-----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, FmlI7uRPafB+R5YGrh25z3C2Shi1ZTljY/nsZIIW4NJJ4J6JioeqeQczVHS0yS8n 05V19KCcu9S/DxnT+UVLCQ== 0000927016-98-001221.txt : 19980331 0000927016-98-001221.hdr.sgml : 19980331 ACCESSION NUMBER: 0000927016-98-001221 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK SIX INC CENTRAL INDEX KEY: 0000726714 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 050366090 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-21038 FILM NUMBER: 98577730 BUSINESS ADDRESS: STREET 1: 475 KILVERT ST CITY: WARWICK STATE: RI ZIP: 02886 BUSINESS PHONE: 4017329000 MAIL ADDRESS: STREET 1: 475 KILVERT STREET CITY: WARWICK STATE: RI ZIP: 02886 10-K405 1 ANNUAL REPORT - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1997 Commission File Number 0-21038 NETWORK SIX, INC. (Exact name of registrant as specified in its charter) Rhode Island 05-0366090 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 475 Kilvert Street Warwick, Rhode Island 02886 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (401) 732-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X. NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's Common Stock held by non- affiliates of the registrant as of February 27, 1998 (computed by reference to the closing price of such stock on the NASDAQ/ National Market System) was $2,325,814. As of February 28, 1998, there were 734,294 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT WHERE INCORPORATED -------- ------------------ Portions of the registrant's definitive Proxy Statement regarding the 1997 Annual Meeting of Stockholders Part III - -------------------------------------------------------------------------------- NETWORK SIX, INC. Form 10-K TABLE OF CONTENTS -----------------
Item Page - ------ ---- Part I 1 Business............................................................. 3 2 Properties........................................................... 9 3 Legal Proceedings.................................................... 10 4 Submission of Matters to a Vote of Security Holders.................. 11 Part II 5 Market for Registrant's Common Equity and Related Stockholder Matters 12 6 Selected Financial Data.............................................. 13 7 Management's Discussion and Analysis of Financial Condition and Results of Operation.............................................. 14 8 Financial Statements and Supplementary Data.......................... 20 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.............................................. 20 Part III 10 Directors and Executive Officers of the Registrant................... 21 11 Executive Compensation............................................... 21 12 Security Ownership of Certain Beneficial Owners and Management....... 21 13 Certain Relationships and Related Transactions....................... 21 Part IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K...... 21 Signatures........................................................... 24
2 PART I ITEM 1. BUSINESS. GENERAL Network Six, Inc. is a systems integrator and provider of software, information technology consulting and network services to government and industry. Incorporated in 1976 under the name National E-F-T, Inc., the Company has historically focused on providing its services to state government human services agencies, and substantially all of its revenues are currently derived from contracts with such agencies. However, the Company today targets its marketing activities to many government agencies as well as non-profits and private industry. The Company is incorporated under the laws of Rhode Island, and its principal executive offices are located at 475 Kilvert Street, Warwick, Rhode Island 02886, telephone number (401) 732-9000. INDUSTRY Rapid improvements in price and performance of computer and communications equipment in the last 20 years, coupled with the growth of sophisticated, powerful software, have resulted in a substantial increase in the number of organizations that use computer-based information systems and in the scope of such systems. The proliferation of both products and suppliers of products has not only expanded the scope of tasks that can be performed by information systems; it has also increased the complexity of such systems. Information systems typically include computer hardware (mainframe, minicomputers, and workstations), software (both custom and packaged), and communications equipment. Effective operation of information systems depends not only on having proper equipment and software, but also on having well- trained and skilled personnel. The pace and magnitude of technological change have been so great that it has been difficult for in-house data processing staffs to remain abreast of developments. As a result, business and government organizations are increasingly retaining third-party vendors employing skilled information technology professionals to define, develop, and install complex custom information systems and to provide applications software and comprehensive solutions to their information systems needs. Such organizations are also turning to such third-party vendors to provide information technology services in order to reduce their investments in technology and personnel. STATE GOVERNMENT HUMAN SERVICES AGENCY MARKET State government human services agencies provide services to a large percentage of the population and maintain extensive records. They are among the organizations that most need the services of outside providers of information technology services to assist in upgrading and maintaining their information systems. Many state agencies' information systems are obsolete and have limited data-interfacing capabilities. For all intents and purposes the states are in a fiscal crisis, requiring their human service agencies to become more productive and perform enhanced functions with fewer personnel. Human service agencies have large and burdensome caseloads. One in four children in the United States lives in a single parent household. Welfare reform has recently passed in Congress and is a 3 major initiative that could have a significant impact on human service delivery by government agencies. Unmarried mothers in some inner city areas deliver 80% of all babies. The number of families receiving Aid to Families with Dependent Children (AFDC) through the third generation is increasing and has been referred to by Senator Daniel Patrick Moynihan as "the permanent underclass." State human services agencies have had a growing need to increase the capacity and enhance the capabilities of their information systems as the federal government, which in most cases provides a substantial portion of the funding of the programs that the states administer, has required detailed standardized reporting of program data, elimination of errors, and more responsive management. Over time, the federal government has assisted the states by providing financial assistance for information systems that could be broken down into six major areas: (i) the Child Support Enforcement (CSE) program; (ii) the welfare programs of AFDC and food stamps that have been combined into Family Assistance Management Information Systems (FAMIS); (iii) the Jobs Opportunities and Basic Skills (JOBS) program; (iv) the Medicaid and experimental managed care programs; (v) the Child Welfare program; and (vi) other programs, including Electronic Benefit Transfer (EBT), automated program policy systems, and out sourcing and privatization of human services agency functions. The U.S. Department of Health and Human Services (HHS) administers these programs at the federal level, with the exception of the food stamp program that is administered by the Food Nutrition Service of the U.S. Department of Agriculture (USDA). Child Support Enforcement. The federal Child Support Enforcement program was established in 1975 in response to the increasing failure of many parents to provide financial support to their children. The purpose of the CSE program is to help strengthen families and reduce welfare dependency by placing the responsibility for supporting children on the parents rather than the government. State governments are generally required to locate absent parents, establish paternity if necessary, obtain judicial support orders, and collect the support payments required by those orders. The Child Support Enforcement Amendments of 1984 mandated that state CSE systems, in order to receive matching federal funding, must meet certain federal functional requirements covering case initiation, case management, database linkage, financial management, enforcement, security, privacy, and reporting. A state's automated system must, among other things: (i) maintain identifying information on individuals on whom support obligations are sought; (ii) maintain data necessary to meet federal reporting requirements; (iii) collect and distribute both intrastate and interstate support payments; (iv) maintain accounts receivable on all amounts owed, collected, and distributed; (v) provide management information on all cases from initial referral or application through collection and enforcement; and (vi) provide security to prevent unauthorized access to the data in the system. The Family Support Act of 1988, effective October 1992, mandated enhanced functional requirements for state CSE systems, including requiring automated systems to be able to interface electronically with other systems, such as the state's welfare, driver and vehicle registration, and Medicaid systems. Welfare. The automated information system requirements of two distinct federal-state programs - AFDC and Food Stamps - are usually combined at the state level, sometimes under the name FAMIS or "Family Assistance Management Information System." Under the AFDC program, originally established by the Social Security Act of 1935, cash welfare payments are provided to needy children who have been deprived of parental support or care and certain others in the household of the child. State governments are required to define "need," set their own benefit levels, establish (within federal limitations) income and resource limits, and administer the program or supervise its administration. As with the CSE program, the federal government reimburses part of the states' cost to develop an AFDC system and part of the cost of operating these systems. 4 The Food Stamp Program is designed to improve the nutrition of low-income households and is also administered by state welfare agencies under the supervision of USDA. Benefits are generally provided in the form of food stamp coupons and are funded by the federal government, which reimburses part of the cost of establishing an automated system and part of the cost of operating an automated food stamp program. JOBS. Beginning October 1, 1990, all states have been required to have a Job Opportunities and Basic Skills Training Program. The program is designed to help needy families with children to avoid long-term welfare receipt by providing education, training, job placement, and other supportive services including childcare. Medicaid and Managed Care. Medicaid is a federal-state matching entitlement program providing reimbursement for the cost of medical care to low- income individuals who are aged, blind, disabled, or members of families with dependent children, and to certain other pregnant women and children. Within broad federal guidelines, each state designs and administers its own program. Eligibility systems and claims processing systems are automated by states to handle this program, which is typically the largest line item in a state budget. Federal assistance is also available on a waiver basis for managed care experiments for Medicaid recipients and similar populations. Child Welfare. In November 1993 Congress created a funding authority for Statewide Automated Child Welfare Information Systems (SACWIS) that provides federal funds at a 75% rate for the creation of information systems for fiscal years 1994, 1995, 1996 and 1997.Funding levels in 1998 vary from 50 75%. Also in December 1993, the Administration for Children and Families of HHS published the final rules for the implementation of the section of the Social Security Act of 1935 that requires the collection of adoption and foster care data. Other Human Services Programs. State human services agencies have initiated a number of additional programs, some of which have involved the use of federal funds. These programs include: (i) communications kiosks and voice response systems to inform and educate citizens about human services programs and to answer specific inquiries; (ii) privatization and out sourcing of various human services functions such as child support collections; (iii) automated policy systems to eliminate the volumes of federal and state regulations that must be referred to by social workers; (iv) Electronic Benefit Transfer (EBT) systems that involve the transfer of food stamp benefits and payments via electronic networks that may utilize debit cards or smart cards in conjunction with automated teller machines or point of sale devices. Federal Funding. Federal Financial Participation (FFP) is the term used for federal funds that are provided to states to assist in delivering human services or for establishing automated systems to assist in such delivery. From time to time Congress will increase FFP percentages for a limited time in an attempt to motivate states to automate or upgrade certain systems. The following is a table of FFP percentages for state automation by selected program as of December 31, 1997:
Projected End Date Program FFP% Of Current FFP% - -------- ---- --------------- Temporary Aid to Needy Families 100% None* Food Stamps 50% None CSE 66%-90% September 30, 1999**
5 Medicaid 50% None Medicaid/Managed Care 50-90% Varies Child Welfare 50%-75% None Other Human Services Systems Varies Varies
* State block grants up to a maximum dollar amount by state. **Declines to 66%, except for certain welfare reform initiatives, which would be eligible for 80% FFP The Federal Funding Participation percentages shown above are subject to change by the U.S. Congress. CONTRACTS AND SERVICES PROVIDED The Company's contracts with state human services agencies have covered four basic types of projects: (i) the transfer of an entire automated information system currently in use by another state, which involves the development of substantial modifications to that system and installation of the modified system; (ii) the development of an entirely new system; (iii) the development and installation of enhancements to an agency's existing system; and (iv) providing support services with respect to an existing system. The following table sets forth information as of December 31, 1997 relating to the Company's significant contracts with state human services agencies since December 1994:
State Program Area Project Contract Date Status - ----- ------------ ------- ------------- ------ U.S. Virgin Islands CSE transfer system December 1994 In process Idaho CSE support services May 1995 In process Washington State CSE support services December 1995 Complete Louisiana Child Care package software March 1995 Complete with customization Rhode Island FAMIS/CSE support services July 1995 In process Rhode Island Dept. of Health develop new system May 1996 In process Maine Child Welfare transfer system April 1997 In process
