PW1 Application Development ToolSet/400 A 5763-QU1 Query/400 A 5763-RG1 Integrated Language Environment RPG/400 A 5763-SM1 SystemView System Manager/400 A 5763-SS1 Operating System/400 V3 A 5763-ST1 DB2/400 Query Manager and SQL Development Kit A 5763-SV1 ADSTAR Distributed Storage Manager/400 A 5763-UB1 Ultimedia Business Conferencing/400 A 5763-UM1 Ultimedia Mail/400 A 5763-US1 Client Access/400 Ultimedia Tools A 5763-VG1 VisualGen Host Services for OS/400 A 5763-VR1 AS/400 VRPG Client/2 A 5763-WP1 Office Vision/400 A 5763-XA1 Client Access/400 Family A 5763-XZ1 LAN Server/400 A 5798-JS2 Job Scheduler for OS/400 A 5798-RYF IBM Window Tool/400 A 5798-RYY RadioPac/400 A 5798-RYZ PagerPac/400 A 5798-RZJ JustMail/400 V3 5798-RZK Neural Network Utility/400 A 5798-RZT Facsimile Support/400 A 5798-RZW KnowledgeTool Runtime/400 A 5798-RZX KnowledgeTool Development/400 A 5798-TAA TCP/IP File Server Support/400 A 5798-TAQ JustMail for OS/400 A 5798-TBA Neural Network Utility for OS/400 A 5798-TBC PagerPac for OS/400 A 5798-TBD RadioPac for OS/400 A 5798-TBE UNIX Connection Program for OS/400 A 5798-TBF Distributed Computing Environment Base Services for OS/400 A 5798-TBG Netview FTP for OS/400 A 5798-TAT KnowledgeTool Runtime for OS/400 A 5798-TAW KnowledgeTool Development TookKit for OS/400 A 5798-TAY Facsimile Support for OS/400 A 5798-TAZ TCP/IP File Server Support for OS/400 A
Note: For Processor Group Information, refer to the Exhibit--IBM AS/400 Machines (Z125-4125). IBM AS/400 (Continued) Category B (Continued) IBM Licensed Programs (Continued)
M PROGRAM I NUMBER PROGRAM DESCRIPTION R NOTES 5799-DHP SuperC Compare Utility/400 A 5799-DNP System C/400 PRPQ A 5799-JS3 Job Scheduler for OS/400 PRPQ V2 A 5799-XCR Preinstall Planning Manuals -- 5799-XDH IBM Security ToolKit for OS/400 V2 R3 A 5799-XDJ IBM Security ToolKit for OS/400 V3 R1 A 5799-XDK IBM Security ToolKit for OS/400 V3 R6 A
Note: For Processor Group Information, refer to the Exhibit--IBM AS/400 Machines (Z125-4125). IBM AS/400 (Continued) Category B (Continued) IBM Licensed Programs (Continued)
M PROGRAM I NUMBER PROGRAM DESCRIPTION R NOTES IBM System 36/38 Licensed Programs S/36 Financial Transaction Processing -- 5668-883 System 5710-CAT S/36 Computer Assisted Training 1.2 -- 5714-MG1 S/38 Migration Aid -- 5727-BR1 S/36 Business Report Applic. Devel. System -- 5727-MG1 S/36 Migration Aid -- 5796-PZK S/36 RM/COBOL Compiler & Runtime -- 5798-RPH S/36 Fixed Asset Acctg. and Control System -- 5798-RPT S/36 Strategic Profit Model II -- 5798-RPX S/36 Retrieval/36 -- 5798-RRW S/36 Electronic Spreadsheet -- 5799-BKP S/38 File Support Utilities for PC & XT -- 5799-BTZ S/38 IBM System/38 Transfer Facility -- 5799-CGJ S/36 IPDS Graphics/Text Merge PRPQ -- 5799-CGK S/36 IPDS Advanced Functions PRPQ -- 5799-EYY S/36 Consolidated Software Package -- S/36 Response Time Measurement Facility -- 5799-PAZ PRPQ 5799-WYL S/36 APPC Multiple LU Support PRPQ -- AS/400 Advanced 36 Licensed Programs 5716-ASM Assembler and Macro Processor A 5716-BAS BASIC A 5716-BGU Business Graphics Utility A 5716-CBL COBOL A 5716-DCN DW/36 Language Dictionaries A 5716-DEM 3278 Device Emulation A 5716-DSU Development Support Utilities A 5716-DWT DisplayWrite/36 A 5716-FOR FORTRAN A 5716-PK1 BasePac A 5716-PK2 OfficePac A 5716-QRY Query/36 A 5716-RPG RPG II A 5716-SSP System Support Program A 5716-UTL Utilities A 5716-PCS Personal Computer Support/36 A 5716-PSV Personal Services/36 A 5727-ASM Assembler and Macro Processor A 5727-BAS BASIC A 5727-BGU Business Graphics Utilities (BGU) A 5727-CBL COBOL Compiler and Library A 5727-DCT DisplayWrite/36 Language Dictionary A 5727-DEM 3278 Device Emulation A 5727-DSU Development Support Utility (DSU) A 5727-DWT DisplayWrite/36 A 5727-FOR FORTRAN IV A 5727-LAN LAN Communications A 5727-PCS PC Support/36 A BasePac/36 (includes SSP, UTL, RPG, QRY, A 5727-PK1 and PCS)
Note: For Processor Group Information, refer to the Exhibit--IBM AS/400 Machines (Z125-4125). IBM AS/400 (Continued) Category B (Continued) IBM Licensed Programs (Continued) Program Number Program Description MIR Notes AS/400 Advanced 36 Licensed Programs (Continued) 5727-PK2 OfficePac/36 (includes DWT, DCT, and PSV) A 5727-PSV Personal Services/36 A 5727-QRY Query/36 A 5727-RPG RPG II A 5727-SSP System Support Program (SSP) A 5727-UTL Utilities A 5799-FQQ Response Time Measurement Facility A 5799-FQR Distributed System Node Executive (DSNX/ND) A 5799-FQP IPDS Advanced Function Printing A 5799-QFP Response Time Measurement Facility PRPQ A 5799-QFQ DSNX-ND (Distributed System Node Executive) PRPQ A 5799-QFR X.25 Synchronous Autodial PRPQ A 5799-QHK IPDS Advanced Function Printing PRPQ A Client Series Software 5733-CSB SNA*ps 5250 GC A 5733-CSC SNA*ps Gateway A 5733-CS5 SNA*ps Emulator A 5733-CS7 DAL Server A 5733-CS9 DAL Client A
IBM AS/400 (Continued) Category B1 The following IBM Licensed Programs are available to AS/400 Industry Remarketers at the discounts specified below. These programs are aggregated toward the AS/400 Annual System Revenue Performance. IBM Licensed Programs
M PROGRAM REMARKETING I NUMBER PROGRAM DESCRIPTION DISCOUNT R NOTES 5620- Real Vision Imaging Software 25% A * Permission to copy is ABL*** not granted for these programs. 5621-047 IWPM/2 25% -- ** This product is a no- 5621-211 IWPM/DOS for Windows 25% -- charge PRPQ and is 5622-055 IBM Current--OfficeVision/400 35% -- NOT available for a 5696-006 Workgroup 25% A discount. Permission 5696-024 AS/400 Intro to Data Communications 25% A to copy is not AS/400 System Using the System/36 granted for this Environment program. 5696-025 AS/400 System for the Experienced A *** One development copy System/38 Implementer 25% of 5620-ABL is 5696-026 AS/400 Control Language Programming 25% A available directly 5696-027 Workshop 25% A from Real Vision, 5696-029 AS/400 Interactive Program Design 25% A Inc. The 100% 5696-030 RPG/400 Interactive Programming 25% A development discount 5696-034 Workshop 25% A through IBM does not 5696-431 AS/400 Relational Data Base Design and -- apply. Permission to Coding 25% copy is not granted COBOL 400 Interactive Programming for this program. Workshop IBM Personalized Learning Series-- OfficeVision/400 Implementation 5733-056 Manage/400 Course for AS/400 25% A 5733-072 IDM Medical RecordPlus/400 V2 35% A 5733-129 Discover Education OfficeVision/400 25% -- Support 5733-130 Discover Education OfficeVision/400 Support Additional Topics 25% -- 5733-131 Discover Education AS/400 25% -- Implementation Series 5733-132 Discover Education OfficeVision/400 25% -- Support Series 5733-133 Discover Education AS/400 Education 25% -- Library 5733-141 IBM Discover Education RPG/400 25% -- Programming 5733-143 Getting Started with PC Support/400 25% -- 5733-144 IBM Discover Education PC Support/400 25% -- 5733-174 Discover Education Using Query/400 25% -- 5733-175 Discover Education AS/400 Basic CL 25% -- Programming 5733-176 Discover Education AS/400 Basic 25% -- Education Series 5733-177 Discover Education AS/400 -- -- Implementation Series 5733-178 Discover Education OfficeVision/400 25% -- Support Series 5733-179 Discover Education AS/400 Education 25% -- Library 5733-180 Discover Education AS/400 Facilities 25% -- Implementation 5733-181 Discover Education AS/400 Application Design and Development Tools 25% -- 5733-182 Discover Education OfficeVision/400 25% -- Support 5733-183 Discover Education OfficeVision/400 Support--Additional Topics 25% -- 5733-184 Discover Education Using Query/400 25% -- 5733-185 Discover Education AS/400 Basic CL 25% -- Programming 5733-188 Discover Education AS/400 Implementation for Entry Systems 25% -- 5733-204 Personalized Learning Series Structured Query Language/400 25% -- Programming Workshop 5733-205 Personalized Learning Series OS/400 Structure, Tailoring, and Basic 25% -- Tuning 5733-206 Personalized Learning Series AS/400 System Administration and Control 25% -- 5733-207 Personalized Learning Series AS/400 System Operator Workshop 25% -- 5733-208 Personalized Learning Series AS/400 Advanced System Operator Workshop 25% -- 5733-210 Discover/Education AS/400 Overview 15% -- 5733-219 Discover Education AS/400 Implementation and Operations Series 25% -- 5733-220 Discover Education COBOL/400 and SQL/400 Programming Series 25% -- 5733-221 Discover Education RPG/400 and SQL/400 Programming Series 25% -- 5733-222 Discover Education AS/400 Library 25% -- 5733-CLS* Guidelines V3 30% A 5798-RYX IBM Application Program Driver/400 35% -- V2R2 5799-XBK** Optical Library Data Server -- -- Support/400 5799-XAY** C/400 Library PRPQ -- --
Note: For Processor Group Information, refer to the Exhibit--IBM AS/400 Machines (Z125-4125). IBM Point of Sale Products Products included in this section are available to IBM Authorized Industry Remarketers approved for the IBM Point of Sale Products. Category C Products are eligible for the discounts identified in the Point of Sale Products Discount Schedule below: Individual remarketer's specific discounts are identified in their Industry Remarketer Profile. Industry Remarketers may also acquire Products from the Complementary Products section of this Exhibit in Category K4. Products acquired from this section, as well as Products acquired from the Complementary Products section, aggregate toward the Point of Sale Products Annual System Revenue Performance unless otherwise noted. Enhanced Discount Opportunity for IBM Point of Sale Products An additional 5% discount is available to authorized remarketers for the 4693, 4694, and 4695 Products when the end-user enterprise meets any of the following qualifications: . It is replacing non-IBM cash registers, POS, or PC Cash Drawers. . It is a first-time user of IBM POS. . It is ordering IBM POS after a hiatus of at least 24 months. An additional 10% discount is available on the IBM 4690 Operating System, 4690 applications, and all related PRPQs on the Industry Remarketer Exhibit when the software is being installed with Products eligible for this program. An additional 5% discount is available on IBM FoodService Application/DOS, IBM Retail Application/DOS, and the Retail Data Base Facility when these programs are being installed with qualifying hardware products eligible for this program. This program for additional discount cannot be combined with the project discount, or any other discounts, credits, rebates, or bonuses. When ordering Products eligible for the additional discount, the end user must be identified when the order is placed. Products eligible for a 5% enhanced discount are indicated by (1). Products eligible for a 10% enhanced discount are indicated by (2). Category C For Machines in this Section: . MES orders are available at the same discounts as the Base Machine. . Remarketers may acquire up to a maximum of six of each type they are approved to market for Development System Use. . Warranty Service Category B applies. Refer to the General Information section for details.
ANNUAL SYSTEM REVENUE HARDWARE DEVELOPMENT PERFORMANCE REMARKETING DISCOUNT DISCOUNT Entry (less than $500K) 29% 50% $500,000 - 1,999,999 31% 50% $2,000,000 - 4,999,999 33% 50% $5,000,000 and over 35% 50%
Machines
MACHINE TYPE DESCRIPTION MIR LIC IAC INST NOTES (1) Products eligible for a 5% enhanced 4693(1) Point of Sale Terminal -- N 6 CSU discount. 4694(1) Point of Sale Terminal A N 6 CSU 4695(1) Point of Sale Terminal A N 6 CSU 4678 Complementary Retail & Distribution Products --Model A0X A N 6 CSU Telxon WS-4680/4690 Wireless Store System --Models C0X -- N 6 CSU
IBM (CONTINUED) IBM Licensed Programs Program Number Program Description Notes 5601-152(2) IBM 4680 Store Management Applications Permission to copy is NOT granted for the following Licensed Programs: 5669-031 IBM 4680 General Sales Application V1, R1 5799-DXY 5669-032 IBM 4680 Supermarket Application V1, R2 5799-PHG 5669-212(2) IBM 4680 Chain Drug Sales Application 5799-PLG 5696-192(2) IBM 4680 Basic Version 3 (1) Products eligible for a 5% enhanced discount. 5696-314 IBM Retail Workbench/2 5696-536(2) IBM 4680 Supermarket Application V2 (2) Products eligible for a 10% enhanced discount 5696-538(2) IBM 4690 Operating System V1 5696-546(2) IBM 4680 General Sales Application V2 * These products are not eligible for a discount. 5764-064 TCP/IP 5799-CRC(2) 4680 Specialty Store Application 5799-DAP 4680 Full Menu Restaurant Application 5799-DCB(2) Coupon Processing Enhancements 5799-DWR* IBM 4680 Application Debugger 5799-DXY* IBM 4684 SAA Source Code 5799-PHG* 4680 OS Tape Backup Feature 5799-PLG 4680 Remote Operator LAN Support 5799-PNH(2) 4680 Supermarket Electronic Mktg. Support 5799-QAQ(1) StorePlace RDBF for AIX P85276 5799-QCJ(1) IBM Food Service Application/DOS 5799-QJD StorePlace Distributed Data Services for OS/2 RPQ P85421 5799-QKH(1) StorePlace RDBF for OS/2 P85430 5799-QRL(1) StorePlace RDBF for OS/400 P85482 5799-QRN(2) IBM 4690 Touch Screen Terminal Support for 4690 OS P85492 5799-QRP(2) IBM 4690 Touch Screen Terminal Support for 4690 DOS P85491 5799-QRQ(2) IBM 4690 Enhanced Remote Operator P85489 5799-QRR(2) IBM 4680 Enhanced Remote Operator P85490 5799-QTJ(2) 4680-4690 SA Full Screen P85496 5799-QWA(2) OEM Optical Drive Support P85504
Category C1 Machines For Machines in this section, MES orders are eligible for the same discounts as the base Products. Hardware Machine Remarketing Development Type Description Discount Discount LIC IAC INST Notes 2470 Wireless Data Collection Ethernet LAN 32% 50% N 6 CSU Access Point 2472 Wireless Data Collection Portable 32% 50% N 6 CSU Transaction Computer (PTC) 2473 Wireless Data Collection Integrated PTC 32% 50% N 6 CSU 2476 Wireless Data Collection Integrated PTC 15% 50% N 6 CSU
Category C2 IBM Licensed Programs Program Program Remarketing Number Description Discount Notes 5696-539(1) IBM Retail Application/DOS 50% (1) Products eligible for a 5% enhanced 5699-FPR(2) IBM Advanced Payment System for Chain Drug Sales 35% discount. 5799-FRN(2) IBM Advanced Payment System for Stand Beside Environment 35% 5799-QPD(2) IBM Advanced Payment System for Supermarket 35% (2) Products eligible for a 10% 5799-QNR(2) IBM Advanced Payment System for General Sales 35% enhanced discount.