6 Contract Process. Because most human services agency contracts involve federal funding, they originate with a federally required Advanced Planning Document (APD) submitted by the state agency to the federal government for approval. The federal government reviews APDs to ensure that the system proposed by the agency incorporates minimum functional requirements and will otherwise meet federal, state, and user needs in a cost effective manner. Following approval of the APD, the state agency prepares a request for proposals (RFP) from private industry for software services and for equipment, or hardware, by which the system will operate. Each RFP, which is also subject to approval by the federal government, is usually divided into two parts, one soliciting technical proposals and the other soliciting price proposals. There may be separate RFP's for hardware and software or the RFP may be a "bundled" bid that includes both hardware and software. RFPs essentially define the procuring agency's functional requirements, and proposals submitted in response thereto by the Company and its competitors are extensive, detailed descriptions of the manner in which the system proposed would satisfy those requirements and the experience and qualifications of those who would design and implement the system. The Company's cost of preparing such proposals ranges between $50,000 and $150,000, and the Company has submitted proposals both as a prime contractor and as a subcontractor to others. Contracts are usually awarded on the basis of a combination of technical considerations and price, although price can be the determinative factor as between technically acceptable proposals. Contract award generally occurs approximately 12 months after issuance of the RFP. Services. The Company's contracts with state agencies are usually fixed price agreements, except for support services which are generally time and materials contracts, and typically involve most or all of the following services provided by the Company: . customizing and modifying an existing system to be transferred or designing a new system; . writing computer programs; . installing the system; . converting data from computer or manual files; . testing the system; . training personnel to operate the system; . providing computers and related equipment; and . managing the system. As a result the services provided in performing a contract are not technically complex, but require emphasis on carefully defining the needs of the staffs of the agencies that administer the human services programs involved and adapting existing technology to satisfy those needs. Change orders and enhancements under existing contracts are also usually performed on a fixed- price basis and may result in substantial additions to the base contract price. Contract performance generally occurs over a period of 24 to 36 months. Federal Certification. When system development and installation are complete, the contracting state agency is generally required to obtain federal certification that the system meets federal requirements. There are no fixed time requirements for obtaining certification, and certification of the systems installed by the Company has generally been received between 6 and 12 months following completion of installation. Many state agencies require the contractor to provide a performance bond, ranging from 10% to 50% of the contract price, to be released upon completion of the warranty period or upon certification. Total-systems contracts also often provide for a warranty period following completion of the contract. 7 Following certification of a newly installed system, it is not unusual for state agencies to contract for support services. Services provided under support contracts are usually paid for on the basis of an hourly rate plus expenses with an overall limitation. The Company estimates that automated information systems currently being installed have a useful technological life of five years and that the systems require revisions every year to keep up with changing legislation, regulation, and needs of the human services agency users. Termination. As with government contracts generally, the Company's contracts with state human services agencies may be terminated upon relatively short notice, with no obligation upon the agency other than to reimburse the Company for its costs of performance through the date of termination. Such contracts also generally impose substantial penalties for default such as failure to obtain federal certification of the completed system. COMPETITION The Company's business is highly competitive. The Company's competitors for state human services agency contracts include firms such as Andersen Consulting, Unisys, Lockheed Martin Information Management Systems, IBM/ISSC, SHL SystemsHouse (now part of MCI), EDS, American Management Systems, BDM International (now part of TRW) and Deloitte & Touche, with substantially greater financial, technical, and marketing resources than those of the Company. The Company believes, however, that no single contractor is dominant in its market and that the primary competitive factors are reputation, capability and resources, experience with similar systems, quality and reliability of service, flexibility and price. With respect to other State agencies, non-profits and private sector, there are numerous companies that provide software and system development and information technology services. None, however, dominates the market. The network services market is relatively young and has many companies competing for various business opportunities. BACKLOG Substantially all of the Company's revenues are derived from work to be performed under contracts of expected duration exceeding one year. Such contracts may be terminated on relatively short notice and may be subject to/contingent upon state or federal funding. The Company does not believe that contracts for work outstanding at any particular time provide a meaningful indication of future revenue. At December 31, 1997, the Company had the following contracts to provide services which, if fully performed, would result in the revenues shown: 8
Amount Recognized as Contract Revenues Contract Earned thru Backlog Contract Title Amount(1) 12/31/97 As of 12/31/97(2) - ---------------------- ------------------- ---------------- ----------------------- Rhode Island CSE $ 2,498,400 $ 2,270,892 $ 227,508 Rhode Island Support 4,343,584 2,160,445 2,183,139 U.S. Virgin Islands 6,029,590 5,551,948 477,642 Rhode Island Dept. of Health 1,933,916 1,474,453 459,463 Maine Child Welfare (MACWIS) 6,703,578 5,721,103 982,475 Others 554,621 197,381 357,240 ----------- ----------- ---------- Totals $22,063,689 $17,376,222 $4,687,467 =========== =========== ==========
(1) Contract amounts for certain of the above contracts have been adjusted to reflect change orders for enhancements or additional functionality. (2) The Company expects that substantially all of its backlog at December 31, 1997 will be realized by the end of 1998. There can be no assurance, however, that the Company will ultimately realize all of these revenues from such contracts. See Note 10 to Financial Statements regarding concentration of revenue. EMPLOYEES The Company believes that its future success will depend in large part upon its continued ability to hire and retain qualified technical and project management personnel. There can be no assurance that the Company will be successful in attracting and retaining sufficient numbers of qualified personnel to conduct its business in the future. As of December 31, 1997, the Company had approximately 74 employees. None of the Company's employees is represented by a labor union. The Company believes its relations with its employees are excellent. ITEM 2. PROPERTIES. The Company's principal offices are located in Warwick, Rhode Island, approximately 12 miles from Providence. The Company leases approximately 9,500 square feet of office space at this location under a lease with an average annual cost including utilities of approximately $186,000 that expires on October 31, 2000. The Company believes that these offices are adequate for its current and near term needs. 9 ITEM 3. LEGAL PROCEEDINGS In June 1995, the Company began negotiating a significant amendment to its contract for a child support enforcement ("CSE") system with the State of Hawaii (the State) when it determined that the total estimated cost to complete the system would be significantly greater than expected. In March 1996, the Company received final State and federal government approval for this contract amendment totaling $4.4 million. As a result of numerous in-depth reviews of this contract amendment, management determined that remaining contract costs would exceed the contract value by $440,000, and therefore, accrued this loss in December 1995. In June 1996 the Company announced a new subcontract agreement with Complete Business Solutions, Inc ("CBSI") to expand CBSI's role in the Hawaii CSE contract. CBSI, at the request of Hawaii, was contracted to lead a detailed review of the current system under development. Hawaii, in turn, agreed to pay CBSI $1.2 million from the Company's remaining contract budget when various milestones were achieved. The Company had a significant role in the detailed review and had hoped that its results would facilitate the resolution of open contractual scope issues. On September 13, 1996, the State of Hawaii terminated its contract with the Company, effective September 23, 1996, claiming that the Company had failed to fulfill its obligations under the contract. In response, the Company also terminated the contract with the State effective September 23, 1996. The Hawaii contract, originally estimated to be a $20.7 million contract, was increased to $25.2 million by the State and the Company in February 1996, and was the Company's largest contract at the time. Prior to termination, approximately $16.5 million of costs had been incurred towards completion of the contract, and $11 million had been billed and substantially paid. On November 12, 1996 the State of Hawaii filed a lawsuit in the Circuit Court of the First Circuit of the State of Hawaii against the Company and Aetna Casualty and Surety and Federal Insurance Company for damages due to breach of contract (the "Hawaii litigation"). Aetna Casualty and Surety and Federal Insurance Company provided the $10.3 million performance bond on the Company's contract with the State of Hawaii to develop and install the State's child support enforcement system. The suit alleges the Company failed to meet contractual deadlines, provided late, incomplete and/or unsuitable deliverables, materially breached the contract by never completing the design, the application programming, and the system test and systems implementation. The State is seeking an unspecified amount for general damages, consequential and special damages, liquidated damages, attorneys' fees, reimbursement for the cost of the suit and interest costs that the court deems just and proper. The Company vigorously denies the State's allegation and, on January 23, 1997, filed a counter claim against the State alleging that the State has breached the contract. The Company is seeking $70 million in damages and is alleging that the State fraudulently induced the Company into designing and building a system having capabilities and features far beyond the scope of the Company's contract. The fraudulent inducement was in the form of withholding payments, improper rejection of work that satisfied the requirements of the contract and verbal and written abuse of the Company's employees and management. In addition, Unisys, a vendor providing equipment under the Company's Hawaii contract, submitted a $896,000 claim against the $10.3 million performance bond. In February of 1997, the State released all but $1.1 million of the performance bond; the remainder is intended to cover amounts payable to Unisys and other subcontractors. In April of 1997, after a detailed review of their records and discussions with the Company, Unisys agreed to lower their claim to $859,602 and Aetna Casualty and Surety paid that claim. Lockheed Martin IMS (Lockheed), who guaranteed the performance bond, reimbursed Aetna for that claim. In December 1997, the Company reached an agreement with Lockheed to repay the $859,602 over a five-year period. 10 On December 13, 1996 CBSI filed a lawsuit in the Superior Court of the State of Rhode Island for $517,503, which the Company had previously accrued, plus interest, costs and attorney's fees. The Company disputes the $517,503 owned to CBSI and filed a counterclaim against CBSI on January 13, 1997 alleging, among other things, that CBSI failed to complete its duties required under the subcontract with the Company in a timely manner, improperly engaged in negotiations with the State of Hawaii to complete the project, hired and attempted to hire employees of the Company in violation of its subcontract agreement with the Company and obtained and utilized confidential information and proprietary intellectual property inappropriately. Also, the Company alleges that CBSI owes the Company $482,750 as of December 31, 1996 for which the Company has not established a reserve for uncollectibility. On February 3, 1997, the Company filed a third-party complaint ("TPC") as part of the Hawaii litigation against MAXIMUS Corporation ("MAXIMUS") and CBSI. MAXIMUS has been the State of Hawaii's contract supervisor and advisor since the inception of the Hawaii project. The allegations the Company has made against CBSI in this TPC are substantially similar to the allegations made against CBSI in the Company's counterclaim to CBSI's December 13, 1996 lawsuit brought against the Company in Rhode Island. The Company alleged, moreover, that MAXIMUS is liable to the Company on grounds that: (i) the Company was an intended third party beneficiary under the contract between the MAXIMUS and Hawaii; (ii) MAXIMUS tortuously interfered in the contract between the Company and Hawaii; (iii) MAXIMUS negligently breached duties to the Company and (iv) MAXIMUS aided and abetted Hawaii in Hawaii's breach of contract. The Company's complaint seeks $60 million in damages. Management believes that the Company's claims against the State, MAXIMUS and CBSI have substantial merit and will vigorously pursue these claims. There is substantial uncertainty, however, inherent in all litigation. If the Company were not to prevail in its suit with the State, such a result could have a material adverse financial effect on the Company and could jeopardize the Company's ability to continue with its present listing on The Nasdaq National Market. Management of the Company and its attorneys are unable to predict with any certainty the ultimate outcome of this litigation, although it is their belief that a favorable outcome is likely. At December 31, 1997, the Company had unbilled work-in-process and related receivables from the State and CBSI of approximately $3.46 million, which exceeds stockholders' equity of approximately $2.96 million, for which no allowance for uncollectibility has been recorded. The Company has not accrued for any potential liability to the State, which may result from this litigation. In addition, the Company has not accrued for any legal expense to be incurred in connection with this litigation, which could be significant. Due to the significant uncertainty created by these events, the Company ceased recognition of revenue on the Hawaii contract in 1996. An adjustment of $1.8 million was recorded in the fourth quarter to reverse revenue of $1 million, $400 thousand and $400 thousand previously in the first, second and third quarters, respectively. In addition, 1996 costs incurred related to the Hawaii contract of $1.96 million have been charged to expense. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded in The Nasdaq National Market under the symbol "NWSS." Prior to August 2, 1993, the Common Stock was traded in the over-the-counter market under the same symbol. The following table sets forth the high and low sales prices of the Company's Common Stock as reported on The Nasdaq National Market. The prices have been adjusted to reflect the one-for-four reverse stock split which occurred on December 11, 1996.
HIGH LOW ---------- ---------- 1997 First Quarter $ 2.88 $0.88 Second Quarter 2.13 1.25 Third Quarter 3.00 1.75 Fourth Quarter 3.88 2.25 1996 First Quarter $15.50 $6.00 Second Quarter 15.50 7.25 Third Quarter 11.50 4.00 Fourth Quarter 6.50 0.63
As of December 31, 1997 there were 298 holders of record of the Common Stock, representing approximately 331 beneficial owners. The last reported sale price for the Common Stock, as reported on The Nasdaq National Market on February 27, 1998 was $3.25 per share. DIVIDEND POLICY The Company has not paid any dividends on its Common Stock since its formation. It presently intends to retain its earnings for use in its business and does not anticipate paying any cash dividends in the foreseeable future. The Company's Articles of Incorporation prohibit the payment of dividends on the Common Stock if dividends required to be paid on the Company's Series A Convertible Preferred Stock are in arrears, which they are. 12 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data are qualified by reference to, and should be read in conjunction with, the Company's Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operation" contained elsewhere in or incorporated by reference in this Form 10-K. The selected financial data for each of the five years in the period ended December 31, 1997 are derived from the Company's audited financial statements. INCOME STATEMENT DATA:
Year Ended December 31, ----------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 --------------- ---------------- ---------------- --------------- --------------- Contract revenue earned $11,460,437 $ 7,344,380 $20,985,012 $21,210,878 $14,570,469 Cost of revenue earned 8,620,097 7,359,649 19,299,944 13,768,838 9,206,879 ----------- ----------- ----------- ----------- ----------- Gross profit (loss) 2,840,340 (15,269) 1,685,068 7,442,040 5,363,590 Selling, general and administrative expense 2,071,294 2,240,073 4,369,260 3,700,789 3,030,977 Research & development expense - - 185,235 - - Restructuring expense - (119,436) 537,221 - - Income (loss) from operations 769,046 (2,135,906) (3,406,648) 3,741,251 2,332,613 Income (loss) before income taxes 534,950 (2,533,368) (3,792,521) 3,574,612 2,322,061 Net income (loss) 406,950 (1,758,345) (2,427,440) 2,109,020 1,395,718 Net income (loss) per share Basic 0.25 (2.71) (3.68) 2.79 1.80 Diluted 0.25 (2.71) (3.68) 2.39 1.61 Shared used in computing net income (loss) per share Basic 729,927 719,317 709,841 689,587 670,928 Diluted 729,927 719,317 709,841 883,184 867,503
13 BALANCE SHEET DATA:
Year Ended December 31, ----------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 --------------- ---------------- ---------------- --------------- --------------- Working capital $ 22,117 $(1,073,671) $(2,075,339) $ 6,266,622 $ 4,137,410 Hawaii contract receivables* 3,459,382 3,571,824 5,711,022 3,691,048 958,517 Total assets 9,292,103 8,273,564 14,945,273 11,930,399 9,285,090 Long-term obligations 1,422,725 235,479 254,393 158,038 - Total stockholders' equity 2,955,420 2,748,777 4,644,494 6,914,434 4,602,337
* See Note 12 in the notes to the financial statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The following analysis of the financial conditions and results of operations of the Company should be read in conjunction with the Company's Financial Statements and Notes thereto included elsewhere in or incorporated by reference in this Form 10-K. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements reflecting the Company's expectations or beliefs concerning future events that could materially affect Company performance in the future. All forward-looking statements are subject to the risks and uncertainties inherent with predictions and forecasts. They are necessarily speculative statements, and unforeseen factors, such as competitive pressures, litigation results and regulatory and state funding changes could cause results to differ materially from any that may be expected. In particular, adverse decisions in on-going material litigation could have a material adverse effect on the Company's financial condition and operating results. See Item 3 - Legal Proceedings. Actual results and events may therefore differ significantly from those discussed in forward-looking statements. Moreover, forward-looking statements are made in the context of information available as of the date stated, and the Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. GENERAL The Company was incorporated in 1976 as National E-F-T, Inc. Initially the Company provided consulting services with respect to electronic funds transfer and electronic data interchange systems. In 1983 the Company changed its name to Network Solutions, Inc. and on February 1, 1994 to Network Six, Inc. By 1983, the Company had changed its focus to that of a regional provider of systems development and contract computer programming services. Since 1988, the Company has focused its efforts on providing its services to state government human services agencies. Most 14 recently, the Company began targeting its marketing efforts at other government agencies as well as non-profits and the private sector. In January 1997 the Company announced that it had been selected as an approved vendor with the State of Arizona, Department of Administration, to provide data processing, management and consulting services. The Company was one of several vendors selected in a competitive procurement process from a very large field to provide Arizona services. As of yet, however there has been no revenue recognized from Arizona. Also in January 1997, the Company announced the formation of a Network Services Division. The new division, based in Warwick, RI, provides system administration, consulting, design, implementation and support services in the LAN, WAN, Internet/intranet and remote communications technology areas. The Company created this division based on the current and future market demand. Although the division is new, the Company has considerable experience in these areas, having worked most recently on remote cellular communications, Web page development, LAN/WAN development and legacy system/LAN integration projects. In March 1997 the Company announced the resignation of Mr. James J. Trainor from the Board of Directors. Mr. Clifton C. Dutton was elected to the Board of Directors in March 1997. In March 1997 the Company announced that it had signed a contract with the State of Maine, Department of Human Services, to transfer, modify and implement a child welfare system for $6.3 million. Unisys Corporation is a subcontractor to the Company on this contract and is playing a significant role in modifying the system Unisys developed for Indiana for Maine. In March 1997 the Company received a $332,000 Change Order to its contract with the State of Rhode Island, Department of Health, to provide a centralized data management, tracking and communications system which will link the State's databases into the Rhode Island Children's Access Program or "RICAP." This Change Order increased the value of the Company's contract with the State of Rhode Island Department of Health to $1.9 million. In May 1997 the State of Rhode Island, Department of Human Services, extended its support contract with the Company for another year, through June 30, 1998. The Company's current contract would have expired on June 30, 1997. The value of the contract extension is approximately $2.7 million. In September 1997 the State of Rhode Island, Department of Human Services, increased its support contract with the Company by $1.7 million in response to federal welfare reform legislation. This increased the contract ceiling to $4.3 million through June 30, 1998. Also in September 1997, the Company announced it had been selected by the State of Rhode Island, Department of Administration and by GTECH Corporation to provide software support services to each of these entities. In September 1997 the Company confirmed that it had received a proposal from Netmaster Group, Inc. ("Netmaster") to invest $1.5 million in the Company, under certain conditions. The 15 Company has asked Netmaster to clarify its proposal. There has been no further contact between the companies. In January 1998 the Company announced a new $1.5 million line of credit (See "Liquidity and Capital Resources") and the change of its independent auditors from KPMG Peat Marwick LLP to Sansiveri, Kimball & McNamee L.L.P. The Company also announced an extension of the child support enforcement contract with the U.S. Virgin Islands and a contract to assist MIM Corporation with the application development of pharmaceutical benefits management system. Effective February 23, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") announced new listing requirements for continued inclusion on the Nasdaq National Market. Nasdaq has provided notice to the Company that the Company does not meet the new continued listing requirements with respect to the Company's net tangible assets and the market value of the Company's listed Common Stock. Although the Company believes it can propose and effect a plan to achieve compliance with the new listing requirements, there can be no assurance that the Company will be able to stay in compliance with the new Nasdaq requirements and the inability of the Company to satisfy such requirements could adversely affect the value of the Company's stock. The Company, if de-listed from The Nasdaq National Market, has the option seek inclusion of its securities on The Nasdaq SmallCap Market. The Company has received comments from the Securities and Exchange Commission regarding the timing of revenue recognition with regard to the Company's contract with the State of Hawaii during 1996 and whether an allowance should be taken by the Company against the contract receivable relating to that contract ($3,459,382 at December 31, 1997). The Company believes that, although the outcome of the Company's litigation with the State of Hawaii is uncertain (see Item 3 Legal Proceedings), that it is likely to prevail in the Hawaii litigation and therefore the Company is correct in not taking an allowance against that receivable. The Company has conducted a comprehensive review of its internal computer systems to identify the systems that could be affected by the "Year 2000" issue and is developing an implementation plan to resolve the issue. The Year 2000 problem is the result of computer programs being written using two digits rather that four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather that the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that, with modifications to existing software and converting to new software, the Year 2000 problem will not pose significant operational problems for the Company's computer systems as so modified and converted. However, if such modifications and conversions are not completed timely, the Year 2000 may have a material impact on the operations of the Company. RESULTS OF OPERATIONS The following table sets forth for the years indicated, information derived from the Company's Financial Statements expressed as a percentage of the Company's contract revenue earned: 16
Year ended December 31, ---------------------------------------------------------- 1997 1996 1995 1994 ------------- ------------- ------------- ------------- Contract revenue earned 100.0% 100.0% 100.0% 100.0% Cost of revenue earned 75.2% 100.2% 92.0% 64.9% Gross profit 24.8% -0.2% 8.0% 35.1% Selling and administrative expenses 18.1% 30.5% 20.8% 17.4% Research and development expense 0.0% 0.0% 0.9% 0.0% Restructuring 0.0% -1.6% 2.6% 0.0% Income before income taxes 4.7% -34.5% -18.1% 16.9% Net income (loss) 3.6% -23.9% -11.6% 9.9%
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Contract revenue earned increased $4,116,057, or 56%, from $7,344,380 in the year ended December 31, 1996 to $11,460,437 in the year ended December 31, 1997 primarily due to the commencement of the Maine Automated Child Welfare Information System (MACWIS) and additional work on the Rhode Island support contract in response to federal welfare reform legislation. This increase was offset in part by the substantial completion of the Idaho and the Virgin Islands Child Support Enforcement (CSE) projects and the West Virginia support project. Cost of revenue earned, consisting of direct employee labor, direct contract expense and subcontracting expense, increased $1,260,448, or 17%, from $7,359,649 in 1996 to $8,620,097 in 1997. This was a consequence of an increased level of effort needed to support the higher level of business. Gross profit increased $2,855,609 from a loss of $15,269 in 1996 to $2,840,340 in 1997. Gross profit as a percentage of revenue was (0.2%) for 1996 and 25% for 1997. The Company's expected lower margin on the Maine MACWIS project, where the Company's subcontractor is playing a significant role, was offset by higher margins on the welfare reform work on the Rhode Island support project. Selling, general and administrative expenses decreased $168,779, or 8%, from $2,240,073 in 1996 to $2,071,294 in 1997 primarily due to a reduction of expense to support the Company's marketing and proposal efforts. On a percentage basis, SG&A expenses decreased from 31% in 1996 to 18% in 1997 primarily as a consequence of the Company's efforts to reduce expenses and increase revenues. Interest expense decreased $169,895 or 39% from $435,925 in 1996 to $266,030 due to a lower level of borrowing. As a result of the foregoing, income before income taxes was $534,950 in 1997, an increase of $3,068,318 from a loss of $2,533,368 in 1996. Income before income taxes, as a percentage of contract revenue earned increased from a loss of 34% in 1996 to 5% in 1997. Net income of $406,950 in 1997 represents an increase of $2,165,295 from a net loss of $1,758,345 in 1996. As a percentage of contracts revenue earned net income increased from a loss of 24% in 1996 to 4% in 1997. The Company's effective tax rate was 31% for 1996 and 24% for 1997. The Company was able to utilize all remaining carry back and tax credits in 1997. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Contract revenue earned decreased $13,640,632, or 65.0%, from $20,985,012 in the year ended December 31, 1995 to $7,344,380 in the year ended December 31, 1996, primarily due to the completion of 17 the Maine FAMIS and the West Virginia CSE (OSCAR) projects and the substantial completion of the Idaho CSE and the Virgin Islands CSE (VIPERS) projects. In 1995, revenue recognized on the Hawaii contract totaled $6.1 million. Also, in 1996, due to the developments with the Hawaii contract discussed above and the uncertainties they created, the Company ceased recognition of revenue on the Hawaii contract and recorded an adjustment of $1.8 million in the fourth quarter to reverse revenue of $1 million, $400 thousand and $400 thousand previously recognized in the first, second and third quarters, respectively. See Item 3 Legal Proceedings. Cost of revenue earned, consisting of direct employee labor, direct contract expense and subcontracting expense, decreased $11,940,295, or 61.9%, from $19,299,944 in 1995 to $7,359,649 in 1996 due to the decreased effort to support the lower level of business and the lower reliance on subcontractor labor. Cost of revenue earned as a percentage of contract revenue earned increased from 92.0% in 1995 to 100.2% in 1996 due to approximately $1.96 million of Hawaii costs for which there were no corresponding revenues recognized. Gross profit decreased $1,700,337 or 100.9% from $1,685,068 in 1995 to ($15,269) in 1996. Gross profit as a percentage of revenue earned decreased from 9% in 1995 to (0.2)% in 1996. This was due to sales of hardware to Virgin Islands, Hawaii and Rhode Island RICAP projects that were at lower margins than profit earned on labor contracts and no corresponding revenue on Hawaii costs of approximately $1.96 million. Selling, general and administrative expenses decreased $2,129,187, or 48.7%, from $4,369,260 in 1995 to $2,240,073 in 1996. Selling, general and administrative expenses as a percentage of contract revenue earned increased from 20.8% in 1995 to 30.5% in 1996 primarily due no Hawaii revenue being recognized offset by the effect of the cost reductions implemented in early 1996 which were recorded as restructuring charges in 1995. Restructuring charges decreased $656,657 or 122.2% from $537,221 in 1995 to ($119,436) in 1996. The Company accrued $268,000 for payroll and related payroll taxes, $250,000 for excess office space and miscellaneous charges in 1995. The credit in 1996 of $119,436 was the result of the Company renegotiating the lease for its office space and being released from its commitment for unnecessary space. As a result of the foregoing, loss before income taxes decreased $1,259,153, or 33.2%, from a loss of $3,792,521 for 1995 to a loss of $2,533,368 for 1996. Loss before income taxes, as a percentage of contract revenue earned increased from 18.1% in 1995 to 34.5% in 1996. Net loss decreased $669,095, from a net loss of $2,427,440 in 1995 to a net loss of $1,758,345 in 1996. Net loss as a percentage of contract revenue earned increased from 11.6% in 1995 to 23.9% in 1996 primarily due to no revenue being recognized on the Hawaii contract. The Company recorded income tax benefit for federal and state income taxes for 1995 and 1996 in the amount of $1,365,081 and $775,023, respectively. The Company's effective tax rate was 36% for 1995 and 31% for 1996. The Company is not able to carry back losses for state income tax returns and has established a $134,000 reserve against future tax benefits which reduced the effective rate for 1996. LIQUIDITY AND CAPITAL RESOURCES In order to finance bid preparation costs and to obtain sufficient collateral to support performance bonds required by some customers, the Company has, in the past, entered into joint ventures with other firms with greater financial resources when bidding for contracts. The Company expects to continue and expand this practice prospectively as well as to pursue more time and material contracts than it has 18 historically pursued. Time and materials contracts generally do not require performance bonds and almost always involve less risk to deliver what the customer requires. The Company has historically not received its first contract progress payments until approximately three to six months after contract award, which itself was as much as 12 months after proposal preparation commences. The Company was therefore required to fund substantial costs well before the receipt of related income, including marketing and proposal costs and the cost of a performance bond. Prospectively, the Company expects to tighten up this timetable, thereby reducing the requirement for additional working capital. The Company has funded its operations through cash flows from operations, bank borrowings, borrowings from venture partners, and private placements of equity securities. Net cash provided by (used in) operating activities was $1,854,052, $2,253,504 and ($2,732,814) in the years ended December 31, 1997, 1996, and 1995 respectively. Fluctuations in net cash provided by (used in) operating activities are primarily the result of changes in net income, accounts receivable and income tax receivable, accounts payable and costs and estimated earnings in excess of billings on contracts due to differences in contract milestones and payment dates. On April 30, 1997 the Company signed a term loan (the "Loan") with its bank which required the Company to reduce its outstanding borrowings under the Loan from $1.8 million to the following limits: October 15, 1997 - $1,500,000, November 15, 1997 - $1,200,000 and December 15, 1997 - $900,000. The interest rate on the Loan was 16%, with the difference between 16% and prime plus 2% payable at maturity, which was January 31, 1998. There were also a number of provisions for accelerated payment to reduce the Loan balance, such as paying the bank 50% of any contract holdbacks or income tax refunds. In addition, the Company agreed to provide the bank with a warrant to purchase 50,487 unregistered shares of the Company's Common Stock at $1.75 per share, exercisable immediately with an expiration date of April 30, 2002, and agreed to provide the bank 15% of any recovery received from its litigation in Hawaii. The warrant and the bank's right to a percentage of any recovery would terminate if the Company paid down the Loan completely or raised $1 million of equity capital prior to maturity. The Company's obligations under the Loan were secured by substantially all of the assets of the Company. The Loan also provided that the Company not pay any dividends on its capital stock without the consent of the bank. On January 26, 1998 the Loan was paid in full. The warrant and the bank's right to a percentage of any Hawaii recovery were returned to the Company. On December 31, 1997 the Company signed a $1.5 million line of credit with a commercial lender (the "Line of Credit"). Accounts receivable from four of the Company's contracts secure the new Line of Credit. The Company can borrow up to 80% of the aggregate invoice amounts and is required to repay any borrowings within 90 days. The interest rate is prime plus five percent on balances below $1 million and prime plus one and one half percent on balances over $1 million. The Line of Credit also carries a six- percent annual service fee on borrowed balances. At December 31, 1997 the Line of Credit had an outstanding balance of zero. The Company believes that cash flow generated by operations will be sufficient to fund continuing operations through the end of 1998. This assumes, however, that there are no materially adverse decisions rendered in the ongoing litigation with Hawaii, MAXIMUS and CBSI. See Item 3-- Legal Proceedings. The Company is actively seeking new capital to improve its financial flexibility. The Company believes that inflation has not had a material impact on its results of operations to date. 19 RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income" which established standards for reporting and displaying of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in- capital in the equity section of the balance sheet. This statement is effective for fiscal years beginning after December 15, 1997. In 1997, the American Institute of Certified Public Accountants Statement of Position No. 97-2, "Software Revenue Recognition" established guidance for recognizing revenue on software transactions. The adoption of the statement in 1998 is not expected to have a significant effect on the Company's financial condition or results of operations. This statement is effective for fiscal years beginning after December 15, 1997. In December 1997, the Company adopted SFAS No. 128, "Earnings Per Share". This statement requires the Company to change the method that was previously used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options and warrants are excluded. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by Item 8 is contained on pages F-2 to F-24 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On January 6, 1998, the Company engaged the firm of Sansiveri, Kimball & McNamee, LLP ("SKM"), as its certifying accountant. The decision to engage SKM was approved by the Audit Committee of the Board of Directors of the Company. On January 6, 1998, the Company terminated, with the concurrence of its Audit Committee, its relationship with its certifying accountant KPMG Peat Marwick LLP ("KPMG"). Also on January 6, 1998 a Form 8K was filed with the SEC about this change and about a disagreement with KPMG. 20 had reason to know that revenue under the contract should not be recognized because of changed conditions, such revenue was reversed in the fourth quarter of 1996 and for the year ended December 31, 1996. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS. The Company currently intends to include the information required by Item 10 for its 1998 Annual Meeting Proxy Statement ("1998 Proxy Statement") and such proxy statement is incorporated herein by reference. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year end. ITEM 11. EXECUTIVE COMPENSATION. The Company currently intends to include the information required by Item 11 in the Company's 1998 Proxy Statement and such information is incorporated herein by reference. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The Company currently intends to include information required by Item 12 in the Company's 1998 Proxy Statement and such information is incorporated herein by reference. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company currently intends to include information required by Item 13 in the Company's 1998 Proxy Statement and such information is incorporated herein by reference. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year end. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) (1) LIST OF FINANCIAL STATEMENTS. The following financial statements and notes thereto of the Company and Independent Auditors' Report thereon are included on pages F-2 to F-24 of this report: Independent Auditors' Report of Sansiveri, Kimball & McNamee L.L.P. Independent Auditors' report of KPMG Peat Marwick LLP Balance Sheets as of December 31, 1997 and 1996 Statements of Operations for the Years Ended December 31, 1997, 1996, and 1995 Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996, and 1995 21 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Financial Statements (2) LIST OF FINANCIAL STATEMENT SCHEDULES. All schedules have been omitted because they are either not applicable or not required, or the required information is provided in the financial statements or notes thereto. (3) LIST OF EXHIBITS.
Exhibit Number Exhibit ------ ------- 3.1 Articles of Incorporation of the Company, as amended (incorporated by reference from the Company's Form 10, File No. 0-21038) 3.2 Bylaws of the Company as amended (incorporated by reference from the Company's Form 10, File No. 0-21038) 10.1 Stock Purchase Agreement dated October 29, 1992 between the Company and Saugatuck Capital Company Limited Partnership III (incorporated by reference from the Company Form 10, exhibit 10.7, File No. 0-21038) 10.2 Registration Rights Agreement dated October 29, 1992 between the Company and Saugatuck Capital Company Limited Partnership III (incorporated by reference from the Company's Form 10, exhibit 10.8, File No. 0-21038) 10.3 Incentive Stock Option Plan (incorporated by reference from the Company's Form 10, exhibit 10.9, File No. 0-21038) 10.4 Deferred Compensation Agreement between the Company and Mr. Robert E. Radican, as amended (incorporated by reference from the Company's Form 10-K, exhibit 10.10, for the fiscal year ended December 31, 1994) 10.5 1993 Employee Stock Purchase Plan (incorporated by reference from the Company's Form 10-K, exhibit 10.12, for the fiscal year ended December 31, 1994) 10.6 1993 Incentive Stock Option Plan (incorporated by reference from the Company's Form 10-K, exhibit 10.18, for the fiscal year ended December 31, 1993) 10.7 Contract dated November 10, 1994, between the Company and the Government of the Virgin Islands re CSE transfer system (incorporated by reference from the Company's Form 10-K, exhibit 10.21, for the fiscal year ended December 31, 1994) 10.8 Non-employee Director Stock Option Plan (incorporated by reference from the Company's Form 10-K, exhibit 10.12, for the fiscal year ended December 31, 1996)
22 10.9 Contract dated May 1996 between the Company and the State of Rhode Island Department of Health re RICAP system (incorporated by reference from the Company's Form 10-K, exhibit 10.13, for the fiscal year ended December 31, 1996) 10.10 Contract dated July 1996 between the Company and the State of Rhode Island Department of Human Services re support services (incorporated by reference from the Company's Form 10-K, exhibit 10.14, for the fiscal year ended December 31, 1996) 10.11 Contract dated May 1996 between the Company and Complete Business Solutions, Inc. re walk through agreement (incorporated by reference from the Company's Form 10-K, exhibit 10.15, for the fiscal year ended December 31, 1996) 10.12 Employment Agreement between the Company and Mr. Kenneth C. Kirsch dated January 1, 1997 (incorporated by reference from the Company's Form 10-K, exhibit 10.16, for the fiscal year ended December 31, 1996) 10.17 Credit Agreement dated December 31, 1997 between the Company and Prinvest Financial Corporation 10.18 Contract dated April , 1997 between the Company and the State of Maine Re: Automated child welfare system 10.19 Settlement agreement dated December 29, 1997 between the Company and Lockheed Martin IMS re note payable 22.1 List of Subsidiaries (incorporated by reference from the Company's Form 10, File No. 0-21038) 23.1 Consent of Sansiveri, Kimball & McNamee L.L.P. 23.2 Consent of KPMG Peat Marwick LLP 27.1 Financial Data Schedule -- 1997 27.2 Financial Data Schedule -- 1996, 1995 and quarters for 1996 27.3 Financial Data Schedule -- quarters for 1997