IBM Network Integration Products Products included in this section are available to IBM Authorized Industry Remarketers approved as IBM Network Integration Remarketers. These Products are eligible for the discounts identified in the Network Integration Discount Schedules below. Network Integration Industry Remarketers may also acquire Products from the Complementary Products section of this Exhibit in categories G2, K1, K2, M, N, O, and SS. Category D Machines MES orders for Machines included in this Category are eligible for the same discounts as the base Products. Notes Machine Remarketing Development Type Description Discount Discount MIR LIC IAC INST 2210 NWAYS Multiprotocol 26% 50% A N 10 CSU Router 2217 NWAYS Multiprotocol 25% 50% -- N 10 CSU Concentrator 2218 NWAYS Frame Relay 25% 50% -- N 5 CSU Access Device (FRAD) 6611 Network Processor --Model 12X 30% 50% A N 10 CSU --Model 14X, 17X 38% 50% A N 10 CSU 8250 Multiprotocol 38% 50% A N 10 CSU Intelligent Hub 8251 Campus LAN Switch 28% 28% -- N 10 CSU RPQ 8Q1615 8260* Multiprotocol 38% 50% A N 10 CSU Intelligent Switching Hub 8281 ATM LAN Bridge 38% 50% A N 10 CSU 8282 TURBOWAYS 38% 50% A N 10 CSU Concentrator 8285** High Speed Inverse 35% 50% A N 10 CSU Multiplexor 9741 NWAYS ATM Workgroup 38% 50% A N 10 CSU Switch
* Model upgrades are IBI. ** The 8285 Model 00P receives a 10% remarketing and development discount. Note: These Products may also be available under unique Project Discount terms and conditions. For additional details, see the Remarketer Project Discount Guidelines located in the General Information section of this Exhibit. Program Program Remarking Number Description Discount NA MIR Notes * Not available for copy/redistribution and may only be ordered pre- loaded on the IBM 6611 5648-016*(1) Multiprotocol Network Program 30% N Y Network Processor. Network Management Family (1)When Version to Version upgrades to a licensed program are available, they are eligible for the same discount as an initial license order for the 5621-107 AIX Net View Service Point 35% Y A upgrade-to-program. 5696-905(1) NetView Entry for AIX V3 35% Y A 5696-728 NetView for Sun Solaris 35% Y A 5696-731(1) NetView for AIX V3 35% Y A 5765-215 NetView DM Agent for HP-UX 35% Y A 5765-233 SNA Manager/6000 35% Y A 5765-234 SysMon for SUN Solaris 35% Y A 5765-235 SysMon for HP-UX 35% Y A 5765-236 SysMon for Unix for NCR 35% Y A 5765-251 LAN Network Manager for AIX 35% Y A 5765-264 LAN NetView Mgmt Utilities/6000 35% Y A 5765-265(1) Trouble Ticket V3 35% Y A 5765-292 Rmonitor For AIX 35% Y A 5765-306 NetView DMA for SunOS 35% Y A 5765-307 NetView DMA for Solaris 35% Y A 5765-308 NetView DMA for Unix System V 35% Y A 5765-343(1) IBM AIX Router & Bridge Manager/6000 35% N A 5765-368 Nways Multiprotocol Routing Network Services 35% Y A 5765-410(1) Systems Monitor for AIX V2 35% Y A
IBM System/390 Products included in this section are available to IBM Authorized Industry Remarketers approved for the IBM System/390. These Products are eligible for the discounts identified in the System/390 Discount Schedules below. System/390 Industry Remarketers may also acquire Products from the Complementary Products section of this Exhibit in Categories F, G2, G3, H1, , J1, J2, K1, K2, K4, K5, O, S2, and Y. Category E Machines (1) MES orders for Machines included in this Category are available at the same discounts as the base machine.
MACHINE REMARKETING DEVELOPMENT TYPE DESCRIPTION DISCOUNT DISCOUNT LIC IAC INST NOTES 9221 Processor: (2)(3) (2) (2) Y 5 IBI 9672 System/390 Parallel Enterprise Servers(2) (2) (2) Y 5 IBI --R1 and R2 Models --Models R53 and R63
Note (1) On your request, we will pre-load programs onto your on-order IBM System/390. (2) The IBM 9221 and 9672 processors, including all model conversions, are available for remarketing and development system installation at a remarketer price rather than a discount off an IBM single unit price. Please contact your IBM marketing representative for pricing information. (3) 9221 features, when ordered as part of the original machine configuration or as MES orders, are eligible for a 55% remarketing and 60% development discount off of the IBM Single Unit List Price for the features. IBM System/390 (Continued) Category E1 Machines MES orders for Machines included in this Category are available at the same discounts as the Base Machine unless otherwise indicated. Remarketing Development Machine Type Description Discount Discount LIC IAC INST Notes 3390 DASD * MES orders for - Models A9X, B9X(1) 60% 60% N 5 IBI these machines are not eligible for a discount. 3990* Storage Controller- Model 006** 76% 76% Y 5 IBI 9032 ESCON Director 30% 50% N 5 IBI 3390-A94 contains LIC 9034 ESCON Converter 30% 50% N 5 IBI 9035 ESCON Converter 30% 50% N 5 IBI 9341* Storage Controller 25% 50% Y 5 IBI ** 3990-006 MES 9343* Storage Controller 25% 50% Y 5 IBI orders are 9345* DASD 25% 50% Y 5 IBI eligible for 25% 9391 RAMAC Array Rack Remarketing and -Model A10 66% 66% Y 5 IBI Development discount. 9392 RAMAC Array Drawer -Model B13 61% 61% Y 5 IBI -Model B23 71% 71% Y 5 IBI 9394(2) RAMAC Array Controller -Models 001, 002, 003 72% 72% Y 5 IBI 9395 RAMAC Drawer Array -Model B13 61% 61% Y 5 IBI -Model B23 66% 66% Y 5 IBI 9674(3) Computing Facility Models C02, C03 - - Y 5 IBI
Note: (1) 3390 Models A9X, B9X receive a 40% discount for both development and remarketing MES orders. (2) Both Remarketing and Development MES orders are eligible for 40% discount. (3) The IBM 9674 is available for remarketing and development system installation at a remarketer price rather than a discounted IBM single unit price. Please contact your IBM marketing representative for pricing information. IBM SYSTEM/390 (CONTINUED) CATEGORY E2 IBM CUSTOMER AGREEMENT LICENSED PROGRAMS DISCOUNT AND FEE PERCENTS FOR GRADUATED CHARGE LICENSED PROGRAMS Processor Group GOTC Discount GMLC Fee MSU PSLC Fee 10-18 40% 40% N/A N/A 20-29 35% 35% N/A N/A 30-38 30% 30-% 3-8 30% 40 25% 25% 9-15 25% 50 20% 20% 16-21 20%
IBM System/390 software which does not have Graduated One-Time Charge (GOTC), Graduated Monthly license Charge (GLMC), or Parallel Sysplex License Charge (PSLC) pricing is available at a 30% discount or fee. The above discount structure applies to GOTC pricing, while the fee structure applies to GMLC and PSLC pricing. The fee for PSLC is determined by the processors' MSU rating, where MSU is Millions of Service Units. The processor group may be determined by referring to the Exhibit for IBM System/370 and System/390 Machines (Z125-3901). The processor MSU rating may be determined by referring to the Exhibit for Parallel Sysplex License Charges (Z125-5206). Both exhibits are available from your IBM representative. In the following list of eligible Licensed Programs, charge type NG indicates programs which do not have graduated pricing and charge type G indicates programs which have graduated pricing.
PROGRAM TYPE NUMBER PROGRAM DESCRIPTION NG 5622-005 SAA ImagePlus Object Distribution Manager/2 G 5622-267 DataPropagator Relational V1 HP-UX Support G 5645-001 OS/390 5648-020 ADSTAR Distributed Storage Manager 5648-031 Workstation Interactive Test Tool V2 NG 5648-038 Software License Monitor NG 5648-039 LAN File Services/ESA G 5648-048 Report Management and Distribution System V2 G 5648-061 Query Management Facility V3 G 5648-063 ACF/NCP V7R3 for MVS and VM NG 5648-077 NTuneMON V1R2 for MVS/XA, MVS/ESA, VM/ESA G 5648-078 VisualGen Host Services V1.1 NG 5648-089 NTuneNCP V1 R1 G 5648-092 Application System Version 4 G 5648-099 Data Interfile Transfer, Testing and Ops Utility G 5648-109 VisualLift for MVS, VSE, and VM G 5648-129 Client Input Output/Sockets NG 5654-007 Automated Network Operations for VM V1 G 5654-009 Advanced Comm Function/System Support V4 G 5654-010 VTAM V4 for VM/ESA and VSE/ESA G 5654-011 NetView Performance Monitor V2 NG 5654-015 TIF VM/ESA G 5654-025 APPC Application Suite - VM NG 5654-026 VM/ESA SDO V2.1 Modification Level 0 G 5654-029 DITTO ESA for VM NG 5654-260 Environmental Record Edit/Print V3 G 5655-HAL TCP/IPV3 R1 for MVS G 5655-OPT DFSMS Optimizer for MVS/ESA G 5655-002 Application Support Facility (ACF) V3 G 5655-018 CICS/ESA V4 G 5655-030 COBOL Productivity Suite MVS/ESA NG 5655-038 IMS/ESA Message Requeuer V2 NG 5655-039 MERVA/ESA V3 MVS/CICS NG 5655-040 MERVA/ESA V3 MVS/IMS G 5655-041 ACF/SSP MVS V4 G 5655-042 ISPF V4 R1 for MVS G 5655-043 NetView Performance Monitor V2 G 5655-044 NETVIEW MultiSystem Manager MVS/ESA G 5655-047 DATABASE 2 PM for MVS V3 NG 5655-056 BTLS 3494/95 Tape Lib Dataserver DFSMS/MVS ?? 5655-057 BTLS 3494/95 Tape Lib Dataserver MVS/DFP V3 ?? 5655-064 OE DCE AS MVS/ESA V1 NG 5655-065 BatchPipes/MVS NG 5655-067 Rediscovery/MVS
PROGRAM TYPE NUMBER PROGRAM DESCRIPTION G 5655-068 MVS/ESA SP JES2 V5 G 5655-069 MVS/ESA SP JES3 V5 NG 5655-071 Library Server for MVS/ESA NG 5655-072 Object Server for MVS/ESA G 5655-076 DataPropagator Relational Capture/MVS G 5655-084 Resource Management Facility V5 NG 5655-085 IMS/ESA HDCX G 5655-086 REXX for CICS/ESA V1 Development System G 5655-087 REXX for CICS/ESA V1 Runtime G 5655-091 APPC Application Suite - MVS G 5655-102 DB2 PM for MVS V4 G 5655-103 DITTO ESA for MVS NG 5655-104 S/390 OpenSystems Adopter Support Facility NG 5655-109 IMS/ESA DEDB Fast Recovery G 5655-131 C/C+ + For MVS/ESA V3 NG 5655-257 Device Support FAC MVS/XA NG 5656-092 VSE/Online Test Executive Program SCP NG 5656-260 VES/Environmental Record Edit/Print V3 G 5658-995 Inspect for C/370 & PL/I G 5660-29 COBOL II Compiter Facility G 5664-191 VMMAP G 5664-280 ACF/VTAM V2 - OS/VS2 (MVS) NG 5664-281 VM/SP PC File Transfer G 5664-289 ACF/SSP V3 for VM/SP, XA G 5664-307 Print Management Facility G 5664-322 Information/Management V3 VM G 5664-323 Information/System V3 VM G 5664-325 DFSORT/CMS G 5664-327 CMS Servers/Requestors G 5664-336 GDOM-REXX G 5665-XA3 MVS/DFP G 5665-264 MVS/BDT V2 NG 5665-279 Basic Telecom Access MTHD/SP G 5665-289 ACF/VTAM for MVS/XA G 5665-290 DISOSS V3 MVS NG 5665-301 VPSS/XA NG 5665-311 3270PC File Transfer Program NG 5665-314 Advanced Communication Function TCAM G 5665-327 DFDSS NG 5665-333 NetView Performance Monitor MVS G 5665-338 ACF/SSA V3 for MVS G 5665-343 MVS CBIPO Drivers
IBM SYSTEM/390 (CONTINUED) Category E2 (Continued) IBM Customer Agreement Licensed Programs (Continued) Program Program Type Number Program Description Type Number Program Description NG 5665-345 SNA Application Monitor G 5684-137 VM Batch Facility V2 NG 5665-348 IMSADF II V2 NG 5684-141 PSF/VM V2 LAN Resource G 5665-356 GDDM/MVS NG 5684-142 Extension/VM G 5665-366 SDF II MVS VI G 5684-143 SearchMaster/370 VM Host Management G 5665-393 INFOREM III Base G 5684-157 Facility/VM G 5665-394 INFOREM III Allocation G 5684-160 CallUp V1 R3 G 5665-396 TSO/E Servers/Requestors G 5684-164 EC Forms VM V2 NG 5665-397 Service Level Reporter V3 G 5684-168 IBM GDDM/VD V3 G 5665-408 IMS/ESA DB Manager V3 G 5665-409 IMS/ESA Trans Manager V3 G 5685-DB2 Database 2 MVS V3 SNA Network Super G 5665-461 Repositor Manager/MVS G 5685-003 Function G 5665-468 System Display & Search Facility NG 5685-005 SNA Interconnection V1 Expert System NG 5665-948 BASIC/MVS NG 5685-006 Environment V3 (MVS) Expert System NG 5685-007 Consultation/MVS G 5666-270 DISOSS/370 for VSE V3 G 5685-010 KnowledgeTool V2 R1 G 5666-280 ACF//VTAM V2 - DOS/VSE G 5685-012 IMS/ESA Database Manager IMS/ESA Transaction G 5666-318 PS/CICS-VSE VI G 5685-013 Manager G 5666-322 ACF/SSP V3 VSE G 5685-014 OSI/CS MVS/XA/ESA G 5666-325 IPDT VSE G 5685-016 NetView DM for MVS G 5666-328 GDDM/VSE G 5685-025 TSO/E V2 G 5666-363 ACF/VTAM V3 for VSE G 5685-029 RMF V4 NG 5685-035 SNA Interconnect V2 G 5668-717 VS PASCAL Library G 5685-036 DataInterchange/MVS R3 NG 5668-719 X 25 NPSI V2 NG 5685-037 3890 XP MVS Support R2 Network Design & G 5668-723 GDDM - IVU VI NG 5685-045 Analysis V2 Open Systems NG 5668-738 ACF/NCP 3745 & 3720 V2 G 5685-046 Interconnection NG 5668-739 MPSX/370 V2 G 5685-051 ICFS/MVS NG 5668-753 Controller Resource Manager V2 G 5685-083 CICS/ESA V3 G 5668-757 Numerical Control Post Processor G 5685-085 ACF/VTAM for MVS/ESA V3 G 5668-767 VS PASCAL Compiler & Library G 5685-088 FASTService for MVS G 5668-801 GDDM Interactive MAP Definition V2 G 5685-093 IMA SYS U/B Tools V2 Graphics Resource G 5668-802 GDDM -- GKS G 5685-098 Monitor Display/Write/370 G 5668-805 VS Fortran V2 Library G 5685-101 MVS/CICS G 5668-806 VS Fortran V2 Comp/Lib/Debug G 5685-105 geoManager G 5668-808 APPL Prototype Environment G 5685-106 OfficeVision/MVS Series G 5668-812 GDDM-PGF V2 G 5685-107 DispalyWrite/370 MVS/TSO 5668-813 CSP/AD V3 G 5685-108 NetView FTP V2 For MVS 5668-814 CSP/AE V3 G 5685-111 NetView V2 MVS/ESA Automated Operations NG 5668-854 ACF/NCP for 3725 V4 G 5685-151 Control/MVS R4 NG 5668-864 Fortran Language Conversion Program CICS VSAM Recovery/VSE G 5668-865 Data Communication Service G 5686-011 (CICSVR/VSE) G 5668-896 Application Prototype Environment G 5686-013 NetView FTP V1 for VSE G 5668-909 OS PL/I V2 Compiler, Library, & ITF NG 5686-018 CICS/Distributed Data Management (CICS/DDM) V1 DisplayWrite/370 Under G 5668-910 OS PL/I V2 Compiler & Library G 5686-022 VS/CICS G 5668-911 OS PL/I V2 Library G 5686-026 CICS/VSE V2 R2 NG 5668-948 Batch Terminal Simulator G 5686-028 VSE/SP Unique Code V5 VSE/Advanced Functions G 5668-949 SMP/E for OS/VS2 (VMS) & OS/VS1 G 5686-032 V5 NG 5668-951 Non-SNA Interconnection G 5686-033 VSE/POWER V5 G 5668-958 VS COBOL II Compiler/Library/Debug V1 G 5686-034 VSE/Fast Copy V2 NG 5668-963 Network Routing Facility G 5686-036 VSE/ICCF V3 G 5668-978 Graphics Access Method/SP G 5686-037 VSE/VSAM V2 G 5668-985 Host Command Facility V2 NG 5686-040 PSF/VSE V2 NG 5668-989 4700 Finance Communication System Host Support G 5686-041 VSE/DSNX V2 R1 G 5668-996 BASIC G 5686-048 CallPath CICS/VSE