(B) REPORTS ON FORM 8-K. No Current Reports on Form 8-K were filed during the fourth quarter of 1997. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned on the 31st day of March 1998. NETWORK SIX, INC. By: /s/ Kenneth C. Kirsch -------------------------- Kenneth C. Kirsch President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Kenneth C. Kirsch Chairman of the Board, President, March 31, 1998 ----------------------- and Chief Executive Officer Kenneth C. Kirsch (Principal Executive Officer) /s/ Dorothy M. Cipolla Chief Financial Officer, and March 31, 1998 - ------------------------ Treasurer (Principal Financial Dorothy M. Cipolla and Accounting Officer) /s/ Dana H. Gaebe Director March 31, 1998 - ------------------------ Dana H. Gaebe /s/ Nicholas R. Supron Director March 31, 1998 - ------------------------ Nicholas R. Supron /s/ Clifton C. Dutton Director March 31, 1998 - ------------------------ Clifton C. Dutton 24 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page ---- Independent Auditors' Report of Sansiveri, Kimball & McNamee L.L.P. F-2 Independent Auditors' Report of KPMG Peat Marwick LLP F-3 Balance Sheets as of December 31, 1997 and 1996 F-4 Statements of Operations for the Years Ended December 31, 1997, 1996, and 1995 F-6 Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996, and 1995 F-7 Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995 F-8 Notes to Financial Statements F-10
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Network Six, Inc.: We have audited the accompanying balance sheet of Network Six, Inc. as of December 31, 1997 and the related statements of operations, stockholders' equity and cash flows for the year ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Network Six, Inc. as of December 31, 1996 and 1995 were audited by other audits or, whose report dated March 28, 1997 on those statements included an explanatory paragraph that described significant uncertainties as to the Company's ability to continue as a going concern. We conducted our audit 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 audit provides 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 Network Six, Inc. at December 31, 1997, and the results of its operations and its cash flows for the year ended December 31, 1997, in conformity with generally accepted accounting principles. As discussed more fully in Note 12 to the financial statements, in 1996 the State of Hawaii terminated a significant system implementation contract with the Company and filed a lawsuit against the Company seeking an unspecified amount for damages due to alleged breach of contract, including alleged failure to complete the design, application programming, system test, and system implementation. In January 1997, the Company filed a counterclaim alleging that the State had fraudulently induced the Company into designing and building a system having capabilities and features beyond the scope of the contract. At December 31, 1997 and 1996, the Company had unbilled work-in-progress and related receivables from the State of Hawaii of approximately $3.5 million. Also, the Company is involved in other litigation related to the Hawaii contract as discussed in Note 12. Sansiveri, Kimball & McNamee L.L.P. /s/ Sansiveri, Kimball & McNamee L.L.P. Providence, Rhode Island March 3, 1998 F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Network Six, Inc.: We have audited the accompanying balance sheets of Network Six, Inc. as of December 31, 1996 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1996. 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 Network Six, Inc. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1996, in conformity with generally accepted accounting principles. The accompanying 1996 and 1995 financial statements have been prepared assuming that the company will continue as a going concern. As discussed more fully in note 12 to the financial statements, in 1996 the State of Hawaii terminated a significant system implementation contract with the Company and filed a lawsuit against the Company seeking an unspecified amount for damages due to alleged breach of contract, including alleged failure to complete the design, application programming, system test and system implementation. In January 1997, the Company filed a counterclaim alleging that the State had fraudulently induced the Company into designing and building a system having capabilities and features beyond the scope of the contract. Management of the Company and its attorneys are unable to predict with any certainty the ultimate outcome of this litigation, including the probability that this litigation will have a material adverse impact on the Company's financial position. At December 31, 1996, the Company had unbilled work-in-process related to the contract with the State of Hawaii of approximately $3.5 million, which exceeded the Company's stockholders' equity of approximately $2.7 million, for which no allowance for uncollectability had been recorded. Additionally, the Company has not accrued for any liability to the State which may result from this litigation. Also, the Company is involved in other litigation related to the Hawaii contract as discussed in note 12, has suffered recurring losses and its bank financing agreement has expired. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these uncertainties are also described in note 12. The 1996 and 1995 financial statements do not include any adjustments that might result from the outcome of these uncertainties. KPMG Peat Marwick LLP /s/ KPMG Peat Marwick LLP Providence, Rhode Island March 28, 1997 F-3
NETWORK SIX, INC. Balance Sheets December 31, 1997 and 1996 ASSETS (NOTE 4) 1997 1996 - --------------- ----------------- ----------------- Current assets: Cash $ 1,291,924 $ 127,581 Contract receivables, less allowance for doubtful accounts of $50,000 in 1997 and $97,856 in 1996 (note 2) 2,011,379 1,528,757 Costs and estimated earnings in excess of billings on contracts (note 3) 1,388,515 1,864,939 Income taxes receivable (note 6) - 516,046 Other assets 244,257 158,976 ----------- ---------- Total current assets 4,936,075 4,196,299 ----------- ---------- Property and equipment (note 5) Computers and equipment 506,484 620,042 Furniture and fixtures 167,558 194,878 Leasehold improvements 20,191 20,191 ----------- ---------- 694,233 835,111 Less: accumulated depreciation and amortization 627,146 696,596 ----------- ---------- Net property and equipment 67,087 138,515 Deferred taxes (note 6) 391,475 190,624 Contract receivables and costs in excess of billings on Hawaii contract (notes 2, 3 and 12) 3,459,382 3,571,824 Other assets 438,084 176,302 ----------- ---------- $ 9,292,103 $8,273,564 =========== ==========
See accompanying notes to financial statements. F-4 NETWORK SIX, INC. Balance Sheets, continued December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 - ------------------------------------ ----------------- ------------------ Current liabilities: Notes payable to bank (note 4) $ 1,160,000 $ 1,800,000 Current installment of obligations under capital leases (note 5) 82,690 70,190 Accounts payable 188,377 1,732,332 Accrued salaries and benefits 449,133 470,767 Accrued subcontractor expense 1,352,393 22,244 Accrued restructuring (note 11) - 5,383 Note payable - short term (note 7) 163,871 143,646 Other accrued expenses 342,465 508,194 Billings in excess of costs and estimated earnings on contracts (note 3) 155,754 31,771 Income taxes payable (note 6) 13,338 - Deferred taxes (note 6) 545,869 270,021 Preferred stock dividends payable 460,068 234,760 ---------- ----------- Total current liabilities 4,913,958 5,289,308 ---------- ----------- Obligations under capital leases, excluding current installments (note 5) 104,003 171,608 Note payable - long term (note 7) 742,239 63,871 Hawaii Payable (note 12) 576,483 - ---------- ----------- Total Liabilities 6,336,683 5,524,787 ---------- ----------- Commitments (notes 5, 9 and 12) Other information (notes 10 through 11) Stockholders' equity: (note 8) Series A convertible preferred stock, $3.50 par value. Authorized 857,142.85 shares; issued and outstanding 714,285.71 shares in 1997 and 1996; liquidation of $3.50 per share plus unpaid and accumulated dividends 2,235,674 2,235,674 Common stock, $.10 par value. Authorized 4,000,000 shares; issued 734,294 shares in 1997 and 721,192 in 1996 73,429 72,119 Additional paid-on capital 1,670,939 1,653,296 Retained earnings (accumulated deficit) (1,024,622) (1,206,265) Treasury stock 3,748 common shares at cost - (6,047) ----------- ----------- Total stockholders' equity 2,955,420 2,748,777 Total Liabilities & Stockholder's Equity $ 9,292,103 $ 8,273,564 =========== ===========
See accompanying notes to financial statements. F-5 NETWORK SIX, INC. Statements of Operations Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ------------------ ----------------- ----------------- Contract revenue earned (note 10) $11,460,437 $ 7,344,380 $20,985,012 Cost of revenue earned 8,620,097 7,359,649 19,299,944 ----------- ----------- ----------- Gross profit (loss) 2,840,340 (15,269) 1,685,068 Selling, general & administrative expenses 2,071,294 2,240,073 4,369,260 Research & development expense - - 185,235 Restructuring (note 11) - (119,436) 537,221 ----------- ----------- ----------- Income (loss) from operations 769,046 (2,135,906) (3,406,648) Other deductions (income) Interest expense 266,030 435,925 396,286 Interest earned (31,934) (38,463) (10,413) ----------- ----------- ----------- Income (loss) before income taxes 534,950 (2,533,368) (3,792,521) Income taxes (note 6) 128,000 (775,023) (1,365,081) ----------- ----------- ----------- Net income $ 406,950 $(1,758,345) $(2,427,440) =========== =========== =========== Net income (loss) per share: Basic $0.25 $(2.71) $(3.68) =========== =========== =========== Diluted $0.25 $(2.71) $(3.68) =========== =========== =========== Shares used in computing net income per share: Basic 729,927 719,317 709,841 =========== =========== =========== Diluted 729,927 719,317 709,841 =========== =========== =========== Preferred dividends declared $ 225,308 $ 187,500 $ 187,500 =========== =========== ===========
See accompanying notes to financial statements. F-6 NETWORK SIX, INC. Statements of Stockholders' Equity Years ended December 31, 1997, 1996 and 1995
Series A Retained Convertible Additional Earnings Total Preferred Common Paid-in (Accumulated Treasury Stockholders' Stock Stock Capital Deficit) Stock Equity ------------------------------------------------------------------------------- Balance at December 31,1994 $2,235,674 $69,900 $1,260,387 $ 3,354,520 $(6,047) $ 6,914,434 Net Loss (2,427,440) (2,427,440) Dividends declared on preferred stock 7.5%/share (187,500) (187,500) Shares Issued in connection with exercise of options 1,175 342,057 343,232 Shares Issued in connection with exercise of warrants 442 1,326 1,768 ------------------------------------------------------------------------------- Balance at December 31, 1995 2,235,674 71,517 1,603,770 739,580 (6,047) 4,644,494 Net Loss (1,758,345) (1,758,345) Dividends declared on preferred stock (187,500) (187,500) 7.5%/share Shares Issued in connection with exercise of options 490 37,485 37,975 Shares Issued in connection with employee stock purchase plan 112 12,041 12,153 ------------------------------------------------------------------------------- Balance at December 31, 1996 2,235,674 72,119 1,653,296 (1,206,265) (6,047) 2,748,777 Net Income 406,950 406,950 Dividends declared on preferred stock 7.5%/share (Q1-Q3); 13.5% (Q4) (225,308) (225,308) Sale of 4,998 treasury shares 6,047 6,047 Sale of 13,102 new shares 1,310 17,643 18,954 ------------------------------------------------------------------------------- Balance at December 31, 1997 $2,235,674 $73,429 $1,670,939 $(1,024,623) $ - $ 2,955,420 ===============================================================================
See accompanying notes to financial statements. F-7 NETWORK SIX, INC. Statements of Cash Flows Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---------------- ---------------- --------------- Net Income (loss) $ 406,950 $(1,758,345) $(2,427,440) Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 82,010 337,460 400,904 Provision for doubtful accounts (47,856) 47,856 - Loss on sale/disposal of fixed assets 9,023 60,487 - Changes in operating assets and liabilities: Contract receivables (434,765) (100,059) 364,203 Cost and estimated earnings in excess of billings on contracts 476,423 1,348,138 1,360,086 Income taxes receivable 516,046 1,231,778 (1,672,533) Other current assets (85,281) 105,186 (97,611) Deferred tax assets (200,851) 80,736 (216,999) Due from officer - 63,779 (4,654) Other assets (261,782) 256,547 (114,587) Long Term Amounts Due from Hawaii 112,442 2,139,198 (2,019,974) Accounts payable (1,543,955) 35,333 1,236,419 Accrued salaries and benefits (21,634) 28,104 236,332 Accrued profit sharing - - (602,922) Accrued subcontractor exp. 1,330,149 (399,613) (223,878) Other notes payable 698,593 207,517 - Hawaii payable 576,483 - - Other accrued expenses (165,729) (110,675) 244,467 Accrued restructuring (5,383) (512,297) 517,680 Billings in excess of costs and estimated earnings on contracts 123,983 (355,028) 164,049 Income taxes payable 13,338 - - Deferred tax liability 275,848 (475,598) 123,644 --------------- -------------- -------------- Net cash provided by (used in) operating activities 1,854,052 2,230,504 (2,732,814) --------------- -------------- --------------
F-8 NETWORK SIX, INC. Statements of Cash Flows, Continued Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 --------------- ---------------- ---------------- Cash flows from investing activities: Cash Proceeds from Sale/Disposal of Capital Assets $ 1,948 $ 32,811 $ - Capital expenditures (21,552) (10,277) (383,808) ------------- ------------ ------------- Net cash provided by (used in) investing activities (19,604) 22,534 (383,808) ------------- ------------ ------------- Cash flows from financing activities: Principal payments on capital lease obligations (55,105) (181,235) (107,512) Net proceeds (payments) from note payable to bank (640,000) (3,200,000) 3,450,000 Proceeds from issuance of common stock 18,953 50,126 345,000 Proceeds from sales of treasury stock 6,047 - - Payment of dividends - - (187,500) ------------- ------------ ------------- Net cash provided by (used in) financing activities (670,105) (3,331,109) 3,499,988 ------------- ------------ ------------- Net increase (decrease) in cash 1,164,343 (1,078,071) 383,366 Cash at beginning of year 127,581 1,205,652 822,286 ------------- ------------ ------------- Cash at end of year $1,291,924 $ 127,581 $1,205,652 ============= ============ ============= Supplemental cash flow information: Cash (received) paid during the year for: Income taxes $ (467,781) $(2,086,198) $ 307,453 Interest 222,376 399,182 372,484 ============= ============ ============= Supplemental disclosure of non-cash investing activities Acquisition of assets through capital lease obligations - - $ 318,106 ============= ============ ============= See accompanying notes to financial statements.