Program Program Type Number Program Description Type Number Program Description G 5686-055 NetView for VSE V2 G 5684-001 NetView Performance Monitor/VM G 5686-057 GDDM/VSE V3 G 5684-017 NetView DM R1 G 5686-058 REXX/VSE V1 R1 NG 5684-025 SGML Translator DCF Edition G 5686-064 ACF/SSP for VSE V4 G 5684-026 BookManager Build -- VM G 5686-065 VTAM V4 for VSE/ESA VSE/ESA Central NG 5684-042 ICKDSF/VM G 5686-066 Functions V6 G 5684-043 ISPF V3 for VM G 5686-067 LE for VSE V1 G 5684-048 NetView FTP V1 for VM G 5686-068 COBOL for VSE V1 G 5684-057 Communications System/Vm G 5686-069 PL/I for VSE V1 G 5684-059 Host Link/VM G 5686-072 Alert for VSE G 5684-062 BookManager Read-VM NG 5686-073 ADSM for VSE/ESA V1.2 NG 5684-073 VMPRF G 5686-075 ASF For VSE V3 G 5684-084 OfficeVision/VM G 5686-079 Alert for CICS-VSE G 5684-091 DisplayWrite/370 VM G 5686-094 VSE/ESA V2 G 5684-095 ACF/VTAM V3R4 VM/ESA G 5684-096 RSCS V3 G 5688-008 ESCON Manager V1 Publishing System G 5684-112 VM/ESA NG 5688-015 BookMaster Bar Code/Optical G 5684-113 Display Management System/CMS V2 NG 5688-021 Character Recognition G 5684-123 ISPF/PDF V3/VM G 5688-022 VS COBOL II R4 G 5684-130 VMPAF G 5688-023 VS COBOL II C/L V1 Numerical Control G 5684-134 DFSORT/CMS V2 G 5688-029 Toolkit G 5684-136 SQL Master G 5688-030 NCPG-XL NG 5688-035 NPSI V3 G 5688-047 IGES Processor V2 R3
IBM SYSTEM/390 (CONTINUED) Category E2 (Continued) Customer Agreement Licensed Programs (Continued)
PROGRAM PROGRAM TYPE NUMBER PROGRAM DESCRIPTION TYPE NUMBER PROGRAM DESCRIPTION G 5688-052 DITTO VSE/VM V32 NG 5695-169 NetView AutoBridge/MVS G 5688-087 VS Fortran V2 Comp/Lib G 5695-171 Information/Management V6 G 5688-092 Industry Std Plotting CMDS G 5695-176 IMS/ESA V5 G 5688-093 GDDM/Graphics V2 G 5695-178 SystemView Automated Operations Network/MVS G 5688-103 SQL/DS V3 NG 5688-113 GDDM OS/2 Link G 5696-234 High Level Assembler for MVS, VM & VSE CICS Transaction Affinities Utility MVS/ESA G 5688-121 TPNS V3 R4 NG 5696-582 V1 R1 G 5688-132 CSFI NG 5696-583 NetView Remote Operations for AS/400 G 5688-137 Optimization Sub Library G 5696-703 DataRefresher V1 G 5688-139 Target System Control Facility R2 G 5696-705 DataPropagator V2 G 5688-150 CSP/370 Runtime Services G 5696-737 CSF/MVS & VM V3 NG 5688-153 ImagePlus HPTS Key Entry G 5696-822 SOMobjects for MVS NG 5688-154 HPTS Data Prep Workstation NG 5688-155 ImagePlus HPTS Balancing Application NG 5697-119 Hardware Configuration Manager NG 5688-156 HPTS Work in Progress NG 5688-157 HPTS Statement Application NG 5706-028 4753 MVS Support Program G 5688-168 DP Accounting Manager/MVS V1 G 5706-254 QMF/MVS V3 G 5688-169 GDQF G 5706-255 QMF/VM V3 G 5688-187 C/370 Complier V2 NG 5706-288 HPTS Application Library G 5688-188 C/370 Library V2 G 5688-194 IBM Code/370 NG 5734-F11 Check Processing Control System NG 5688-195 CSP/2RS V1 G 5734-LM5 PL/I Optimizing Transient Library G 5688-197 SAA AD/Cycle COBOL/370 G 5688-198 Language Environment MVS & VM G 5735-FAL TCP/IP V2/VM NG 5688-205 CSP/2AD V1 NG 5735-RC3 ACF/TCAM V2 G 5688-206 CSP/370RS V2 NG 5735-XXB Emulation program G 5688-216 SAA AD/Cycle C/370 NG 5735-XX7 Network Terminal Option/NTO G 5688-218 CSP/370AD V4 G 5688-224 Publishing System BrowseMaster V2 G 5740-RG1 OL/VS RPG II G 5688-226 ESSL S/370 G 5740-SM1 Data Facility Sort (DFSORT) G 5688-228 APL2 NG 5740-XC5 Development Management System/CICS/VS V1 R5 G 5688-229 APL2 Application Environment NG 5740-XXF DB/DC Data Dictionary OS/VS NG 5688-231 ACF/NCP V6 G 5740-XXH Resource Access Control Facility G 5688-235 PL/I for MVS & VM V1 R1 NG 5740-XY5 Programmed Cryptographic Facility 5690-VSE VSE/ESA V2 G 5746-CB1 DOS/VS COBOL Compiler & Library V1 G 5746-RC5 BTAM-ES for DOS/VSE V1 G 5695-DB2 Database 2 V4 G 5746-RG1 DOS/VS RPG II V1 G 5695-DF1 DFSMS/MVS G 5746-SM2 DOS/VS Sort Merge V2 G 5695-007 OPC/ESA V1 G 5746-SM3 DFSORT/VSE V3 G 5695-010 CICSVR MVS/ESA V2 G 5746-XC5 VSE/OCCF V1 G 5695-013 IBM Complier for REXX/370 NG 5746-XE7 VSE/ACLR V1 G 5695-014 IBM Library for REXX/370 NG 5746-XXT SDF/CICS (DOS/VSE) V1 G 5695-015 Office Facsimile Application/MVS G 5746-XX1 DL/1 DOS/VS V1 G 5695-036 NetView Access Services V2 for MVS G 5695-039 RACF V2 R1 for MVS NG 5747-DS1 Stand Alone Device Support Facility NG 5695-040 PSF/MVS G 5695-041 SAA Image Plus FAF VMS/ESA G 5748-AP1 VS APL R4 G 5695-042 SAA Image Plus ODM MVS/ESA G 5748-XE4 VM/Directory Maintenance V1 R5 NG 5695-044 FFST/MVS NG 5748-XXE Document Library Facility R1 G 5695-045 BookManager Build/MVS G 5748-XX9 Document Composition Facility R4 Enhanced G 5695-046 BookManager Read/MVS G 5695-047 JES2 MVS/ESA V4.3 NG 5750-ACD VSE/Enterprise Systems Architecture V1 R4 G 5695-048 JES3 MVS/ESA V4.3 NG G 5695-056 SAA AD/CYCLE Dictionary Services/MVS V1 G 5695-057 Automated Operations Expert/MVS G 5756-051 NetView V2 for VM/ESA NG 5695-061 CICS Application Migration Aid COBOL & CICS/VS Command Level Conversion G 5695-070 Search Manager/370 CICS MVS NG 5785-ABJ Aid NG 5785-BAC JES/328X Print Facility V2
PROGRAM PROGRAM TYPE NUMBER PROGRAM DESCRIPTION TYPE NUMBER PROGRAM DESCRIPTION G 5695-072 Object Index Application 5787- MQSeries for G 5695-076 DataInterchange/MVS CICS G ECX VSE/ESA V1 5787- DISOSS Library G 5695-077 DB2 Automated Utility Generator V2 NG EDJ Service Extended V3 5787- MVS Migration G 5695-080 IBM IA Facility MVS/ESA NG MVS System NG 5695-081 CICSPlex SM/ESA 5796- VM Real Time G 5695-083 CallPath Coordinator G PNA Monitor G 5695-086 DFRMM 5798- Fortran Utilities G 5695-089 CallPath CICS/MVS G DFH For VM/370 5798- G 5695-100 MVS/DITTO V2 G DLL DBEDIT VM/SP-CMS 5798- G 5695-101 EDPM/MVS G DMY VM/FSF Realtime 5798- Monitor/System NG 5695-105 SAA AD/Cycle FastRef/2 NG DWD Facility 5798- COBOL Report Writer G 5695-117 ACF/VTAM V4 MVS/ESA NG DYR R4 5798- COBOL Report Writer NG 5695-123 LANRES/MVS NG DZX Library 5798- NG 5695-129 CustomPac Utility G FAP DBRAD/VM 5798- PROFS Retention 5695-137 MQ Series for MVS/ESA V1.1.3 G FBB Management 5695-166 DataHub Support/MVS 5799- OV Enhanced 5695-167 GDDM REXX/MVS V3 NG FFC Calendar 5799- RODM Tool 5695-168 NQS/MVS V1 NG FFJ Support/MVS V2
IBM Financed Industry Licensed Programs Category F IBM Finance Industry Licensed Programs
Program Remarketing Development Number Program Description Discount Discount Notes 5622-122* MERVA/2 V3 MLC MLC *Permission to copy is not 5622-127* MERVA Premium Support/2 MLC MLC granted for this program. 5622-128* MERVA Branch/2 MLC MLC
IBM Complementary Products IBM Complementary Products are available to IBM Authorized Industry Remarketers as indicated in the Eligible Product Table in the General Information Section of this Exhibit. Revenue for these Products aggregates toward the associated Annual System Revenue Performance unless otherwise indicated. Displays MES orders for Machines in this section are not eligible for a discount unless otherwise indicated. Remarketing Development Category Eligible Products Discount Discount MIR LIC IAC INST Notes G1 7526 Data Collection 33% 50% A N 6 CSU Revenue for these Terminal A N 6 CSU Products does not 7527 Data Collection aggregate toward RISC Terminal System/6000 or AS/400 Annual System Revenue Performance. G2 3172* Display Station 30% 50% -- Y 5 IBI Revenue for these Controller Model 003 Products does not aggregate toward RISC System/6000 Annual System 3174** Display -- Y 5 CSU Revenue Performance. Station Controller --Model 12R, 64R 55% 55% --All other models 60% 60% Exclusion: *MES orders for the 3172 The 3174 Model 95R and 3174 are eligible and 90R for the same discount as which are available the base machine. via the Dealer Exhibit **3174 Models 11R, 21H & 21L are IBI.
Storage Media MES orders for Machines in this section are eligible for the same discount as the Base Machine unless otherwise indicated. Remarketing Development Category Eligible Products Discount Discount NA MIR LIC IAC INST Notes H1 9336-025 Disk Unit 25% 25% N -- N 7 IBI Storage Unit H2 3490* Mag Tape N -- N 5 IBI * These 3490 models are not eligible for an MES discount. -- Models A1X, A2X 40% 50% -- Models B2X, B4X 40% 50% H3 9291 Single 30% 50% Y -- -- 6 IBI VoiceServer 9295 Multiple 30% 30% Y -- -- 6 IBI VoiceServer
IBM COMPLEMENTARY PRODUCTS (CONTINUED) GRAPHICS PRODUCTS MES orders for Machines in this section are eligible for a 10% Remarketing Discount and 50% Development Discount.
MACHINE REMARKETING DEVELOPMENT CATEGORY TYPE ELIGIBLE PRODUCTS DISCOUNT DISCOUNT LIC IAC INST NOTES -------- ------- ------------------ ----------- ----------- --- --- ---- ------------------------ I1 5086 Graphics Processor 35% 50% N 5 CSU A maximum of four 5086 machines for Development System use.
FINANCE INDUSTRY PRODUCTS MES orders for Machines in this section are not eligible for a discount unless otherwise indicated.
MACHINE REMARKETING DEVELOPMENT CATEGORY TYPE ELIGIBLE PRODUCTS DISCOUNT DISCOUNT MIR LIC IAC INST NOTES -------- ------- ------------------------------ ----------- ----------- --- --- --- ---- ----------------------- J1 4707 Monochrome Display 33% 50% -- N 6 CSU * 6527 Color Display is not eligible for return to IBM or for Price Reduction Protection. 4712 Transaction Printer 33% -- N 6 CSU 4722 Document Printer 33% -- N 6 CSU 4770 IJ Transaction Printer 25% -- N 6 CSU 4772 Universal Finance Printer 33% -- N 6 CSU 4777 Magnetic Stripe Devices 33% -- N 6 CSU 4778 Pin Pad Magnetic Stripe Reader 33% -- N 6 CSU 6527* Color Display 25% 50% -- N -- CSU
- -------- Note: Unique approvals may be required to market these products. MISCELLANEOUS PRODUCTS MES orders for Machines in this section are not eligible for a discount unless otherwise indicated.
MACHINE REMARKETING DEVELOPMENT CATEGORY TYPE ELIGIBLE PRODUCTS DISCOUNT DISCOUNT LIC IAC INST NOTES -------- ------- ----------------------------- ----------- ----------- --- --- ---- --------------------- K1 9309 Rack Enclosure Expansion Unit 15% 50% N 5 IBI * 6299 MES orders are eligible for a 40% remarketing discount and a 50% development discount. K2 3299 Multiplexer HUB for 40% 50% N 5 CSU 6299* Midrange Systems 40% 50% N 5 CSU
IBM Printers MES orders for Machines in this Category are not eligible for a discount unless otherwise indicated.
Machine Remarketing Development Category Type Description Discount Discount LIC IAC INST Notes K4 4037 SE Page Printer 12% * N 5 CSU Revenue for these Products does not aggregate toward AS/400 Annual System Revenue Performance. *Development System Products available via Special Bid
IBM Uninterruptible Power Systems MES orders for Machines in this category are not eligible for a discount unless otherwise indicated.
Machine Remarketing Development Category Type Description Discount Discount MIR LIC IAC INST Notes K5 9910* Uninterruptible A N -- -- Revenue for these Products Power Systems does not aggregate toward Annual System Revenue Performance. Models: * This Product is not eligible for Price -- Bxx(1) 21% * Reduction Protection, is not eligible for -- Exx(1) 21% ** contract period price protection, and is -- Uxx(1) 21% ** not eligible for return to IBM. -- B30, B50, B89, U33 15% ** **This Product is not available at a -- EP5, EP8, E80, 15% ** discount for Development System purposes. -- EX3 20% **
Note: (1) Except for models specifically listed at a different discount. IBM COMPLEMENTARY PRODUCTS (CONTINUED) CATEGORY M IBM RISC SYSTEM/6000 LICENSED PROGRAMS
REMARKETING PROGRAM PROGRAM DESCRIPTION DISCOUNT NA MIR NUMBER --------------------------------------------- ----------- --- --- 5601-260 IBM AIX 3270 Host Connection Program/6000 30% Y A 5696-108 IBM AIX Infocrafter/6000 30% Y A 5696-236 Netware for AIX/6000 from IBM 30% Y A 5696-237 Encina Structured File Server for AIX/6000 40% Y A 5696-238 Encina Peer to Peer Executive for AIX/6000 40% Y A 5696-239 Encina Monitor for AIX/6000 40% Y A 5696-240 Encina Server for AIX/6000 40% Y A 5696-347 Encina Peer to Peer Gateway for AIX/6000 40% Y A Encina PPC Gateway with SyncPoint Level 2 5696-930 Support 40% Y -- Encina PPC Executive with SnycPoint Level 2 5696-931 Support 40% Y -- 5697-195* Encina Monitor Suite 40% Y -- 5765-117 AIX DCE Base Services/6000 40% Y A 5765-118 AIX DCE Security Server/6000 40% Y A 5765-119 AIX DCE Cell Directory/6000 40% Y A 5765-120 DCE Global Directory Server/6000 40% Y -- 5765-121 AIX DCE Enhanced Distributed File System/600 40% Y A 5765-148 IBM AIX CICS/6000 40% Y A 5765-152 IBM AIX Client for CICS/6000 40% Y A IBM ProductManager for AIX - Product Change 5765-191 Manager 25% N A IBM ProductManager for AIX - Product 5765-192 Structure Manager 25% N A IBM ProductManager for AIX - Application 5765-193 Services Manager 25% N A 5765-232 CDE Threads/6000 40% Y -- 5765-259 CDE Global Directory Client/6000 40% Y -- IBM ProductManager for AIX Document Control 5765-263 Manager 25% N A 5765-316 Legato NetWorker for RISC System/6000 30% N A IBM ProductManager for Solaris 2.X Operating 5765-337 System Product Change Manager 25% N A IBM ProductManager for Solaris 2.X Operating 5765-338 System Product Structure Manager 25% N A IBM ProductManager for Solaris 2.X Operating 5765-339 System Application Services Manager 25% N A IBM Product Manager for HP-UX Operating 5765-340 System Product Change Manager 25% N A IBM Product Manager for HP-UX Operating 5765-341 System Application Services Manager 25% N A IBM Product Manager for HP-UX Operating 5765-342 System Product Structure Manager 25% N A IBM ProductManager for Solaris 2.X Operating 5765-347 System Document Control Manager 25% N A IBM Product Manager for HP-UX Operating 5765-348 System Document Control Manager 25% N A 5765-381 IBM Job Scheduler for AIX 30% Y -- 5765-427* CICS SM for AIX V1 40% Y -- IBM AIX Product Manager for Oracle7 5765-440 Application Services Manager 25% N A IBM AIX ProductManager for Oracle7 Product 5765-441 Structure Manager 25% N A IBM AIX ProductManager for Oracle7 Product 5765-442 Change Manager 25% N A IBM AIX ProductManager for Oracle7 Document 5765-443 Control Manager 25% N A 5765-456 DCE Manager for AIX 40% Y -- 5765-457 DCE NFS to DFS Auth Gateway for AIX 40% Y -- 5765-458 Encina Monitor for AIX 40% Y -- 5765-527* Systemview for AIX 35% Y A Getting Started with DCE for Application 5765-532 Developers 40% Y A 5765-533* DCE Security Services 40% Y A 5765-534* DCE Cell Directory Services 40% Y A 5765-537* DCE Enhanced Distributed File Systems 40% Y A 5765-538 DCE User Data Masking Encryption Facility 40% Y A 5765-540* DCE NFS to DFS Authenticating Gateway 40% Y A 5765-553* CICS for AIX V2 40% Y -- 5765-554* Encina Client 40% Y -- 5765-555* Encina PPC Executive 40% Y -- 5765-556* Encina SFS 40% Y -- 5765-557* Encina PPC Gateway 40% Y -- 5765-558* Encina Server 40% Y -- 5765-559* Encina Monitor 40% Y -- 5765-605** IBM Product Manager for AIX Operating System 25% N A 5765-606** IBM ProductManager for HP-UX Operating System 25% N A IBM Product Manager for Sun Polaris 2.X 5765-607** Operating System 25% N A 5765-633** IBM CICS for SINIX 40% N A 5799-FBC NSL UniTree AIX/6000 25% N --
Note: * When version-to-version upgrades are available, they are eligible for the same discount as an initial license order for the upgraded-to-program. ** Permission to copy is not granted for these programs. IBM COMPLEMENTARY PRODUCTS (CONTINUED) CATEGORY N IBM AS/400 LICENSED PROGRAMS
PROGRAM PROGRAM REMARKETING NUMBER DESCRIPTION DISCOUNT MIR NOTES - ----------- -------------------------------- ----------- --- --------------------------------- 5696-032* AS/400 Networking 25% A * Group to Group Upgrade Charges for these Programs are NOT eligible for a Discount 5730-082* NetView File Transfer Program V1 25% A ** Permission to copy is not granted for this program. 5733-196*** NetView FTP V3 25% A *** Aggregation toward Annual System Revenue Performance does not apply. 5787-EDA MQSeries for OS/400 28% A 5799-FNH** IBM Calmonth/400 30% -- 5799-FNP Application Blend for OS/400 30% --
CATEGORY O IBM NETWORK INTEGRATION LICENSED PROGRAMS
PROGRAM PROGRAM REMARKETING NUMBER DESCRIPTION DISCOUNT NOTES - ----------- --------------------------------------------- ----------- --------------------------------- 5621-425(1) IBM 3172 Interconnect Controller Program 30% (1) When Version to Version upgrades to a licensed program are available, they are eligible for the same discount as an initial license order for the upgraded-to program 5696-865 IBM 3172 SNA Communications Program 30% 5697-196 IBM 3172 IP Channel Communications Program V1 20% 5697-259 IBM 3172 HPR Channel Connectivity Program 20%
CATEGORY P IBM DATA COLLECTION LICENSED PROGRAMS
PROGRAM PROGRAM REMARKETING NUMBER DESCRIPTION DISCOUNT NOTES - ------------ -------------------------------------------------- ----------- --------------------------------- 5756-144*(1) Data Collection Control/2 40% Revenue for these Programs does not aggregate toward RISC System/6000 or AS/400 Annual System Revenue Performance. 5756-145* Data Collection for Distributed Automation Edition 5756-146* 7527 Extended Terminal Services * Permission to copy is NOT granted for these Programs. 5799-PZH* AIX Data Collector/6000 (Buildtime) (1) When Version to Version upgrades to a licensed program are available, they are eligible for the same discount as an initial license order for the upgraded-to program. 5799-PYX* AIX Data Collector/6000 (Runtime)
IBM COMPLEMENTARY PRODUCTS (CONTINUED) CATEGORY Q Miscellaneous IBM Licensed Programs
PROGRAM REMARKETING NUMBER PROGRAM DESCRIPTION DISCOUNT NOTES 5621-326 ImagePlus VisualInfo Client for OS/2 35% 5622-213 Object Server OS/2 35% 5655-036 Library Server for OS/2 Base 35%
CATEGORY X IBM Licensed Programs available to both RISC System/6000 and AS/400 Remarketers
PROGRAM REMARKETING NUMBER PROGRAM DESCRIPTION DISCOUNT NA MIR NOTES 5621-159 SwitchServer/2 32% N A (1) When Version to Version upgrades to a 5622-275(1) CallPath Server/2 32% N A licensed program are available, they are CallPath Developer's 5622-276(1) ToolKit 32% N A eligible for the same discount as an initial 5798-RZB(1) Connection Program/400 30% Y -- license order for the upgraded-to program.
CATEGORY Y IBM Licensed Programs available to IBM Authorized Industry Remarketers approved for Processor Categories A and E.
PROGRAM REMARKETING NUMBER PROGRAM DESCRIPTION DISCOUNT MIR NOTES 5648-129 IBM Client Input Output/Sockets 30%
IBM STORAGE PRODUCTS These products are available to IBM Authorized Remarketers as indicated in the Eligible Product Table in the General Information Section of this Exhibit. When approved for Category S2 and S3 as a Storage Remarketer in the Industry Remarketer Profile, you are also approved for Products in Categories S1, S5, and SS. When Products included in a Category will attach to multiple system types, only those models which will attach to your approved processor type are available to you. When approved for these Storage Products, you are also approved for associated RISC System/6000 and AS/400 features required to attach these Storage Products to RISC System/6000 or AS/400 processors at the discount associated with those processor features. Revenue for these Products aggregates toward Annual System Revenues Performance (ASRP) unless otherwise indicated. Storage Products are eligible for export between the United States and Canada only when they are exported in conjunction with the installation of a RISC System/6000 system. CATEGORY S1. MES Orders for machines in this section are eligible for the same discount as the base machine unless otherwise indicated.
MACHINE RMKT DEV TYPE DESCRIPTION DISC DISC NA VAE CERT MIR LIC IAC INST 9490 Mag Tape Y N N A N 10 IBI -Models CXX 35% 50% -Models E01, E11 35% 50% High Capacity 7027 Storage Drawer 35% 50% N N N A N 10 IBI 7131 SCSI Multi-Storage Tower 35% 50% Y N N A Y 10 CSU High Density SCSI 7134 Disk Subsystem 35% 50% Y N N A Y 10 IBI 7137(/1/) Disk Array Subsystem 35% 50% Y N N A Y 10 IBI RISC System/6000 7202 Expansion Rack 35% 50% N N N A N 10 IBI 7203 Portable Disk Drive 35% 50% Y N N A N 10 CSU 7204 External Disk Drive 35% 50% Y N N A N 10 CSU 7206 External 4mm Tape Drive 35% 50% Y N N A N 10 CSU 7207 1/4" Catridge Tape Drive 35% 50% Y N N A N 10 CSU 7208(/2/) 8mm Tape Drive 35% 50% Y N N A N 10 CSU 7210 CD-ROM Drive 35% 50% Y N N A N 10 CSU 7231 8mm Tape Library 35% 50% Y N N A N 10 CSU 9332 4mm Tape Library 35% 50% N N N A N 10 CSU 9348 Magnetic Tape Unit 35% 50% N N N A N 10 IBI 9427 8mm Tape Cartridge Library 35% 50% N N N A N 10 IBI
NOTE: (1) 7137 Models 412, 413, and 414 are CSU. (2) 7208 Models 012 and 234 are IBI. CATEGORY S2 MES orders for machines in this section are eligible for the same discount as the base machine unless otherwise indicated.
MACHINE RMKT DEV TYPE DESCRIPTION DISC DISC NA VAE CERT MIR LIC IAC INST 3494 Tape Library Dataserver 30% 50% Y Y N A Y 6 IBI 3590 High Performance Tape Subsystem 30% 50% Y Y N A N 6 IBI
CATEGORY S3 MES orders for machines in this section are eligible for the same discount as the base machine unless otherwise indicated.
MACHINE RMKT DEV TYPE DESCRIPTION DISC DISC NA VAE CERT MIR LIC IAC INST 7133 SSA Disk Subsystem 35% 50% Y N N A Y 10 IBI 7135 RAIDiant Array 35% 50% Y N N A Y 10 IBI
IBM STORAGE PRODUCTS (CONTINUED) Category S4 MES orders for machines in this section are eligible for the same discount as the base machine unless otherwise indicated. Machine Rmkt Dev Type Description Disc Disc NA VAE CERT MIR LIC IAC INST 3995 Optical library 25% 50% Y N N A N 6 IBI
Category MES orders for machines in this section are eligible for the same discount as the base machine unless otherwise indicated. Machine Rmkt Dev Type Description Disc Disc NA VAE CERT MIR LIC IAC INST 7015* System Rack Model ROO 35% 50% Y N N A N 6 CSU
Note: * The 7015 Model ROO is available for marketing without a Value-Added Enhancement when sold as an expansion rack to support additional external IBM storage products on RISC System/6000 processors. Category S5 Storage Remarketers authorized for storage product categories S2, S3, or S4 are eligible to sell licensed programs listed in this section. Remarketers are no longer required to obtain a development license for ADSM for AIX (5765-564). Remarketers are not required to copy and distribute this licensed program to their end users. Program Program Remarketing Number Description Discount NA MIR Notes 5765-564 ADSTAR Distributed Storage Manager for AIX 20% Y A 5765-637 IBM Network Tape Access and Central System 30% Y A (NetTape) for AIX 5765-543 IBM NetTape Tape Library Connection 30% Y A
The service offerings listed below are available to IBM Authorized Industry Remarketers. Where appropriate, the applicable fee or discount is listed with the offering. The additional contract requirements that apply when a Remarketer acquires these savings at a discount for remarketing are contained in the attachments listed in the Signature Page for Services Attachments Remarketers (Z125-4238).