F-9 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 (1) Summary of Significant Accounting Policies (a) Description of Business Network Six, Inc. (the "Company"), formerly Network Solutions, Inc., is a provider of software development and computer-related consulting services to government and industry. Founded in 1976, the Company focuses on providing its services to state government health and human services agencies. Currently, substantially all of its revenues are derived from contracts with such agencies. Services are provided under "time and materials" contracts and "fixed price" contracts. Under these contracts, which are generally awarded as a result of formal competitive-bidding processes, the Company provides a range of information technology services, consisting primarily of systems integration, system design, software development, hardware planning and procurement, and personnel training. More recently, the Company has expanded its customer base to include private sector, non-profit and other organizations. The Company has reported income from operations in 1997 after having sustained significant losses in both 1996 and 1995. The Company has also successfully obtained working capital financing as discussed in Note 4, that Management expects will provide the Company with adequate funds to support operations in 1998. In addition, the on-going litigation, as more fully discussed in Note 12, is not expected to be resolved until late 1999. (b) Revenue Recognition Revenues from services provided under fixed-price and modified fixed-price contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. This method is used because management considers costs incurred to be the best available measure of progress on these contracts. Revenues from time and materials contracts are recognized on the basis of costs incurred during the period plus the related fee earned. Cost of revenues earned includes all direct material and labor costs and those indirect costs related to contract performance. Selling, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Costs and estimated earnings in excess of billings on uncompleted contracts, represents revenues recognized in excess of amounts billed. Billings in excess of costs and estimated earnings on uncompleted contracts, represents billings in excess of revenues recognized. For fixed price contracts, costs and estimated earnings are billed upon customer approval of the Company's attaining various phases of completion set forth in each contract. Retainage is billed upon customer approval on contract completion. Costs and earnings on time and material contracts are billed when time is expended and material costs are incurred. F-10 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 The Company also recognizes revenue from the sale of hardware to various customers. Revenue and related costs for these sales are recorded when the customer accepts delivery and installation of the hardware. In the state government systems integration industry, it is common practice to negotiate change orders to existing contracts in progress due to the custom nature of systems integration projects. In addition, such change orders generally must be submitted to the federal government for approval because a portion of state systems integration projects is federally funded. Over the years, the Company has successfully negotiated and received federal approval of numerous contract change orders. However, the frequent need for change orders in the systems integration business and the inherent uncertainties in obtaining state and federal approval of change orders is a significant risk, which could have a material impact to the Company. (c) Other Assets Other assets consist of employee receivables both current and long-term portions, lease receivables, sales tax refund receivable, prepaid insurance, and security deposits. (d) Property and Equipment Property and equipment are stated at cost. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. The estimated useful lives of property and equipment and leasehold improvements are: Leasehold improvements 30 months Computers and equipment 3 years Furniture and fixtures 5 years When the Company determines that certain property, plant and equipment is impaired, a loss for impairment is recorded for the excess of the carrying value over the fair market value of the asset. Fair value is determined by independent appraisal, if an active market exists for the related asset. Otherwise, fair value is estimated through forecasts of expected cash flows. (e) Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (f) Net Income (Loss) Per Common Share Basic net income (loss) per common share is computed by dividing net income (loss), after deducting F-11 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 dividends on Series A convertible preferred stock by the weighted average number of common shares, and in the case of diluted earnings per share assuming the conversion of the convertible preferred stock and common stock equivalents outstanding during the period. Common stock equivalents include stock options and warrants. For 1997, 1996 and 1995, the stock purchase warrants, options, and convertible preferred stock and related dividends declared have not been included in the computation of net income or loss per share, since the effect would be anti-dilutive. (g) Financial Instruments Financial Instruments consist of cash, contract accounts receivable, leases receivable, accounts payable, lease obligations, and notes payable. The carrying value of these financial instruments approximate their fair value, except for the financial instruments related to the Hawaii contract for which fair value cannot be determined due to the circumstances discussed in note 12. (h) 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 amounts of revenues and expenses during the reporting period. As discussed in (b), significant estimates include the ultimate collectability on the Hawaii contract receivables, estimated costs to complete under the percentage of completion method of accounting. Actual results could differ from those estimates. (i) Reclassifications Certain 1996 and 1995 balances have been reclassified to conform to the 1997 presentation. (j) Recent Accounting Pronouncements In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income" which established standards for reporting and displaying of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of the balance sheet. This statement is effective for fiscal years beginning after December 15, 1997. In 1997 the American Institute of Certified Public Accountants Statement of Position No. 97-2, "Software Revenue Recognition" established guidance for recognizing revenue on software transactions. The adoption of the statement in 1998 is not expected to have a significant effect on the Company's financial condition or results of operations. This statement is effective for fiscal years beginning after December 15, 1997. In December 1997, the Company adopted SFAS No. 128, "Earnings Per Share". This statement requires the Company to change the method that was previously used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options and warrants are excluded. F-12 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 (2) Contract Receivables
Contract receivables at December 31 consist of: 1997 1996 ------------ ------------ Time and materials and completed fixed price contracts $ 476,552 $1,339,864 Fixed price contracts in progress 1,584,827 286,749 -------------- -------------- 2,061,379 1,626,613 Less allowance for doubtful accounts 50,000 97,856 -------------- -------------- $2,011,379 $1,528,757 ============== ==============
At December 31, 1997 and 1996, $571,286 was receivable from the State of Hawaii ("Hawaii") and CBSI, a subcontractor to the Company on the Hawaii contract. This amount has been reclassified to a long-term asset and is included in contract receivables and costs in excess of billings on Hawaii contract due to the litigation discussed in note 12. (3) Costs and Estimated Earnings on Contracts
Costs and estimated earnings on contracts at December 31 consist of: 1997 1996 ---------------- ---------------- Beginning balance $ 1,833,168 $ 2,826,278 Costs incurred 8,620,097 7,359,649 Estimated Earnings 2,840,340 (15,269) ------------ ----------- 13,293,605 10,170,658 Less billings 12,060,844 8,337,490 ------------ ----------- $ 1,232,761 $ 1,833,168 ============ =========== Included in the accompanying balance sheets under the following captions: 1997 1996 ----------- ----------- Costs and estimated earnings in excess of billings on contracts $ 1,388,515 $ 1,864,939 Billings in excess of costs and estimated earnings on contracts (155,754) (31,771) ----------------- ----------------- $ 1,232,761 $ 1,833,168 ================= =================
Costs and estimated earnings on contracts at December 31, 1997 and 1996 are expected to be billed and collected within one year. At December 31, 1997 and 1996 $2,925,238 was related to the Hawaii contract. This amount has been reclassified to long term assets due to the litigation discussed in note 12 and is included in contract receivables and costs in excess of billings on Hawaii contract. F-13 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 (4) Note Payable to Bank On April 30, 1997 the Company signed a term loan (the "Loan") with its bank which required the Company to reduce its outstanding borrowings under the Loan from $1.8 million to the following limits: October 15, 1997 - $1,500,000, November 15, 1997 - $1,200,000 and December 15, 1997 - $900,000. The interest rate on the Loan was 16%, with the difference between 16% and prime plus 2% payable at maturity, which was January 31, 1998. There were also a number of provisions for accelerated payment to reduce the loan balance, such as paying the bank 50% of any contract holdbacks or income tax refunds. In addition, the Company agreed to provide the bank with a warrant to purchase 50,487 unregistered shares of the Company's Common Stock at $1.75 per share, exercisable immediately with an expiration date of April 30, 2002, and agreed to provide the bank 15% of any recovery received from its litigation in Hawaii. The warrant and the bank's right to a percentage of any recovery terminate if the Company pays down the Loan completely or raises $1 million of equity capital prior to maturity. The Company's obligations under the Loan were secured by substantially all of the assets of the Company. The Loan also provided that the Company not pay any dividends on its capital stock without the consent of the bank. On January 26, 1998 the Loan was paid in full and the warrants and the rights to a percentage of any Hawaii recovery were returned to the Company. On December 31, 1997 the Company signed a $1.5 million line of credit with a commercial lender. Receivables from four of the Company's contracts secure the new line of credit. The Company can borrow up to 80% of the invoice amount on a ninety-day promissory note. The interest rate is prime plus five percent on balances below $1 million and prime plus one and one half percent on balances over $1 million. The line also carries a six- percent annual service fee. The prime rate was 8.5% at December 31, 1997. (5) Leases The Company leases office space and equipment under several operating leases expiring at various times through 1998. Rent expense including utilities for the years ended December 31, 1997, 1996 and 1995 was approximately $186,000, $431,000 and $780,000, respectively. Rental obligations as of December 31, 1997 for the remainder of the lease terms are as follows:
Capital Leases Operating Leases 1998 $102,758 $174,047 1999 83,436 166,445 2000 29,838 138,703 ----------- ----------- Total lease payments 216,032 $479,195 =========== Amount representing interest 29,339 ----------- Net present value of payments 186,693 Less current portion 82,690 ----------- Long term portion $104,003 ===========
F-14 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 The Company subleased a portion of its leased office space to a customer in 1995. Rental income earned was approximately $27,000. The sublease agreement expired in 1995. During 1995, the Company leased various computer equipment from its vendors, then in turn leased those assets to two of its customers. The Company's lease obligation is included above. The lease to the customers is accounted for as a sales type lease. Consequently, the Company recognized a gross profit of approximately $5,300, $2,500 and $27,000, respectively for 1997, 1996 and 1995. Over the life of these leases the Company will recognize approximately $107,000 of lease interest income. Approximately $18,500, $31,500 and $26,000 of lease interest income was recognized in 1997, 1996 and 1995, respectively, and is included in contract revenue in the statement of operations. Future minimum lease payments to be received are as follows: 1998 $108,256 1999 90,530 2000 26,366 ------------- 225,152 Amount representing interest 32,044 ------------- Net present value of payments 193,108 Less current portion 97,243 ------------- Long term portion $ 95,865 =============
Approximately $73,700 of the net present value of payments is related to the Hawaii contract and had been reclassified to contract receivables and costs in excess of billings on Hawaii contract, the remainder is classified in other assets. (6) Income Taxes The components of income tax expense (benefit) for the years ended December 31, are as follows:
1997 1996 1995 ------------ -------------- --------------- Current taxes: Federal $ 36,000 $(380,161) $(1,171,725) State 17,000 - (100,000) ---------- --------- ----------- Sub total 53,000 (380,161) (1,271,725) Deferred taxes: Federal 53,000 (314,651) (61,988) State 22,000 (80,211) (31,368) ---------- --------- ----------- Sub total 75,000 (394,862) (93,356) ---------- --------- ----------- Total $128,000 $(775,023) $(1,365,081) ========== ========= ===========
F-15 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 Actual income tax expense (benefit) for the years ended December 31, differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent to pretax income (loss) from operations as a result of the following:
1997 1996 1995 ------------- -------------- --------------- Computed "expected" tax expense (benefit) $181,883 $(861,345) $(1,289,454) Increase in income tax expense (benefit) resulting from state and local taxes, net of federal income tax benefit 25,740 (52,939) (86,703) Change in beginning of the year balance of the valuation allowance for deferred tax asset, allocated to income tax expense (84,000) 134,000 - Other, net 4,377 5,261 11,076 -------------- --------------- ----------------- Total income tax expense (benefit) $128,000 $(775,023) $(1,365,081) ============== =============== ================= Effective tax rate 24 % (31) % (36) % ============== =============== =================
Deferred tax assets and liabilities at December 31 are comprised of the following:
1997 1996 ------------ ------------- Deferred tax assets: Accounts receivable, principally due to allowance for $ 19,640 $ 38,438 doubtful accounts Deferred compensation 77,805 78,943 Unamortized retainage, due to change in tax reporting 24,409 48,818 Property, plant and equipment depreciation 35,451 138,897 Non-deductible loss on contract 80,350 58,236 Vacation expense 35,997 30,643 Contingent liability 200,380 200,380 Health insurance 1,268 24,068 Stock bonus 16,940 - Net operating loss carry forward - 27,552 Alternative minimum tax credit carryover - 56,420 -------- -------- Total gross deferred tax assets 492,240 702,395 Less valuation allowance 50,000 134,000 --------- -------- Net deferred tax asset 442,240 568,395 --------- --------
F-16 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995
Deferred tax liabilities: 1997 1996 ------------ ------------- Retainage, due to deferral for tax reporting $596,634 $638,576 Other - 9,216 -------- -------- Total gross deferred tax 596,634 647,792 liability -------- -------- Net deferred tax liability $154,394 $ 79,397 ======== ========
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The recognition of deferred tax assets as of December 31, 1997 is supported by the fact that the Company has sufficient reversals of temporary differences to support the recognition of the deferred tax assets. (7) Notes Payable On December 12, 1996 the Company restructured a $218,901 account payable with CPL Worldgroup ("CPL") to an eighteen month unsecured note payable. CPL is a subcontractor to the Company, and continues to provide services to the Company. The note carries a 9.25% interest, with monthly payments of $13,071, due on the first of the month, through June of 1998. If all note payments are made on time and all future invoices are paid within thirty days, $50,036 of the balance will be forgiven. All payments were made when due and the note was paid off in February of 1998. On December 29, 1997 the Company restructured a $842,239 account payable with Unisys to a four year unsecured note payable. After Unisys filed a claim against the Company's Hawaii- related performance bond, the bonding company paid Unisys, and then Lockheed Martin IMS Corporation ("Lockheed") reimbursed the bonding company. Lockheed had guaranteed the Company's performance bond for the Hawaii contract. The note is payable to Lockheed and carries an initial interest rate of five percent through 1998, six percent during 1999, seven and one half percent in 2000 and nine percent during 2001, with such interest to be paid monthly. Principal payments are to be made annually as follows: December 1998 - $100,000, December 1999 - $200,000, December 2000 - $200,000 and December 2001 - $342,239. Under certain conditions, the Company is obligated to pay Lockheed the remaining principal balance within 15 days of receipt of funds if the Company settles or wins its litigation against the State of Hawaii. The note has a discount provision for early payment. (8) Stockholders' Equity (a) Preferred Stock On October 29, 1992, the Company issued 714,285.71 shares of its Series A Convertible Preferred Stock at its par value of $3.50 per share. Proceeds from the issuance were $2,500,000. Costs of issuance were $264,326, and were netted against the proceeds of the offering. This stock had a redemption provision, which was exercisable at the option of the shareholder for $3.50. On March 10, 1993, an amendment to the original Stock Purchase Agreement dated October 29, 1992 was F-17 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 signed. The effective date of the amendment was October 29, 1992 and the agreement removed the redemption option and increased the dividend rate to the preferred stockholders beginning on October 1, 1997 as noted below. In addition, the Preferred shareholders have a right and option to require the Company to buy back the preferred shares at a price of $5.60 per share upon a greater than fifty percent change in the ownership of the Company's common stock. Also, the Company has the right and option, anytime after October 30, 1997, to purchase no less than all of the preferred shares at the liquidation value of $3.50 per share plus any accrued and unpaid dividends. Each share of Preferred Stock may be converted at any time into Common Stock, on a basis of four shares of Preferred Stock for one share of Common Stock and the holders of Preferred Stock are entitled to one vote per four shares on all matters on which stockholders are entitled to vote, including the election of Directors. So long as there are at least 238,071 shares of Preferred Stock outstanding, the holders thereof are entitled as a class to elect one member of the Board of Directors. The affirmative vote of a majority of the issued and outstanding shares of Preferred Stock is required: (i) for the issuance of a class of equity securities with dividend rights superior to the Preferred Stock; (ii) for the Company to engage in any transaction that would materially impair the rights of the Preferred Stock; (iii) for the Company to declare, pay or otherwise distribute any dividends except out of retained earnings of the Company; (iv) to increase or decrease the size of the Company's Board of Directors (v) or to issue Common Stock or rights to purchase Common Stock to officers, employees, directors or consultants of the Company if the total number of shares held by such persons would exceed 10% of the issued and outstanding shares of Common Stock after giving effect to such issuance. Until September 30, 1997, the holders of Preferred Stock are entitled to receive dividends at the rate of 7.5% per share per annum payable quarterly in arrears commencing on December 31, 1992. Effective October 1, 1997, the dividend rate becomes the prime rate of interest as of the first business day following the end of the quarter, plus five (5) percent. The Company is required to pay such dividends before any dividends may be declared or paid for any of the Common Stock. In the event the Company shall be in arrears in whole or in part with respect to at least three quarterly dividend payments due to holders of Preferred Stock, such holders voting as a class are entitled to elect two members of the Board of Directors. Accrued and unpaid dividends as of December 31, 1997 were $460,068. (b) Common Stock Warrants Warrants to purchase 3,750 shares of the Company's Common Stock at an exercise price ranging from $12.00-$18.00 per share were authorized and issued April 14, 1995. At December 31, 1997 all of these warrants remain outstanding and are exercisable until April 14, 2000. Warrants to purchase 10,000 shares of the Company's Common Stock at an exercise price of $16.00 per share were authorized and issued in 1993. At December 31, 1997 all of these warrants remain outstanding and are exercisable until November 23, 2003. F-18 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 Warrants to purchase 50,487 shares of the Company's Common Stock at an exercise price of $1.75 per share were authorized and issued in 1997 to the Company's principal lender at that time. At December 31, 1997 all of these warrants remained outstanding and exercisable until April 30, 2002. On January 26, 1998, however, these warrants were returned to the Company, per the terms of the Loan agreement with the Company's principal lender. (c) Stock Option Plan The Company's Board of Directors and stockholders adopted the Company's Incentive Stock Option Plans (the "Stock Option Plans") on April 1, 1993 and April 25, 1994, respectively. Options granted under the Stock Option Plans are intended to qualify as incentive options under Section 422(a) of the Internal Revenue Code of 1986, as amended. The Board of Directors administers the Stock Option Plans. Subject to certain limitations, the Board of Directors has authority to determine the exercise prices, vesting schedules and terms of the options. The maximum term of any option outstanding is ten years. The exercise price of options granted pursuant to the Stock Option Plans may not be less than the fair market value of the Common Stock on the date of grant. The exercise price of options granted to any participants who own stock possessing more than 10% of the total combined voting power of all classes of outstanding stock of the Company must be at least equal to 110% of the fair market value of the Common Stock on the date of grant. Any options granted to such participants must expire within ten years from the date of grant. Stock options under the Stock Option Plans are not transferable, except by estate succession. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting and Disclosure for Stock Based Compensation," which provides for a fair value based methodology of accounting for all stock option plans. The Company applies APB Opinion 25 and related interpretations in accounting for these plans. Since options were granted at fair market value at date of grant, no compensation cost has been recognized. Had compensation cost been determined pursuant to SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been adjusted to the pro forma amounts indicated in the table below. The effects on pro forma net income (loss) obtained from applying SFAS No. 123 may not be representative of the effects on reported net income (loss) for future years.
1997 1996 ----------------- -------------- Net income As Reported $406,950 $(1,758,345) (loss): Pro Forma 376,570 (1,807,185) Net income (loss) per share: As Reported $ 0.25 $ (2.71) Pro Forma 0.18 (2.77)
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997 and 1996, F-19 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 respectively; no dividend yield; expected volatility of 86.8% and 66.6%; risk-free interest rate of 6.1% and 6.048%; and expected lives of five years. The weighted-average fair market value of options granted during 1997 and 1996 was $1.13 and $0.88, respectively. A summary of the status of the Company's stock option plan as of December 31, 1997, 1996 and 1995 and changes during the years on those dates is presented below:
1997 1996 1995 ------------------------------------------------------------------------------------------------ Weighted Weighted Weighted Average Average Average Shares Exercise Shares Exercise Shares Exercise Price Price Price ------------------------------- ----------------------------- ------------------------------ Outstanding at beginning of year 92,850 $1.71 41,281 $28.62 25,250 $40.10 Granted 71,600 1.58 152,550 4.32 41,781 28.78 Cancelled - - (81,950) 15.76 (13,000) 26.62 Exercised - - (4,900) 7.75 (11,750) 29.36 Forfeited (28,225) 1.71 (14,131) 24.93 (1,000) 30.00 ----------- ---------- ---------- Outstanding at end of year 136,225 1.64 92,850 1.71 41,281 28.62 =========== ========== ========== Exercisable at year end 46,392 1.82 55,700 1.86 41,281 28.62 =========== ========== ==========
The following table summarizes information about the Company's stock options outstanding at December 31, 1997:
Weighted Avg Number Number Remaining Exercisable Outstanding Contractual At Dec 31, Exercise Price At Dec 31, 1997 Life 1997 - --------------- ---------------- -------------- ----------- $2.00 28,875 8.9 28,875 1.75 48,550 9.3 1,250 1.50 40,050 8.9 16,267 1.13 18,750 9.3 - ------------- ---------- 136,225 46,392 ============= ==========
F-20 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 At December 31, 1997, 1996, and 1995, common shares reserved for issuance under these plans were 200,000, 125,000 and 125,000, respectively. In March 1995, the Board of Directors reserved 25,000 common shares for non-employee director options. Each director will be awarded 1,250 options, each year in January, for a maximum of 5,000 options per director. (9) Commitments The Company has a profit sharing plan under which all full-time employees with at least one year of service with the Company are eligible to participate. The Board of Directors administers the profit sharing plan and establishes the formula for each year's distributions. Distributions for each calendar year are made in the following year to eligible employees who were employed for the full previous calendar year. There was no profit sharing plan expense for the years ended December 31, 1997, 1996 and 1995. The Company sponsors a 401(k) Plan Trust in which all employees are eligible to participate. Participants can contribute up to 15% of total compensation subject to the annual Internal Revenue Service dollar limitation. The plan provides for a Company match of 10%, up to 5% of the participant's contribution. This matching provision was discontinued in 1996. The Company paid matching funds of $27,294 in 1995. Pursuant to a consulting agreement and a deferred compensation agreement with the former Chairman, the Company agreed to pay $48,000 per year for a fixed number of consulting hours, and also fund $60,000 per year to a non-qualified deferred compensation plan. The original term for the consulting agreement was seven years and eight years for the deferred compensation agreement. Effective September 1995, the consulting agreement was amended to eliminate the required consulting payments of $48,000 per year. The payments to the deferred compensation agreement will remain at $60,000 per year through the end of 2001. Accordingly, in the third quarter of 1995, the Company was required to record a liability and a related expense of approximately $245,000 for the present value of the deferred compensation payments, which will be paid at $5,000 per month through the end of 2001. (10) Concentration of Revenue During 1997, 1996 and 1995 the Company had the following sales from customers whose individual sales exceeded 10% of the Company's total sales:
1997 1996 1995 -------------- -------------- -------------- Rhode Island DHS $4,222,923 $2,399,170 $ 2,882,898 Maine Dept of Human Services 5,721,103 - - Virgin Islands - 1,026,195 4,087,519 Hawaii - - 6,096,162 RI Dept - 927,372 - of Health ---------- ---------- ----------- $9,944,026 $4,352,737 $13,066,579 ========== ========== ===========
F-21 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 (11) Restructuring In December 1995 as a result in the decrease in the Company's backlog, management approved a plan of reorganization of the Company in an effort to reduce expenses and operate more efficiently while still maintaining a firm commitment to deliver high quality services. Under the plan, the Company has targeted a reduction in work force of approximately 30 to 35 positions through an involuntary separation plan. These positions were from the technical, administrative and middle management levels. Estimated salaries, related payroll taxes and other costs associated with these reductions amounted to approximately $537,000, of which approximately $20,000 was paid in 1995, and has been included as a restructure charge in the accompanying statement of operations for 1995. In 1996, 42 positions were eliminated and the Company renegotiated the facilities lease and returned unneeded space to the landlord. Approximately $119,000 has been included as a reversal of a restructure charge in the accompanying statement of operations for 1996. An analysis of the restructure accrual is as follows.