INDUSTRY INDUSTRY REMARKETER SERVICE OFFERING MIR REMARKETER FEE PERCENT(1) ---------------- --- ------------ -------------- Maintenance Maintenance Service A N/A 20% Corporate Service Option (CSO) A N/A 20% Mid-Range System Option (MSRO) A N/A 20% Corporate Service Option for Remarketers (CSOR) -- 30%(2) N/A Entry Systems Service for Remarketers (ESSR) -- 30%(2) N/A Continuing Support Support Family Services AS/400 -- 20% 20% AIX -- 20% 20% Business Recovery Serv- ices (Monthly Charge) -- 30% 15% Business Recovery Serv- ices (One-time Charge) -- 30% 10% Customized Operational; Services ESCON Migration Services -- 20% 20% SiteManager -- 20% 20% Project Support(3) -- 20% 20% Customized Operational Services (4) Customized Operational Services Equipment -- 10% 20% Air Conditioners and Chillers -- 30% 20% Surge Suppressors Uninterruptible Power Supplies (UPS) -- Less than 3KVA -- 21% 20% 3 to 18 KVA -- 15% 20% Greater than 18 KVA -- Upon request 20% Liebert DataPAd** -- 25% 20% Systems Integration -- N/A 6% Application Design & De- velopment -- N/A 6% Other Services (Examples) -- 20% 20% LAN Doctor Services SmoothStart SoftInstall
Notes: (1) The fee percent is applied to the service's one-time or recurring charge that IBM invoices the end user. For a recurring charge, we apply the percent to 12 times the monthly charge. (2) Eligible machines are listed in the Exhibit for Corporate Service Option for Remarketers (Z125-5437) and the Remarketer Exhibit for Entry Systems Service (Z125-4254), as applicable) Table of Quarterly Payments for CSOR and ESSR (based upon the amount of adjusted charges invoiced during the Quarter):
PAYMENT ADJUSTED PERCENT CHARGES INVOICED ------- ------------------ 0% $0-74,999 2% 75,000-149,999 4% 150,00-299,999 8% 300,000 or greater
Notes: (Continued) (2) (Continued) Table of Semiannual Payments for Cluster Credit Under ESSR: Minimum Quantity of Qualifying Machines: 100
QUANTITY OF QUALIFYING CLUSTER CREDIT MACHINES PERCENT ------------- -------------- 100-499 10% 500-999 15% 1,000 or more 20%
(3) Fees are paid on the total contract amount, including non-IBM products, but excluding services which the Remarketer performs as a subcontractor. Services offered by ISSC, EduQuest, and Education and Training are excluded. (4) The fee percent or discount is applied to the Service's charge, excluding moving company charges. **Company, product, or service name may be a trademark or service mark of others. Dealer Exhibit Overview The Dealer Exhibit consists of Terms and Conditions specific to the Products and a listing of those Products, organized into sections by Product type. In order to provide you with the most current Product information, we will update the Product listing electronically. You may access it on PartnerLink through the Library function. The following is an overview of the pricing and product information. Part Number - This is the IBM number used for identifying the Product. Description - This briefly identifies the Product. It may also include other significant information regarding the Product. The channels to which the Products are available are noted in this section. Installation - The installation requirements, if any, for the Product will be reflected in the Installation (INST) column as a Customer Set Up (CSU) or IBM Installation (IBM). Support Categories - This area will include Certified Product Category (CRT PRD), Price Reduction (PRC RED) and Inventory Adjustment Category (INV ADJ) information as applicable for a Product. Warranty - If applicable, the Warranty Type (TYPE) and the Warranty Period (MOS) will be reflected in this area. DEALER EXHIBIT TERMS of IBM Business Partner Agreement - Remarketer You may order Products listed in this Dealer Exhibit for which you are approved and, if applicable, certified by IBM to remarket. TERMS AND CONDITIONS This document is the Dealer Exhibit referenced in the IBM Business Partner Agreement for Remarketers. Prices, Charges and Package Quantity are available on PartnerLink. We will provide you with written notice of price changes. The electronic file will be updated as changes are announced. SCHEDULE PRICE In order to acquire IBM Products directly from IBM, you must: 1. Provide IBM a single consolidated forecast representing all of your Authorized Locations: 2. Accept shipments from IBM only at your Authorized or Designated Locations; 3. Distribute Products to your Authorized Locations approved for such Products; 4. Invoice such locations (as required) and pay on a consolidated basis; and 5. Demonstrate the ability to acquire and market $20 million worth of IBM Personal Computers, Features and Options, Visual Products, and/or Networking Systems Division (NSD) Products in each calendar year; or to acquire and market IBM Features and Options, Visual Products and/or Networking Systems Division (NSD) Products in each calendar year you must demonstrate the ability to acquire $2 million worth of these products. Schedule Price Effective Date If IBM determines that you are qualified, the Price Schedule will apply to Products purchased by you that are shipped immediately following the date you are approved. It is your responsibility to order and accept shipment of IBM Products directly from the IBM Personal Computer Company in the revenue amounts stated above. Your attainment of the revenue amounts stated above will be determined by totaling the actual price paid by you to IBM for purchases of the Products listed above and subtracting the amount of any inventory returns through March 31 of the next calendar year. To ensure attainment compliance, you must forecast adequate unit volumes and order from your forecast confirmation/allocation. IBM reserves the right to modify the revenue amounts and the list of eligible Products. In the event of announcement of additional qualifying Products, such Products that are acquired by you will be counted towards your attainment. Failure to meet Revenue Requirements IBM reserves the right to review your attainment during the year to ensure that your purchases and sales are sufficient to maintain your eligibility to purchase IBM Products directly from IBM. Remarketers whose purchases and sales become insufficient to maintain eligibility will be given 90 days notification that they will no longer qualify to acquire Products directly from IBM. FIXED FUNCTION DISPLAYS All IBM remarketers may continue to purchase Fixed Function Displays directly from IBM under the following current pricing structure. Transaction Price Price based on a single order of package quantity or multiples of package quantity with a single shipment to a single Authorized Location. Packaging Quantity (PQ) The quantity of specific Products that are always shipped as a packaging entity. The PQ is billed at the Transaction Price. Accommodation Price Price based on a single order, with a single shipment to a single location, when the criteria for the Transaction Price is not achieved. IBM PLA PROGRAMS Price Level 1 and Level 2 License Charges Level 1 license charges apply when the prior month's net billing for a single Customer Number is less than $10,000. Net billing is defined as the total value of invoices for eligible PLA programs/publications you acquired from IBM less any credits for returns of such Products and other billing adjustments during the prior month. Level 2 license charges apply to a Customer Number when the prior month's net billing for that Customer Number is $10,000 or more for eligible PLA programs/publications. Billing CANNOT be aggregated across Customer Numbers for purposes of qualification for Level 2 License Charges. SINGLE UNIT PRICE/ONE TIME LICENSE CHARGE Single Unit Price (SUP) and One Time License Charge (OTLC) reflect the prices or license charges for single units of Product acquired from IBM and are subject to change without notice. These prices and license charges are for informational purposes only and shall not limit in any way your ability to set your own prices, charges and terms and conditions for Products. PRICE REDUCTION CREDIT CATEGORIES Full Inventory Reduction Credit - Reporting Required: Category 1 - Machines Category 8 - Options by IBM Full Inventory Reduction Credit - No Reporting Required: Category 2 - Machines Only Category 9 - Options by IBM The Price Reduction Credit will be determined by multiplying your Adjusted Inventory Count of the Product by the Product Credit. The Adjusted Inventory Count is the sum of a) your on-hand inventory of the Product, b) the quantity of the Product in transit from IBM to, but not received by you and c) the quantity of the Product you returned to IBM which has not yet been accepted by IBM, all as of the close of business on the day immediately prior to the effective date of the Price decrease. The Product Credit is an amount IBM will specify on the day IBM announces the Price decrease. In order to qualify for Category 1 and Category 8 Price Reduction Credit, you must: 1. provide a report of your on-hand inventory of the Product in a format and schedule as we specify; 2. provide such report for the Product, a minimum of two calendar months, immediately preceding the effective date of the price decrease; 3. complete and return to IBM, a report certifying your Adjusted Inventory Count for such Products; if applicable. IBM will specify the format and dates of the report. IBM will issue the Price Reduction Credit based on this report; and 4. provide access, during normal business hours, to IBM or an IBM selected third party, to your Authorized and Designated Locations so that IBM can audit records applicable to the Product and perform applicable inventory counts. You may only use the Price Reduction Credit against monies then or thereafter due IBM. Category 2 - Machines Only - Full Inventory Reduction Credit [ M I S S I N G L I N E ] Product accepted by IBM, all as of the close of business on the day prior to the effective date of the Price decrease. IBM reserves the right to adjust the Shipment Count based on its records. The Product Credit is an amount IBM will specify on the day of the Price decrease. Category 3 - Selected PLA Programs Only - PLA Reduction Credit with Look-back The Price Reduction Credit will be determined by multiplying the Shipment Count by the Product Credit. The Shipment Count is the quantity of the PLA program shipped to you by IBM less any returns of the PLA program accepted by IBM, both during the two-month period immediately preceding the effective date of the Price decrease. IBM reserves the right to adjust the Shipment Count based on its records. The PLA Program Credit is an amount IBM will specify on the day of the Price decrease. INVENTORY ADJUSTMENT CATEGORIES General You must accompany each shipment of returned Products and Programs with an "IBM Returns Authorization Form." IBM will not grant authorization to return a Product that is not listed in the Schedule of Returnable Products List on the day IBM receives the request for return. Note: Accessories and publications are not eligible for Price Protection or Inventory Adjustment. These items do not appear in the Dealer Exhibit. For Products for which Reporting is Required, each month you must report to IBM your inventory of Products as of the last calendar day of the preceding month. You must use a form provided by IBM. Category 1 - Machines - Reporting Required Category 2 - Machines Only - No Reporting Required Category 1 and 2 - Returns Limitations You may return a maximum of 5% of the prior calendar quarter's net billings without incurring a handling charge. You may return an additional 5% of the prior calendar quarter's net billings, which are subject to the Handling Charge. The maximum amount of inventory adjustment returns for Category 1 and 2 Products may not exceed 10% of the prior calendar quarter's net billings. Category 3 - Selected PLA Programs - No Reporting Required Category 8 - Options by IBM - Reporting Required Category 9 - Options by IBM - No Reporting Required Category 8 and 9 - Returns Limitations You may return to IBM up to 15% of the prior calendar quarter's net billings of Options by IBM. You have the option of returning up to 5% of the prior calendar quarter's net billings of these Products to IBM on a monthly basis, up to a maximum of 15% per quarter. Returns of Withdrawn Products For all Inventory Categories, you may return withdrawn Products within the date published in the Product Withdrawal letter. Handling Charges - Inventory Adjustment Category 1 (For Machines Only) and Category 2 Handling Charge Percent: 3% Unless specified in your profile, the handling charge %, as noted in this exhibit will apply. Inventory Adjustment Category - 3 Handling Charge Percent: 0% Inventory Adjustment Category - 8 and 9 Handling Charge Percent: 0% DEVELOPMENT SYSTEMS This subsection applies only to Industry Remarketers and can be found on the IR profile. Products included in this exhibit are available for Development System installation only under the terms and conditions of the Industry Remarketer Profile (Z125-4804). Unless otherwise specified in this Exhibit, the maximum number of Development System Products which an Industry Remarketer may obtain as part of his Development System is as follows: System Units maximum of 10 excluding Aptiva Products) Licensed Programs one copy of each Unless otherwise specified, the Industry Remarketer price is the lowest price or charge available. WARRANTY SERVICE CATEGORY Category A - warranty service for Category A is performed by IBM. You are not authorized to perform warranty service on these machines. Category B - you are responsible for performing warranty service for machines on this Exhibit. You may assign warranty service for machines on this Exhibit to IBM or an IBM Premier Personal Computer Servicer. All machines on this Exhibit, unless otherwise noted, are Category B Machines. WARRANTY SERVICE Warranty service which you provide for a Machine must be consistent with the IBM Statement of Limited Warranty, the IBM Service Support Guide in effect at the time of such activity, and the terms and conditions of this Agreement. You agree to and will: 1. provide warranty service under the terms of the applicable IBM Statement of Limited Warranty and its applicable Exhibit, if any; 2. validate all warranty claims presented to you; 3. maintain the capability to provide warranty service according to the requirements and procedures specified in the IBM Service Support Guide; and 4. submit a valid Warranty Reimbursement Request, if applicable, to claim a) reimbursement for labor and/or b) credit for IBM parts or exchange of such parts, used by you in providing authorized warranty service for a Machine, all as specified in the IBM Service Support Guide; 5. fulfill your responsibilities as an IBM Premier Personal Computer Servicer, if applicable. IBM will: 1. provide classroom training or self-eduction materials, at no fee for the Minimum Number of Trained Personnel, as specified in the applicable Addendum for each Authorized Location. If classroom training is provided, it will be held at an IBM designated location 2. provide selected service materials as part of service training; 3. for a fee, make available to you additional: a) service training packages, b) service publications or materials, c) service materials not provided under the provisions of items (1) and (2) of this section; 4. sell you maintenance parts for your use in providing warranty service. The purchase prices of such parts will be as specified in the IBM Service Support Guide in effect at time of shipment of the parts; 5. provide you with applicable warranty service and technical information for Machines as available; and/or 6. for selected Machine, honor your valid claims for a) reimbursement for labor and/or b) IBM parts credits, or exchange of such parts, for parts used by you in providing authorized warranty service, all as specified in the IBM Service Support Guide; 7. if you are an IBM Premier Personal Computer Servicer and register product through the IBM Electronic Data Interchange Program, IBM will pay you a warranty service fee for each product registered, all as specified in the IBM Service Support Guide. WARRANTY SERVICE ASSIGNMENT You may assign the responsibility for warranty service to IBM, another Remarketer/IBM Premier Personal Computer Servicer (Assignee). The Assignee must be authorized by IBM to provide warranty service for the Machine. The Assignee must agree with you to accept the responsibility to provide warranty service for each assigned Machine. You may choose to assign the responsibility for warranty service for all IBM Machines you sell or specific IBM Machines to IBM or an IBM Premier Personal Computer Servicer by specifying that choice in the Addendum of the Profile. Alternatively, you may, at the time of sale to the End User, choose to assign the responsibility for warranty service for an individual Machine to either IBM or an Assignee. You must specify on the sales receipt for each assigned Machine you market, the name and the location of the party responsible for providing warranty service. If you fail to indicate an Assignee name and location on the sales receipt, or indicate an unauthorized name or location, you will be responsible for warranty service for that Machine. If you have specified either IBM or an Assignee on a sales receipt, you must provide IBM or the Assignee, as applicable, with a copy of installed-at location. Your assignment of responsibility for warranty service does not relieve you of your responsibility for End User satisfaction. The responsibility for warranty service reverts to you, if the End User is not satisfied with the warranty service provided by your Assignee or if the Assignee [ ] its authorization to provide such warranty service. You may [ ] reassign such responsibility consistent with the provisions of this subsection. In such event, you are responsible to provide the End User and the new Assignee with written notice of the change. If you assigned warranty service for all units of a machine type to IBM or an IBM Premier Personal Computer in the Profile, you will not be required to maintain the capability of providing warranty service for that machine type. If you, as an Assignee, agree with another IBM Remarketer (Assignor) to be responsible to provide warranty service for an assigned Machine marketed by the Assignor the provisions of this Section applicable to an Assignee apply to you. As an Assignee, you accept such responsibility for each Machine for which your name is specified on the End User's sales receipt. You may not reassign such responsibility. If, at a later date, the Assignor loses its IBM authorization for the Machine, you will have the additional responsibility for End User satisfaction. [ M I S S I N G C O P Y ] the Ordering and Delivery Section of the IBM Business Partner Agreement, Remarketer General Terms. Cancellation Charge Percent: 0% Product ordered by you in PartnerLink and cancelled by you the same day will not be assessed a cancellation charge. Cancellations and deferrals made within fifteen (15) business days (date to date) of the assigned schedule date, will incur the cancellation charge in effect. Requests to improve a ship date are not subject to this charge. LATE PAYMENT FEES Late payment fees for Campus Computer Resellers are waived. EFFECTIVE DATE This Dealer Exhibit is effective May 8, 1995. The Dealer Exhibit is subject to change upon written notice to you by IBM. The Dealer Exhibit will be updated by IBM regularly to reflect announcements of additional products, withdrawals and changes. Changes to the Terms and Conditions section will be released as required. IBM Printing Systems Remarketer Exhibit IBM Business Partner Agreement Exhibit No.: PPR-16 Effective Date: March 13,1996 PAGE IBM Printers from IBM Printing Systems & SUP16. General Information 2 Machines 3 Service Offerings 5 The products included in this exhibit are available to IBM Printer Remarketers who are approved to market such products. Discounts - --------- The discounts specified in this exhibit are applicable to the base type/model as well as field installable features and model ordered as MES orders unless indicated otherwise. Inventory Adjustments - --------------------- The products in this exhibit have a six month look back period. Machines and field installable features may be returned under these Inventory Adjustment provisions. The maximum number of units that you may return to IBM is the units shipped to you by IBM during the previous six calender months. The amount of the credit will be determined by IBM. The amount will be based on the amount you paid for the product, less any amount paid you by IBM for any Price Reduction Credit applicable to the product. Inventory Adjustments are subject to 5% handling charge. Price Reduction Credits - --------------------------- The products in this exhibit and field installable features are eligible for six months Price Protection. To qualify for the Price Reduction Credit, product must have been shipped from IBM during the six-month period immediate preceding the effective date of a price decrease and must not have been sold as of the effective date of price decrease. You must certify in writing and provide IBM with copies of IBM invoices or equivalent documentation, including any credit invoices, for the affected products. IBM will then determine the credit by calculating the difference between the two prices. Installation Requirements/Warranty Service - ---------------------------------------------------- IBM will advise you of the Installation Requirements and Warranty Service provisions applicable to the Products included in this Exhibit. Demonstration Products - ---------------------- You may obtain 12 demonstration machines during a contract period with maximum number of two of any model of product you approved to market. Internal Use of Products - ------------------------ You may acquire these products for your own internal use at the Base Discount. Trial Machines - -------------- Trial period is 30 days. Maximum number of trials at any given term is three. Billing occurs one day following the trial period. Rework fee applies to trial returns. Discount Discount 3912-AS0 40% 50% 3912-AS1 40% 50% 3916-AS0 40% 50% AS1 40% 50% 4028-AS1 50% 50% 4230-101 30% 50% 4230-102 30% 50% 4230-111 30% 50% 4230-1S2 30% 50% 4230-10Y 25% 50% 4230-10Z 25% 50% 4224-1E3 30% 50% 4224-1C2 30% 50% 4234-008 30% 50% 4234-012 30% 50% 4234-OOY 30% 50% 4234-01Z 30% 50% 6252-T08 30% 50% 6252-T12 30% 50% 6252-TOZ 25% 50% 6252-TlZ 25% 50% 6262-T12 15% 50% 6262-T14 15% 50% 6262-T22 15% 50% CATEGORY B (ASCII) - ------------------ Type-Model Base Demonstration Discount Discount 0-03D 35% 50% 3930-03S 35% 50% 4224-301 35% 50% 4224-302 35% 50% 4224-3C2 30% 50% 4224-3E3 35% 50% 4232-302 35% 50% 4234-009 30% 50% 4234-013 30% 50% 4247-A00 40% 50% 4247-ZZZ 40% 50% 6252-AP2 30% 50% 6252-AP8 30% 50% 6252-AS2 30% 50% 6252-AS8 30% 50% 6262-A12 15% 50% 6262-A14 15% 50% 6262-A22 15% 50% 6408-A00 35% 50% 6412-A00 45% 50% Z125-5066-16 03/13/96 Page 3 of 5 Discount Discount 3912-NS0 40% 50% 3912-NSl 40% 50% 3916-NS0 40% 50% -NSl 40% 50% 4028-NS1 50% 50% 4224-2C2 30% 50% 4224-2E3 30% 50% 4230-201 30% 50% 4230-202 30% 50% 4230-211 30% 50% 4230-2S2 30% 50% 4234-007 30% 50% 4234-011 30% 50% 6252-D08 30% 50% 6252-Dl2 30% 50% 6262-014 15% 50% 6262-022 15% 50% 6262-D12 15% 50% 6262-D14 15% 50% 6262-D22 15% 50% CATEGORY D (NON-IBM ATTACH.) --------------------------- Type-Model Base Demonstration Discount Discount 6252-P08 35% 50% 6252-Pl2 35% 50% 2-P12 15% 50% 2-P14 15% 50% 6262-P22 15% 50% CATEGORY E - ---------- Type-Model Base Demonstration Discount Discount 3130-01S 30% 50% 3130-02D 30% 50% 3130-02S 30% 50% 3130-03S 30% 50% 3112-001 30% 50% 3116-001 30% 50% 3116-002 30% 50% 3116-003 30% 50% 3930-02D 30% 50% 3930-02S 30% 50% 4230-4S3 30% 50% 4230-413 30% 50% 4230-5S3 30% 50% 4230-513 30% 50% 6400-004 40% 50% 6400-008 40% 50% 6400-012 40% 50% 8-CT0 30% 50% 08-CTA 30% 50% 6412-CT0 45% 50% 6412-CTA 45% 50% Z125-5066-16 03/13/96 Page 4 of 5 Type-Model Base Demonstration Discount Discount 3935001 25% 50% 3160-001 15% 25% CATEGORY G - ---------- Type-Model Base Demonstration* Discount Discount 5763-FNT 15% 100% 5763-SS1 30% 100% 5763-AF1 30% 100% 5622-551 30% 100% 5622-416 30% 100% 5765-505 30% 100% 5648-113 0% 100% * One demonstration product per each IBM authorized Printer Remarketer Firm certified to sell software. IBM Service Offerings - --------------------- The Service Offering listed below is available to IBM Printing Systems Remarketers for those IBM Printers from IBM Printing Systems they are authorized to market. Service Offering - ---------------- . Maintenance Service Marketing (MSM) Fee - --- . 20% of initial annual maintenance charge when machine is covered by an annual maintenance charge. . 100% of initial monthly maintenance charge when machine is covered by a monthly maintenance charge. Z125-5066-16 03/13/96 Page 5 of 5 These terms are in addition to those of the Industry Remarketer Exhibit and prevail over them. We may change these terms by giving you written notice. These discount schedules apply to specific Products as identified in the IBM Industry Remarketer Exhibit (Z125-4096). RISC System/6000 Products identified within this Schedule are available to you at the discounts described below. All maximum discounts identified in the Industry Remarketer Exhibit remain applicable. 1. Industry Remarketer Federal Discount Schedules A. RISC System/6000 Products Annual System Hardware Software Revenue Performance Discount Discount Entry (Less than $500,000) 28% 25% $500,000 - $999,999 33% 30% $1,000,000 - $1,499,999 34% 31% $1,500,000 - $2,499.999 35% 32% $2,500,000 - $4,999,999 37% 34% $5,000,000 - $9,999,999 38% 35% $10,000,000 - $14,999,999 39% 36% $15,000,000 and over 40% 37% 1) Unless otherwise stated. Products in Category A in the IR Exhibit (Z125-4096) are eligible for the discounts listed above. Field installed features and model conversions for hardware Products are eligible for a 38% discount. 2) Some Products listed in the Network Integration Products section of this Schedule may also be eligible RISC System/6000 Products. These Products may be acquired by IBM Authorized Industry Remarketers approved to remarket RISC System/6000 Products at the discount listed in the Network Integration Products section. 3) Unless otherwise stated, all additional Products eligible to IBM Authorized Industry Remarketers approved to remarket RISC System/6000 Products are available at the discounts listed in the Industry Remarketer Exhibit. Federal discount exceptions are listed in Subsection C "Discount Exceptions" of this schedule.
B. Network Integration Products Machine Type Description Discount Category D 6611 Network Processor- Model 12x 35% 8260 Multiprotocol Intelligent Switching Hub 40% 9741 High Speed Inverse Multiplexor 47% 2210 Nways Multiprotocol Router 28% 2217 Nways Multiprotocol Concentrator 32% Category D1 5648-016 Multiprotocol Network Program 35% 5696-731 NetView for AIX 45% 5696-905 NetView Entry for AIX 45% Category K1 9309 Rack Enclosure Expansion Unit 25% Category K2 3299 Multiplexor Hub 47%
1) Products specifically listed above are eligible for discounts listed above when sold to Federal End Users. 2) Unless otherwise stated, all additional Products eligible to IBM Authorized Industry Remarketers approved to remarket Network Integration Products are available at the [MISSING TEXT] C. Discount Exceptions The following RISC System/6000 and Network Integration Products are available to eligible IBM Authorized Industry Remarketers at the discounts stated below. IR Exhibit Category A Products available at a 45% discount: 5696-709 5696-761 5696-906 5697-024 5765-176 5765-207 5765-245 5765-366 5765-421 5765-423 5765-448 IR Exhibit Category A Products available at a 26% discount: 5765-083 IR Exhibit Category M Products available at a 45% discount: 5696-237 5696-238 5696-239 5696-240 5696-347 5697-078 5765-148 5765-152 5765-527 5765-533 5765-534 5765-537 5765-540 IR Exhibit Category SS Products available at a 45% discount: 5765-564 2. Federal End User Definition The following definition of "end user" applies when marketing to Federal Government accounts: A. "Federal End User" includes federal government agencies or any other entity listed in GSA Order ADM 4800.2D including those entities listed in Appendices A, B, and C of the Order, and any successor Order which may be published by the GSA in the Federal Register. The term Federal End User also includes federal government cost reimbursement prime contractors and management and operating contractors that receive proper authorization under FAR Part 51 from federal agencies to make federal purchases or acquisitions where licenses granted and title to equipment vest in the federal government. B. The IR may propose an integrated solution through a higher-tier federal contractor in fulfillment of a specific government procurement where title to the IBM equipment passes directly to the federal government. In no event shall the IR permit transfer of title for any IBM equipment purchased under this Agreement to other than the federal government. Under no circumstances may the IR assign any of its responsibilities under the IR Agreement to the Federal End User. 3. Additional Terms for Federal Sales A. Addition to Remarketer General Terms (Z125-4800), Section 25, Ending the Agreement. For federal contract (excluding GSA Schedule contract) obligations only. In the event IBM terminates this Agreement without cause we will permit you to continue to provide Products under the terms of this Agreement through the date on which this Agreement would otherwise have ended had it not been terminated by IBM. The industry remarketer agrees to promptly withdraw any bids that include IBM products and services which were anticipated to have been obtained under this Agreement, unless IBM and the industry remarketer are able to agree to terms and conditions under the Federal Systems Integrator (FSI) Program (or similar or successor program) for the bid as offered. B. Buy American Act / Trade Agreements Act (BAA/TAA). IBM makes no representation or certification regarding the domestic or foreign origin of products provided by IBM. Business Partner Agreement Marketing Assistant General Terms - -------------------------------------------------------------------------------- Table of Contents Section Title Page l. Definitions............................. 2 2. Agreement Structure..................... 3 3. Our Relationship........................ 3 4. Confidential Information................ 4 5. Demonstration and Internal-Use Products. 5 6. Federal Reporting Requirements.......... 5 7. Trademarks.............................. 5 8. No Property Rights...................... 6 9. Limitation of Liability................. 6 10. Changes to the Agreement Terms.......... 6 11. Ending the Agreement.................... 6 12. Electronic Communications............... 7 13. Geographic Scope........................ 7 14. Governing Law........................... 7 1. Marketing Assistant General Terms Definitions Marketing Activities is your performance of sales activities, and (as applicable) installation and support activities, for a Product, as we specify in the applicable Attachment. This includes establishing and maintaining a business relationship with a Prospect, becoming knowledgeable of its requirements, and satisfying those requirements with a solution. A solution is comprised of Products, and may include other complementary products. Marketing Assistant is a term we apply to a business partner relationship (authorized under this Agreement) in which we compensate you for the authorized Marketing Activities you perform that result in a Prospect's acquisition of a Product from us (and not from a remarketer). For example, Application Specialists are Marketing Assistants. Product is any of the following, IBM or non-lBM, that we authorize you to market: 1. a machine, its features, conversions, or upgrades, or any combination of them; 2. a program; or 3. a service. Prospect is a potential customer for a Product acquired from us (and not from a remarketer) for 1) the customer's own use and not for remarketing and 2) installation in the United States or Puerto Rico. Your business enterprise is not a Prospect. The following Prospects are excluded, unless we specify otherwise in the applicable Attachment or Profile: 1. "Federal Prospects" which means the Federal government, Federal government owned or affiliated (or sponsored) corporations or other organizations, organizations involved in Federal procurement activities that are authorized to procure using our GSA Schedule Contract, and Federal prime contractors and subcontractors who are engaged in a specific Federal procurement opportunity; 2. "K-12 Educational Institutions." A K-12 Educational Institution is a pre-kindergarten through 12th grade, special education, or post- secondary vocational or technical school; and 3. Prospects in a territory assigned to a Segment Specialist. (A Segment Specialist is a type of Marketing Assistant who performs Marketing Activities for Prospects in its territory.) Page 2 of 7 Profile We specify the details of our relationship (for example, the contract period) in a document called a "Profile." Each of us agrees to the terms of the Profile, the Marketing Assistant General Terms, and the applicable Attachments referred to in the Profile, (collectively called the "Agreement"), by signing the Profile. Attachments Each of our relationships requires terms in addition to those we specify in the Marketing Assistant General Terms. We provide the additional terms in documents called "Attachments." Several Attachments may apply to you. We specify in your Profile the Attachments that apply. Transaction Documents We will provide to you the appropriate "Transaction Documents" that confirm the details of a specific relationship between us. The following are examples of Transaction Documents, with examples of the information they may contain: 1. forms (Prospect identification); 2. supplements (territory and objectives); and 3. exhibits (compensation plan). Conflicting Terms If there is a conflict among the terms in the various documents, those of an Attachment prevail over those of the Marketing Assistant General Terms. The terms of the Profile prevail over those of both of these documents. The terms of a Transaction Document prevail over those of all the documents. Acceptance of the Terms in a Transaction Document You accept the terms in a Transaction Document by doing any of the following: 1. signing it; 2. engaging in authorized Marketing Activities; or 3. accepting payment for such activities. 3. Our Relationship Mutual Responsibilities Each of us agrees that under this Agreement: 1. you are an independent contractor and are solely responsible for the prices and terms of your own products and services. If you act on your behalf (and not ours) for Prospects, you agree to perform those activities under your own, separate agreement. You agree to ensure that Prospects understand that those activities are not on our behalf; 2. neither of us is legally a partner of the other (for example, neither of us is responsible for debts incurred by the other), and you are not our employee; 3. neither of us will bring a legal action more than two years after the cause of action arose: and 4. each of us is free to enter into similar agreements with others. Page 3 of 7 Our Responsibilities We will: 1. at our discretion, help you identify a Prospect, and meet with you and the Prospect; 2. provide facilities, if available, for you to demonstrate Products; 3. manage the Product ordering process from scheduling to delivery; 4. specify the compensation plan in the applicable Transaction Document: 5. compensate you; 6. offer you selected Products (for example, "Demonstration Products") under special terms; and 7. offer you selected education courses and marketing tools, and provide you with access to selected information systems (such as tools for configuring Products or on-line demonstrations), only in support of your authorized Marketing Activities. Programs associated with these systems are subject to the terms of their applicable license agreements, except that you may not transfer them. We may charge you for such education courses and marketing tools, and access to our systems. Your Responsibilities You agree to: 1. perform the Marketing Activities specified in the applicable Attachment and, in doing so, give preference to the marketing of Products over those of others; 2. be responsible for Customer satisfaction with our Products and all your related activities, and participate in Customer-satisfaction programs as we determine; 3. maintain a sufficient number of employees adequately trained on Products; 4. comply with our business conduct and security guidelines, and procedural information that we make available to you; 5. not assume or create any obligations on our behalf, or make any representations or warranties about us or the Products, other than those we have authorized; 6. not assign this Agreement or your rights under it without our prior written consent. Any attempt to do so is void; and 7. give us prompt written notice of any substantive change to your business structure or operating environment (for example, a material change in equity ownership or management, or any change to information supplied in your application). Such change may result in immediate termination of this Agreement. 4. Confidential Information This section is a Supplement to the IBM Agreement for Exchange of Confidential Information, which both of us must sign. The following is confidential information: 1. any item we mark as confidential; 2. information we give you about Prospects, unannounced Products or business plans; and 3. any market-intelligence information we give you. You may use such confidential information solely in the performance of your responsibilities under this Agreement. All other information exchanged between us is nonconfidential, unless disclosed under a separate Supplement. Page 4 of 7 We may make Demonstration and internal-use Products, which you acquire under your IBM Customer Agreement, available to you under special terms. If you have a Demonstration Product that is a machine for which there is an upgrade available, you may acquire the upgrade (but not a replacement machine) as a Demonstration Product. If you are also our approved remarketer and you acquire Products for development use, you may not acquire the same Products for demonstration use. We may also limit the quantity of Demonstration Products you may acquire. You may acquire internal-use Products (not available to K-12 Marketing Assistants) after the first year of your relationship with us as an IBM Business Partner. Internal-use Products are not limited to those we approve you to market in your Profile. Your total acquisition of such Products may not exceed a certain dollar amount, which we determine prior to the beginning of each year. We determine this amount by applying the percent we specify, in your Profile, to the total IBM revenue for which you received credit during the prior year. You may not transfer or defer acquisitions to a subsequent period. You agree to: 1. use an internal-use Product for your own use; 2. use a Demonstration Product primarily in support of your Marketing Activities. You may also use it to develop and test application programs for use with Products; 3. not resell, lease, or transfer such Products for 12 months after their First Day of Charge, without our prior written consent. If the Product is an upgrade to a machine, the 12-month period for the machine begins on the First Day of Charge for the upgrade, and 4. pay an adjustment charge if you use such Products other than as described above. The charge is the difference between what you paid and the full charge for the Product. The license for each program acquired as a Demonstration Product terminates at the end of this Agreement, unless you keep the program. If you do so, you may be required to pay the full license charge. If this Agreement ends, internal-use Products you have ordered with a ship date prior to the day this Agreement ends, remain eligible for the discount. You may not combine these offerings with any other discount or allowance. 6. Federal Reporting Requirements To comply with Federal law, you agree not to employ or compensate any individuals to perform activities under this Agreement (without our prior written approval) who were, within the last two years: 1. members of the armed forces in a pay grade of 0-4 or higher; or 2. civilians employed by the Department of Defense with a pay rate equal to, or greater than, the minimum rate for a grade GS-13. You agree to provide us with any information that we need to comply with this law. 7. Trademarks We will provide you with advertising guidelines for our logos, trade and service marks, trade names, emblems, and titles (collectively called "Trademarks"). We will specify, in your Profile, the title you are authorized to use. You may also use the IBM Business Partner emblem associated with that title. You may use the Trademarks only as described in the guidelines and only in association with the Products we authorize you to market. On our request, you agree to change or stop using any advertising or promotional material that does not comply (as we determine) with our guidelines or this Agreement. When this You agree that any goodwill attaching to our Trademarks as a result of your use of them belongs to us. You agree not to register or use any mark that is confusingly similar to any of our Trademarks. 8. No Property Rights Your rights under this Agreement are not property rights and cannot be transferred to anyone else. For example, you may not sell your authorization to market the Products or your right to use our Trademarks. 9. Limitation of Liability Circumstances may arise where, because of a default on our part or other liability, you are entitled to recover damages from us. In each such instance, regardless of the basis on which you are entitled to claim damages from us, we are liable only for: 1. bodily injury (including death), and damage to real property and tangible personal property; and 2. the amount of any other actual loss or damage, up to $100,000. This limit also applies to any of our subcontractors and program developers. It is the maximum for which we are collectively responsible. Items for Which We are Not Liable Under no circumstances are we liable for either of the following: 1. third-party claims against you for losses or damages (other than those under the first item listed above); or 2. economic consequential damages (including lost profits or savings) or incidental damages, even if we are informed of their possibility. 10. Changes to the Agreement Terms In order to maintain flexibility in our relationship, we may change the terms of this Agreement by giving you one month's written notice. We may change the Exhibit on written notice. However, changes are not retroactive. They apply as of the effective date we specify in the notice. Otherwise, for a change to be valid, both of us must sign it. Additional or different terms in any order or written communication from you are void. 11. Ending the Agreement This Agreement ends when terminated or when the contract period ends and is not renewed. When it does, all authorizations to perform Marketing Activities under it will also end. However, if a wind-up period applies, these authorizations will terminate at the end of the wind-up period. When the Agreement ends, each of us agrees to promptly settle all our accounts, including any outstanding advances. We may offset any amounts due you against amounts due us or [MISSING TEXT] Expiration If we do not renew our relationship, upon expiration of the contract period, we will give you a three-month wind-up period during which you will conclude your existing Marketing Activities in an orderly manner. You agree to perform those activities, for those transactions we approve, under the terms of this Agreement. Termination You may terminate this Agreement, with or without cause, on one month's written notice. We may terminate this Agreement, with or without cause, on three months' written notice. If the termination is for cause, we may (at our discretion) allow you a reasonable opportunity to cure. If you fail to do so, the date of termination is that specified in the notice. Certain acts or omissions are so serious as to warrant immediate termination. If you repudiate this Agreement, materially breach any of its terms or make any material misrepresentation to us, we may terminate this Agreement at any time, on written notice. Examples of a material breach are your failure to give us prompt written notice of any substantive change to your business structure or operating environment, and violation of our trademark terms. You agree that our only obligation is to provide the notice called for in this section and we are not liable for any claims or losses if we do so. No wind-up period applies upon termination. 12. Electronic Communications Each of us may communicate with the other by electronic means. When we do so, you agree to utilize electronic communications as we specify. Both of us agree to the following for all electronic communications: 1. an identification code (called a "USERID") contained in an electronic document is legally sufficient to verify the sender's identity and the document's authenticity; 2. an electronic document that contains a USERID is a signed writing; and 3. an electronic document, or any computer printout of it, is an original when maintained in the normal course of business. 13. Geographic Scope All your rights and all our obligations are valid only in the United States and Puerto Rico. 14. Governing Law Since we are a New York corporation, the laws of the State of New York govern this Agreement. NSP/Application Specialist and AS Attachment These terms are in addition to those of the Marketing Assistant General Terms. They apply to NSP/Application Specialists, Application Specialists, and Federal Specialists. 1. Authorization We specify, in your Profile, the Products for which you may perform Marketing Activities. We will inform you if we add or withdraw Products. You may also perform Marketing Activities for our programs, peripherals, and other offerings associated with these Products. For example, if you are authorized to perform Marketing Activities for an IBM AS/400, you may perform Marketing Activities for any Product (unless we specify otherwise) which attaches to it, even if the Product will be attached to a non-lBM machine. We authorize you to perform Marketing Activities with a Transaction Document called a "Prospect Form." Alternatively, we may authorize you to perform Marketing Activities for a project with a Transaction Document called a "Project Form." A project has additional terms associated with it. 2. Identification of Prospects Either of us may identify a Prospect. You do so by providing a completed Prospect Form to our office responsible for the Prospect. For Federal Specialists, a Prospect Form becomes effective when we accept it. For all others, a Prospect Form becomes effective one month from the date we receive it, unless we notify you earlier that it is accepted or rejected. Prospects may include K-12 educational institutions. A Prospect is no longer yours if: 1. we request it for any of the following reasons-- a. the Prospect is unsuitable (for example, due to inadequate credit); b. the Prospect cancels the order; or c. the Prospect has made a firm commitment to another vendor for the solution. 2. you or the Prospect requests it. When either of the above occurs, we will discuss it with you and the Prospect (as appropriate) and notify you of any changes. Upon our notification, you agree to stop performing Marketing Activities for that Prospect. 3. Marketing Activities You agree to perform Marketing Activities for a Prospect until the later of the end of the Marketing or Support Period. A "Marketing Period" is the time frame we specify (a minimum of three months) during which you perform Marketing Activities. A "Support Period" is a time frame we specify (a minimum of three months), beginning on a Product's First Day of Charge, during which you continue to perform Marketing Activities. The "First Day Of Charge" is the date that payment for a Product is due us under our applicable agreement with a customer. 3. advise us of planned installation dates and any dependencies; 4. advise the Prospect regarding installation responsibilities, and assist in developing and implementing related plans (including education) and progress reviews; be the primary contact for Product information, and technical and operational advice associated with the solution delivered. Such advice may include systems management, capacity planning, problem solving, and use of our support and service resources; and 6. on our request-- a. provide us with any customer-signed documents we require, b. participate in configuration and systems assurance reviews, c. assist in problem identification and resolution, and d. assist in collection activities for customer payments due us. Compensation We will compensate you within one month after the end of the month in which you earn your compensation. You earn your compensation on the First Day of Charge for a Product acquired by a Prospect, including those Products associated with the original sale and installed during the Support Period. If you do not receive your payment, you must request it in writing within 12 months after the First Day of Charge for the affected Product. If you fail to do so, no payment will be made. We determine your eligibility for, and the amounts of, all payments. You agree to provide your IBM Business Partner number with all orders for which you are requesting payment. We specify a fixed dollar fee or a percent (used to determine the fee) for each Product. If we specify a percent, we apply it to the Product's one-time or recurring charge, as invoiced to the customer. For a recurring charge, we apply the percent to 1) 12 times the monthly charge or 2) the sum of the initial charge and the annual charge. If a customer does not accept a Product, does not pay for it, or returns it, you agree to reimburse us for any payments we made to you associated with it. If a customer does not retain a Product with a recurring charge for at least 12 months, we will prorate the payment to you. We periodically reconcile amounts we paid you to amounts you actually earned. We will deduct amounts due us from future payments or ask you to pay. Each of us agrees to promptly pay the other any amounts due. NSP/Application Specialist and AS Attachment These terms are in addition to those of the Marketing Assistant General Terms. They apply to NSP/Application Specialists, Application Specialists, and Federal Specialists. 1. Authorization We specify, in your Profile, the Products for which you may perform Marketing Activities. We will inform you if we add or withdraw Products. You may also perform Marketing Activities for our programs, peripherals, and other offerings associated with these Products. For example, if you are authorized to perform Marketing Activities for an IBM AS/400, you may perform Marketing Activities for any Product (unless we specify otherwise) which attaches to it, even if the Product will be attached to a non-lBM machine. We authorize you to perform Marketing Activities with a Transaction Document called a "Prospect Form." Alternatively, we may authorize you to perform Marketing Activities for a project with a Transaction Document called a "Project Form." A project has additional terms associated with it. 2. Identification of Prospects Either of us may identify a Prospect. You do so by providing a completed Prospect Form to our office responsible for the Prospect. For Federal Specialists, a Prospect Form becomes effective when we accept it. For all others, a Prospect Form becomes effective one month from the date we receive it, unless we notify you earlier that it is accepted or rejected. Prospects may include K-12 educational institutions. A Prospect is no longer yours if: 1. we request it for any of the following reasons-- a. the Prospect is unsuitable (for example, due to inadequate credit); b. the Prospect cancels the order; or c. the Prospect has made a firm commitment to another vendor for the solution. 2. you or the Prospect requests it. When either of the above occurs, we will discuss it with you and the Prospect (as appropriate) and notify you of any changes. Upon our notification, you agree to stop performing Marketing Activities for that Prospect. 3. Marketing Activities You agree to perform Marketing Activities for a Prospect until the later of the end of the Marketing or Support Period. A "Marketing Period" is the time frame we specify (a minimum of three months) during which you perform Marketing Activities. A "Support Period" is a time frame we specify (a minimum of three months), beginning on a Product's First Day of Charge, during which you continue to perform Marketing Activities. The "First Day of Charge" is the date that payment for a Product is due us under our applicable agreement with a customer. 2. submit orders (if applicable) and any order changes; 3. advise us of planned installation dates and any dependencies; 4. advise the Prospect regarding installation responsibilities, and assist in developing and implementing related plans (including education) and progress reviews; 5. be the primary contact for Product information, and technical and operational advice associated with the solution delivered. Such advice may include systems management, capacity planning, problem solving, and use of our support and service resources: and 6. on our request-- a. provide us with any customer-signed documents we require, b. participate in configuration and systems assurance reviews, c. assist in problem identification and resolution, and d. assist in collection activities for customer payments due us. 4. Compensation We will compensate you within one month after the end of the month in which you earn your compensation. You earn your compensation on the First Day of Charge for a Product acquired by a Prospect, including those Products associated with the original sale and installed during the Support Period. If you do not receive your payment, you must request it in writing within 12 months after the First Day of Charge for the affected Product. If you fail to do so, no payment will be made. We determine your eligibility for, and the amounts of, all payments. You agree to provide your IBM Business Partner number with all orders for which you are requesting payment. We specify a fixed dollar fee or a percent (used to determine the fee) for each Product. If we specify a percent, we apply it to the Product's one-time or recurring charge, as invoiced to the customer. For a recurring charge, we apply the percent to 1) 12 times the monthly charge or 2) the sum of the initial charge and the annual charge. If a customer does not accept a Product, does not pay for it, or returns it, you agree to reimburse us for any payments we made to you associated with it. If a customer does not retain a Product with a recurring charge for at least 12 months, we will prorate the payment to you. We periodically reconcile amounts we paid you to amounts you actually earned. We will deduct amounts due us from future payments or ask you to pay. Each of us agrees to promptly pay the other any amounts due. NSP/APPLICATION SPECIALIST AND AS EXHIBIT IBM Business Partner Agreement - Marketing Assistant Exhibit No.: NSPAS-67 May 1, 1996 Table of Contents Section Page - ------- ---- 1.0 COMPENSATION PLAN 2 1.1 General 2 1.1.1 Base Amount Compensation 2 1.1.2 Fee Compensation 2 1.1.3 Assisted Sales Provisions 2-3 1.1.4 Conditions Where There Is No Compensation 3 2.0 Base Amount/Fee Table 4-5 3.0 Fee Table 6-7 Page 1 of 7 The terms of this Exhibit are in addition to those of the IBM Business Partner Agreement - Marketing Assistant and only to Marketing Assistants approved as Application Specialists (AS) or National Solution Provider/Application Specialists (NSP/AS). 1.1 GENERAL ------- The compensation plan for the NSP/AS is comprised of several elements which include base amount compensation, fee compensation based on the Product charge as invoiced to the customer, and other compensation terms. The compensation plan for the AS includes fee compensation based on the product charge as invoiced to the customer and other compensation terms. 1.1.1 BASE AMOUNT COMPENSATION The NSP/AS will determine the Prospect's discount percent for the Product (up to the maximum percent identified as the maximum fee opportunity for the Product in the Base Amount Table) which determines the amount invoiced to the Prospect. The compensation to the NSP/AS is the difference between the Product price invoiced to the Prospect (exclusive of taxes and not more than the list price) and the base amount of the Product (listed in the Base Amount Fee Table below). The Product price to the Prospect cannot be more than the Product's list price at time of installation. 1.1.2 FEE COMPENSATION If we specify a fee percent (used to determine the fee) for each Product, we apply it to the Product's one-time or recurring charge as invoiced to the customer, unless specified otherwise. For a recurring charge, we apply the percent to 1) 12 times the monthly charge or 2) the sum of the initial charge and the annual charge. The NSP/AS and AS are eligible for fees on selected IBM licensed programs (such as System Programs and Application Programs) and other offerings such as IBM maintenance, IBM Credit, Local Vendor Program (LVP) fees, and services offerings. 1.1.3 ASSISTED SALES PROVISIONS Assisted Sales Provisions apply only to Application Specialists (and not to National Solution Providers). Assisted Sales Provisions cover those situations where a relationship exists between Prospects in different IBM branch offices (for example, the Prospects are within the same enterprise or related under an IBM Agreement, for example, an Affiliated End User.) Products are marketed in one location (Central Branch Office or CBO) and installed in other locations (Territory Branch Office or TBO). Marketing Assistants performing Marketing Activities at either the CBO or TBO are eligible only for fees when approved in advance by IBM. Payments will vary based on the type of Product installed, the classification of the Prospect, and/or the amount of remote support required. Assisted Sales Provisions cover IBM Selected National Accounts, Selected Government Accounts, Affiliated End Users, Extended Enterprises (non-IBM remarketer), Communications Terminal and Controller Installations, Remote Systems Installations, and Direct Reporting Accounts. When a Prospect is identified as a TBO installation of a Selected National Account, Selected Government Account, Affiliated End User or Extended Enterprise, the fee percent is applied to 75% of the Product's one-time or recurring charge. At the CBO, the fee percent is applied to 25% of the Product's one-time or recurring charge. Page 2 of 7 When a Prospect is approved as a Remote Systems Installation, the fee percent is applied to either 25% or 75% of the Product's one-time or recurring charge as determined by IBM. Where there is no TBO Support required, the Marketing Assistant at the CBO is eligible for 75%, and the Marketing Assistant at the TBO is eligible for 25%. Where there is local support required, the Marketing Assistant at the CBO is eligible for 25%, and the Marketing assistant at the TBO is eligible for 75%. 1.1.4 CONDITIONS WHERE THERE IS NO COMPENSATION Compensation to the NSP/AS or AS for Product(s) is applicable only when the Business Partner is responsible for the Marketing Activities for the Product(s). Compensation for the following items will not be included in any element of this plan, unless we specify otherwise. . Placements of Products and other IBM offerings for which the IBM branch office responsible for the Prospect receives no revenue (this does not apply to Products sourced from IBM PC Direct). . Placement of Products acquired directly from IBM which are not ordered through the IBM Advanced Administration System (AAS). . The NSP/AS or AS is performing as an IBM subcontractor for a Prospect and the subcontractor tasks duplicate any of the Marketing Activities for the Prospect. . Placements of Products by other IBM Marketing Assistants or IBM Remarketers. . Temporary installations: IBM machines or programs installed at one customer location, for the purposes of testing or demonstration, that the customer intends to move to another location within a short period of time. . Products sold by IBM under a special bid contract approved by the IBM Federal Integrator Channel Department. . IBM PCs (this does not apply to Products sourced from IBM PC Direct); . Products acquired for use outside of the United States and Puerto Rico. . Products acquired from non-IBM authorized sources. . Products acquired for resale. . Products sold without the IBM logo. . Products acquired by IBM subsidiaries or IBM employees. . Publications, supplies, cables, or accessories. . The amount on an IBM services invoice for services which you perform as a subcontractor. . Taxes, separately itemized or invoiced. Page 3 of 7 The following table lists the products, associated base amounts (stated as a percentage of the applicable list price of the product), and the maximum fee opportunity available for the NSP/AS. it also lists the products and (associated fee percentages (stated as a percentage of the product charge as invoiced to the customer) for the, NSP/AS and AS. An MES has the same base amount, maximum fee opportunity, and fee as the machine on which it is installed, unless otherwise specified in the table. An AS is eligible for fees on large scale computing systems-and other machines only when the machines are connected directly or by communication lines to a large scale computing system the as is approved to market. An NSP/AS is eligible for fees on system units and other machines only when the machines are connected directly or by communication lines to a system unit the NSP/AS is approved to market. BASE AMOUNT/FEE TABLE ----------------------
N S P/AS AS ------------------------------ ---------- Maximum Base Fee Fee Fee Product Name Amount Opportunity Percentage Percentage - --------------------------------------------------------------------------------------------------------------------------- Application Business Systems (Division 54} (Machines) - ----------------------------------------------------- IBM AS/400 System Units 9402 80% 20% 5% N/A 9402 Model 2XX MES 85% 15% 5% N/A 9404 82% 18% 4% N/A 9404 Model 2XXt3XX MES 85% 15% 4% N/A 9406 84% 16% 3% N/A 9406 Model 2XX/3XX MES 85% 15% 3% N/A Other Machines 83% 17% 4% N/A (For example: 5159, 5209, 5259) RISC System/6000 (Division 75) (Machines) - ----------------------------------------- IBM 7006, 7009 82% 18% 4% N/A IBM 7011, 7012 84% 16% 5% N/A IBM 7013, 7015 81% 19% 4% N/A IBM 7025, 7247, 7248, 7249 82% 18% 4% N/A IBM 9076 N/A N/A 3% N/A Other Machines 82% 18% 4% N/A (For example: 7010, 7027, 7030, 7235, 7250) System/390 (Division 26) (Machines) - ----------------------------------- IBM 9021 Processors N/A N/A 1% 1% IBM 9121 Processors N/A N/A 2% 2% IBM 9221 Processors N/A N/A 3% 3% IBM 9672-R Parallel Enterprise Server N/A N/A 3% 3% Other Machines N/A N/A 2% 2% (For example- 9032, 9033, 9034, 9035, 9309) Application Solution (Division 45) (Machines) - --------------------------------------------- IBM 3890 N/A N/A 5% 5% IBM 4683, 4693, 4694, 4965 N/A N/A 6% 6% IBM 7632, 7633 90% 10% 2% 2% Other Machines N/A N/A 6% 6% (For example: 4702, 4707, 4717, 4718, 4753, 4754, 4755, 4777, 4778, 6527, 7520, 7524, 7526, 7527)
Page 4 of 7
Maximum Base Fee Fee Fee Product Name Amount Opportunity Percentage Percentage - --------------------------------------------------------------------------------------------------------------------------- Industry Products (AP) (Division 56) (Machines) - ----------------------------------------------- IBM 4712,4722,4772 N/A N/A 6% 6% Micro Electronics (Division 29) (Machines) - ------------------------------------------ IBM 4770 N/A N/A 6% 6% Networking Hardware (Division 49) (Machines) - -------------------------------------------- IBM 3745, 3746 89% 11% 3% 3% IBM 6611 Network Processor/IBM 84% 16% 5% 5% 2210 Nways Multiprotocol Router Other Machines 90% 10% 5% 5% (For example: 3172, 3174, 3299, 5299, 5394, 5494, 8250, 8260, 8285) IBM Printing Systems Company (Division 92) (Machines) - ----------------------------------------------------- IBM Printers - 3816, 4224, 4232, 6252 84% 16% 4% 4% IBM Printers - 3912, 3916, 3930, 3935, 4028, 4230, 4234, 6408 89% 11% 3% 3% Other Machines (For example: 3828, 3829, 3835, 3900, 4245, 6262) Storage Systems (Division 35) (Machines) - ---------------------------------------- IBM 3390, 3990 84% 16% 4% 4% IBM 3490, 3494, 3495, 3590, 3591 80% 20% 4% 4% IBM 3995 80% 20% 5% 5% IBM 7204, 7207, 7210, 9333, 9334 82% 18% 4% 4% IBM 9336 80% 20% 4% 4% IBM 9337 68% 32% 4% 4% IBM 9345 89% 11% 3% 3% Other Machines 89% 11% 4% 4% (For example: 7131, 7133, 7134, 7135, 7137, 7206, 7208, 7332, 7336, 9331, 9332, 9341, 9343, 9348, 9391, 9392, 9394, 9395) Multimedia Systems (Division 32) - -------------------------------- __90 Kiosk N/A N/A 4% N/A I-listed RPQ. Call 1-800-4AKIOSK (1-800-425-4675) for information and approval to order. IBM Personal Computer Company Terminals (Division 44) - ----------------------------------------------------- 3151, 3164, 3472, 3476, 3481, 3482, 3483, 3486, 3487, 3488, 3489 90% 10% 4% 4% Other IBM Machines Not Included in Above Categories - --------------------------------------------------- 90% 10% 4% 4%
Page 5 of 7 The following table lists the Products and associated fee percentages applied to the Product charge (as invoiced to the customer). FEE TABLE ---------
NSP/AS PRODUCT OFFERING Central Order TBO Order AS - ---------------- ------------------------- ------ IBM Licensed Programs 12% 10% 10% IBM Project Support Services(2)(7)(8) Customized Operational Services 20% 20% 20% Customized Operational Services Equipment 20% 20% 20% Air Conditioners and Chillers Surge Suppressors Uninterruptible Power Supplies(UPS) Liebert DataPad Systems Integration 6% 6% 6% Application Design & Development 6% 6% 6% Other Services 20% 20% 20% (Examples: LAN Doctor Services, Soft Install) IBM Authorized Local Vendor Program(1)(3) 40% 40% 30% IBM Maintenance Services(4)(7)(8) 20% 20% 20% IBM Continuing Support Services(2)(7)(8) Support Family Services 20% 20% 20% Business Recovery Services N/A N/A N/A Monthly-Charge Offering (9) 15% 15% 15% One-time Charge Consulting Services 10% 10% 10% One-time Charge Business Capacity Svcs 10% 10% 10% Customized Operational Services 20% 20% 20% ESCON Manager, SiteManager IBM Credit Corporation Financing(5)(7) 1% 1% 1% IBM Credit Corporation Used Machines(6)(7) 4% 4% N/A Products ordered through IBM Direct N/A N/A N/A IBM System/390 Entry Server Offering 3% 3% 3%
(1) Fee percentage is applied to the dollar amount we Invoice the vendor for the fee due us. (2) Fees are paid on the total contract amount, including non-IBM products, but excluding services which you perform as a subcontractor and moving company charges. (3) Marketing Assistant is eligible for fees that IBM earns for Activity Categories 1 through 5 as defined In the IBM Authorized Local Vendor Program (LVP). However, the Marketing Assistant will not be compensated for performing LVP activities for its own products. LVP products are not listed in this Exhibit. Information on these products will be provided by the IBM office identified on the Territory Supplement for the territory in which the Marketing Assistant will market the products. (4) Includes maintenance acquired under payment and service options such as Extended Maintenance Option (EMO) and Mid-Range System Option (MRSO) and Corporate Service Option (CSO). (5) IBM Credit fee is paid based on the total amount financed for all new financing and financing of used equipment from IBM Credit inventory. Excluded from the fee payment will be rollovers, base lease extensions (BLEXs), end of lease renewals and other refinancing, as well as end of lease sales. The fee for used equipment leases will be based on Monthly Lease Accounts Receivabee (MLAR) or the sum or the lease payments over the projected life of the lease. It is the responsibility of IBM Marketing Assistants to introduce IBM 's financing offerings qualify customer Interest in financing, and provide leads to IBM Credit Financial Marketing Advisors (FMAs). (6) IBM Credit fee is paid based upon the invoiced amount, the Monthly Lease Accounts Receivable (MLAR), or the sum of the lease payments over the projected life of the lease, whichever is applicable of the used IBM machines (which must include an IBM AS/400 System Unit, IBM RISC System/6000 system, or IBM 9336/9337 DASD) from IBM Credit inventory. (7) Marketing Assistant must submit Fee Payment Request Form to be eligible for payment except when the Product covered Is new and it is under IBM Credit financing. Page 6 of 7 EX-10.8 11 REVOLVING CREDIT FACILITY EXHIBIT 10.8 ------------ Revolving Credit Facility, as amended, dated July 1, 1996 between Computer Generated Solutions, Inc. and Bank Leumi Trust Company of New York. [LOGO BANK LEUMI] PROMISSORY NOTE (GRID) New York, N.Y. July 1, 1996 $7,000,000.00 For Value Received, We promise to pay to the order of BANK LEUMI TRUST COMPANY OF NEW YORK (the "Bank"), at its offices at 579 Fifth Avenue, New York, New York, the principal sum of Seven Million and 00/100 Dollars or, if less, the aggregate unpaid principal sum of all loans made by the Bank, in its sole discretion, to the maker of this Note from time to time. The principal sum of each such loan shall be payable (strike out whichever is not applicable): on demand., if payment not demanded, no later than 5/2/97. Each loan shall bear interest (from the date of such loan) at a rate per annum which shall be equal to 0% per annum above the rate of interest designated by the Bank, and in effect from time to time, as its "Reference Rate", adjusted when said Reference Rate changes. (The maker acknowledges that the Reference Rate may not necessarily represent the lowest rate of interest charged by the Bank to customers.) The Bank is hereby authorized to enter on the schedule attached hereto the amount of each loan and each payment of principal thereon, without any further authorization on the part of the maker or any endorser or guarantor of this Note, but the Bank's failure to make such entry shall not limit or otherwise affect the obligations of the maker or any endorser or guarantor of this Note. The maker and each endorser and guarantor of this Note acknowledge and agree that the use of this form of Note is for their convenience, and there is no obligation on the part of the Bank to make loans to the maker whatsoever. Interest shall be computed on the basis of a 360-day year and shall be payable at the end of each month and at maturity, but the foregoing provision shall not be deemed to change the maturity of this Note if payable on demand. The charging of interest on the basis of a 360-day year results in the payment of more interest than would be required if interest were charged on the basis of the actual number of days in the year. In no event shall interest exceed the maximum legal rate permitted for the maker. Each maker or endorser authorizes (but shall not require) the Bank to debit any account maintained by the maker or endorser with the Bank, at any date on which the payment of principal of or interest on any of the Liabilities (as hereinafter defined) is due, in an amount equal to any unpaid portion of such payment. If the time for payment of principal of or interest on any of the Liabilities or any other money payable hereunder or with respect to any of the Liabilities becomes due on a day on which the Bank's offices are closed (as required or permitted by law or otherwise), such payment shall be made on the next succeeding business day, and such extension shall be included in computing interest in connection with such payment. All payments by any maker or endorser of this Note on account of principal, interest or fees hereunder shall be made in lawful money of the United States of America, in immediately available funds. All Property (as hereinafter defined) held by the Bank shall be subject to a security interest in favor of the Bank or holder hereof as security for any and all Liabilities. The term "Property" shall mean the balance of every deposit account of the maker with the Bank or any of the Bank's nominees or agents and all other obligations of the Bank or any of its nominees or agents to the maker, whether now existing or hereafter arising, and all other personal property of the maker (including without limitation all money, accounts, general intangibles, goods, instruments, documents and chattel paper) which, or evidence of which, are now or at any time in the future shall come into the possession or under the control of or be in transit to the Bank or any of its nominees or agents for any purpose, whether or not accepted for the purposes for which it was delivered. The term "Liabilities" shall mean the indebtedness evidenced by this Note and all other indebtedness, liabilities and obligations of any kind of the maker (or any partnership or other group of which the maker is a member) to (a) the Bank, (b) any group of which the Bank is a member, or (c) any other person if the Bank has a participation or other interest in such indebtedness, liabilities or obligations, whether (i) for the Bank's own account or as agent for others, (ii) acquired directly or indirectly by the Bank from the maker or others, (iii) absolute or contingent, joint or several, secured or unsecured, liquidated or unliquidated, due or not due, contractual or tortious, now existing or hereafter arising, or (iv) incurred by the maker as principal, surety, endorser, guarantor or otherwise, and including without limitation all expenses, including attorneys' fees, incurred by the Bank in connection with any such indebtedness, liabilities or obligations or any of the Property (including any sale or other disposition of the Property). Upon the happening, with respect to any maker, endorser or guarantor of this Note or any assets of any such maker, endorser or guarantor, of any of the following events: death; the issuance of a warrant of attachment whether valid or not; dissolution (if a corporation or partnership); the making of a mortgage or pledge; the commencement of a foreclosure proceeding; default in the payment of principal or interest on this Note or in the payment of any other obligation of any said maker, endorser or guarantor held by the Bank or holder hereof; default in the payment of principal of or interest on any indebtedness for borrowed money owed to the Bank or any other person or entity (including any such indebtedness in the nature of a lease) or default in the performance or observance of the terms of any instrument pursuant to which such indebtedness was created or is secured, the effect of which default is to cause or permit any holder of any such indebtedness to cause the same to become due prior to its stated maturity (and whether or not such default is waived by the holder thereof); a change in the financial condition or affairs of any of them which in the opinion of the Bank or subsequent holder hereof materially reduces his, their or its ability to pay all of his, their or its obligations; the suspension of business; the filing of a petition in bankruptcy whether voluntary or involuntary; the filing of an application, whether voluntary or involuntary, for reorganization or any arrangement or readjustment of indebtedness; the appointment or the filing of an application for the appointment of any receiver, trustee, liquidator or any committee; an assignment for the benefit of creditors; the calling of a meeting of creditors; the offering of a composition or extension to creditors; the sending of notice of an intended bulk sale; the entry of judgments; or the issuance of a warrant of distraint or assertion of a lien for unpaid taxes, this Note, if not then due or payable on demand, shall become due and payable immediately without demand or notice and all other debts or obligations of the makers and endorsers hereof to the Bank or holder hereof, whether due or not due and whether direct or contingent and howsoever evidenced, shall, at the option of the Bank or holder hereof, also become due and payable immediately without demand or notice. After this Note becomes due, at stated maturity or on acceleration, any unpaid balance hereof shall bear interest from the date it becomes due until paid at a rate per annum 3% above the rate borne by this Note when it becomes due or, if such rate shall not be lawful with respect to the undersigned, then at the highest lawful rate. The liability of any party to commercial paper held by the Bank or holder hereof, other than the makers and endorsers hereof, shall remain unaffected hereby and such parties shall remain liable thereon in accordance with the original tenor thereof. Each maker and endorser agrees that if an attorney is retained to enforce or collect this Note or any other obligations by reason of non-payment of this Note when due or made due hereunder, a reasonable attorneys' fee shall be paid in addition, which fees shall be computed as follows: 15% of the principal, interest and all other sums due and owing to the payee or holder or the reasonable value of the attorneys' services, whichever is greater. This Note shall be governed by the laws of the State of New York and shall be binding upon the maker and each endorser and the maker's and each endorser's heirs, administrators, successors and assigns. The maker and each endorser hereby irrevocably consent to the jurisdiction of any New York State or Federal court located in New York City over any action or proceeding arising out of any dispute between the maker and each endorser and the Bank, and the maker further irrevocably consents to the service of process in any such action or proceeding by the mailing of a copy of such process to the maker at the address set forth below. In the event of litigation between the Bank and the maker over any matter connected with this Note or resulting from transactions hereunder, the right to a trial by jury is hereby waived by the Bank and the maker. A waiver by the Bank, in one or more instances, of any of the terms and provisions of this Note shall be in writing, shall apply to the particular instance or instances and at the particular time or times only, and shall not be deemed to be a continuing waiver. Computer Generated Solutions, Inc. -------------------------------------- -------------------------------------- VALUE RECEIVED 1675 Broadway -------------------------------------- (ADDRESS) FORM NO. 763 (10/86) New York, NY 10019 -------------------------------------- EX-16.1 12 LETTER FROM BDO SEIDMAN EXHIBIT 16.1 To: Securities and Exchange Commission We audited the financial statements of Computer Generated Solutions, Inc. (the "Company") at December 31, 1994, and for each of the two years in the period ended December 31, 1994. In this regard, we agree with the statements made by the Company in the Company's Registration Statement on Form S-1 dated the date hereof under the caption "Change of Auditors." BDO Seidman, LLP New York, NY November 8, 1996 EX-23.1 13 CONSENT OF ERNST & YOUNG LLP. EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS Computer Generated Solutions, Inc. New York, New York We consent to the reference to our firm under the captions "Experts" and "Selected Financial Information" and to the use of our reports dated July 12, 1996, in Amendment No. 2 to the Registration Statement (Form S-1) and related Prospectus of Computer Generated Solutions, Inc. for the registration of shares of its common stock. ERNST & YOUNG LLP New York, New York November 8, 1996 EX-23.2 14 CONSENT OF BDO SEIDMAN, LLP. EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Computer Generated Solutions, Inc. New York, New York We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated February 21, 1995, relating to the financial statements of Computer Generated Solutions, Inc. which is contained in that Prospectus, and our report dated February 21, 1995, relating to the schedule which is contained in Part II of the Registration Statement. We also consent to the reference to us under the captions "Selected Financial Information" and "Experts" in the Prospectus. BDO Seidman, LLP New York, New York November 8, 1996 -----END PRIVACY-ENHANCED MESSAGE-----