1995 1996 1997 Balance Paid in 1996 Adjustment Balance Paid in 1997 Balance ------------------------------------------------------------------------------------------------------- Salaries & benefits $248,839 $(259,629) $ 16,173 $5,383 $(5,383) - Rental space 268,841 (133,232) (135,609) - - - --------- ---------- ---------- ------- -------- ------- $517,680 $(392,861) $(119,436) $5,383 $(5,383) - ========= ========== ========== ======= ======== =======
(12) Litigation In June 1993, the Company entered into a fixed price contract with the State of Hawaii (the State) for the transfer of a Child Support Enforcement System to the State of Hawaii. In June 1995, the Company began negotiating a significant amendment to its contract with the State when it determined that the total estimated cost to complete the system would be significantly greater than expected. In the first quarter of 1996, the Company received final state and federal approval for this contract amendment totaling an incremental $4.4 million. However, at December 31, 1995, as a result of in-depth reviews of this contract, management determined that contract costs continued to increase and expected to realize a gross loss on the entire contract of approximately $440,000, which was recorded in December 1995. While at December 31, 1995 management of the Company believed that the actual costs to complete this contract would be within its latest cost estimates, due to uncertainties inherent in the estimation process and in the Company's latest negotiations to reach a final definitive plan for the completion of the contract, it was management's position that these estimates could need further revision. In 1996, the Company continued in its attempts to negotiate a final definitive plan with the State and at the end of the first quarter of 1996, it furloughed substantially all of its technical employees in Hawaii while it continued its negotiations on site with key management and administrative personnel. In conjunction with these negotiations, the State requested that the Company hire Complete Business Solutions, Inc. (CBSI) to conduct a detailed review of the system to facilitate the resolution of open F-22 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 contractual scope issues. On September 13, 1996, the State of Hawaii terminated its contract with the Company, and therefore CBSI's contract was automatically terminated effective September 23, 1996, claiming that the Company had failed to fulfill its obligations under the contract. In response, the Company also terminated the contract with the State effective September 23, 1996. On November 12, 1996, the State filed a lawsuit against the Company and its bonding companies, Aetna Casualty and Surety (Aetna) and Federal Insurance Company for damages due to breach of contract. The suit alleges that the Company failed to meet contractual deadlines, provided late, incomplete and/or unsuitable deliverables, and materially breached the contract by never completing the design, the application programming, the system test, and systems implementation. The State is seeking an unspecified amount for general damages, consequential and special damages, liquidated damages, attorneys' fees, reimbursement for the cost of lawsuit and interest costs that the court deems just and proper. In late 1996, Unisys, a vendor providing equipment to the Company on the Hawaii contract, submitted an $896,000 claim against the $10.3 million performance bond posted on behalf of Hawaii to ensure the Company's performance on the contract. On December 13, 1996, Complete Business Solutions, Inc. (CBSI), a subcontractor on the Hawaii contract, filed a lawsuit against the Company in the Superior Court of the State of Rhode Island for $517,503 which the Company has accrued, plus interest, costs and attorney's fees. The Company disputes the $517,503 owed to CBSI and filed a counterclaim against CBSI on January 13, 1997 alleging, among other things, that CBSI failed to complete its duties required under the subcontract with the Company related to the detailed review of the system in a timely manner, improperly engaged in negotiations with the State of Hawaii to complete the project, hired and attempted to hire employees of the Company in violation of its subcontract agreement with the Company and obtained and utilized confidential information inappropriately. Also, the Company alleges that CBSI owes the Company $482,750 as of December 31, 1996 for which the Company has not established a reserve for uncollectibility. In February 1997, the State of Hawaii released Aetna from all but $1.1 million of the performance bond. In addition, Hawaii hired Lockheed/Martin IMS, the guarantor of the Aetna bond, to complete the system, incorporating changes to comply with the recent welfare reform legislation, for approximately $19 million. On January 23, 1997, the Company filed a counterclaim against the State alleging that the State had fraudulently induced the Company into designing and building a system having capabilities and extraordinary features far beyond the scope of the contract and industry standards. The Company is seeking damages of $70 million together with prejudgment interest, costs and attorneys' fees. On February 3, 1997, the Company filed a third-party complaint ("TPC") in the Hawaii litigation against MAXIMUS Corporation ("MAXIMUS") and CBSI. MAXIMUS has been the State of Hawaii's supervisor and advisor on the contract since the inception of the Hawaii project. The allegations the Company has made against CBSI in this TPC are substantially similar to the allegations made against CBSI in the Company's counterclaim to CBSI's December 13, 1996 lawsuit brought against the Company in Rhode Island. The Company alleged, moreover, that MAXIMUS is liable to the Company F-23 NETWORK SIX, INC. Notes to Financial Statements December 31, 1997, 1996 and 1995 on grounds that: (i) the Company was an intended third party beneficiary under the contract between MAXIMUS and Hawaii; (ii) MAXIMUS tortuously interfered in the contract between the Company and Hawaii; (iii) MAXIMUS negligently breached duties to the Company and (iv) MAXIMUS aided and abetted Hawaii in Hawaii's breach of contract. The Company's complaint seeks $60 million in damages. Management of the Company and its attorneys are unable to predict with any certainty the ultimate outcome of this litigation, although it is their belief that an unfavorable outcome is unlikely. If the Company is unable to prevail in its suit with the State such a result could have a material adverse financial effect on the Company and could jeopardize the Company's ability to continue with its present listing on The Nasdaq National Market. At December 31,1997, the Company had unbilled work-in-process and related receivables from the State and CBSI of approximately $3.5 million, which exceeds stockholders' equity of approximately $2.8 million, for which no allowance for uncollectibility has been recorded. The Company has not accrued for any potential liability to the State, which may result from this litigation. In addition, the Company has not accrued for any legal expenses to be incurred in connection with this litigation, which could be significant. Due to the significant uncertainty created by these events, the Company ceased recognition of revenue on the Hawaii contract in 1996. An adjustment of $1.8 million was recorded in the fourth quarter to reverse revenue of $1 million, $400 thousand and $400 thousand previously recorded in the first, second and third quarters, respectively. In addition, 1996 costs incurred related to the Hawaii contract of $1.96 million have been charged to expense. F-24 EX-10.4 2 AMENDED DEFERRED COMPENSATION AGREEMENT AGREEMENT --------- THIS AGREEMENT is entered into effective April 1, 1996 by and between Network Six, Inc., a corporation organized under the laws of the State of Rhode Island (the "Corporation"), and Robert E. Radican, residing in St. Thomas, United States Virgin Islands ("Radican") WHEREAS, the Corporation and Radican entered into a Deferred Compensation Agreement effective January 1, 1994, whereby certain sums were to be paid by the Corporation into a so-called "Rabbi Trust" for the ultimate benefit of Radican. At that time, Merrill Lynch Trust Companies became the trustee of the trust; WHEREAS, the first Deferred Compensation Agreement of January 1, 1994 was replaced by a Deferred Compensation Agreement effective January 1, 1995; and WHEREAS, the Corporation and Radican now wish to terminate the Deferred Compensation Agreement, but to provide for the same payments called for thereunder to be paid directly to Radican rather than to the aforementioned trust. NOW, THEREFORE, the parties hereby agree as follows: 1. The Deferred Compensation Agreement dated effective January 1, 1995 between the Corporation and Radican is hereby terminated. 2. Commencing on the last day of April, 1996 and continuing on the last day of each subsequent month until and including December 31, 2001, the Corporation shall pay to Radican the sum of $5,000 per month in consideration of the termination of the Deferred Compensation Agreement, his past service to the Corporation and the non-competition covenant hereinafter set forth. 3. The Corporation and Radican shall notify Merrill Lynch Trust Companies of the termination of the Deferred Compensation Agreement and Merrill Lynch Trust Companies shall be directed to pay over and deliver to Radican the entire current balance of Radican's "Deferred Compensation Account" in the trust to Radican. 4. Radican agrees that for a period of four (4) years and six (6) months from the date hereof he will not compete with the Corporation in the state government human services systems integration business, so long as the Corporation has made all payments to Radican required by the agreement. IN WITNESS WHEREOF, the Corporation has caused this agreement to be executed by its duly authorized office and Radican has hereto set his hand as of the date first above written. NETWORK SIX, INC. By:/s/ Kenneth C. Kirsch ------------------------ /s/ R. E. Radican ------------------------ Robert E. Radican EX-10.17 3 CREDIT AGREEMENT DATED 12-31-1997 Exhibit 10.17 FORM Financing and Security Agreement REVISED 10/01/97 PRINVEST FINANCING AND SECURITY AGREEMENT THIS FINANCING AND SECURITY AGREEMENT (the "Agreement") is made this 31st --------- day of December , 199 7 , between PrinVest Financial Corp, a --------------- ---- New Jersey corporation, whose principal business address is 3 Princess Road, Lawrenceville, NJ ("Lender"); and Network Six, Inc., a Rhode Island corporation, whose principal business address is 475 Kilvert Street, Warwick, RI 02886 ("Borrower"). In consideration for loans to be made pursuant to the Promissory Note(s) to be given to Lender by Borrower hereunder, pursuant to the more specific terms as outlined on the attached Term Sheet, Exhibit A, incorporated herein and made a part hereof, initial receipt of which is hereby acknowledged, the undersigned Borrower hereby pledges, grants a security interest in, and assigns to the Lender (or its nominee or assignee) all the Borrower's right, title, and interest in and to its contracts and/or purchase order(s) with the United States of America, its agencies and instrumentalities, state and local governmental units, their agencies and instrumentalities, as well as all of the Borrower's contracts and/or purchase order(s) with non-governmental commercial entities, as such may be hereafter amended, renewed or supplemented from time to time, together with all accounts and accounts receivable arising from performance thereunder, all instruments and chattel paper evidencing such accounts and accounts receivable and all proceeds therefrom, now existing or hereafter entered into (together "Contracts"), including without limitation those listed on the attached Schedule 1, as may be amended by the parties, (such schedule or amended schedule"Schedule 1"), incorporated herein and made a part hereof, together with all of Borrower's rights of action accrued or to accrue thereon, including, without limitation, full power to collect, sue for, compromise, assign, or in any other manner enforce collection thereof in Lender's name or otherwise. Lender shall have no obligation to perform in any respect any contractual obligations relating to any Contract(s). Borrower agrees to give the Lender the right of first refusal with respect to the financing of any Contract(s) except to Lender for so long as the security interests granted under this Agreement remain in effect unless otherwise permitted in writing by the Lender. The parties hereto further agree as follows: 1. As a material inducement to Lender to enter into this Agreement, Borrower warrants and represents that: a) The Borrower is the sole and absolute owner of the Contracts, has full legal right to execute, deliver, and perform the pledge and assignment of its rights under the Contracts for monies due or to become due, and has not made any prior assignment of the Contracts, other than as specifically indicated on Schedule 1. b) The invoices on the Contracts are due and owing to Borrower without allowance, discount, return, defense, counterclaim or offset, and the payment of said invoices as issued is not, and will not be, contingent upon my work to be performed in the future. Borrower has no reason to believe that the said invoices will not be paid in full. c) Borrower will execute Assignments of Claim in favor of Lender for all Contracts, in a form acceptable to the Lender, so that Lender may be designated as the Assignee. d) The information in the Application submitted by Borrower to Lender was true and correct when given, and all other representations made, either before or after the signing of this Agreement, both written and oral in nature, with respect to Borrower's financial condition and Contracts to be assigned, provided, still provide and will continue to provide an accurate depiction of Borrower's financial condition, the Borrower's Contracts or the Borrower's performance under said Contracts and were not, are not and will not be erroneous or misleading when given. In addition, as of the date of execution of this Agreement, there have been no material, undisclosed adverse changes with respect to such financial condition of Borrower or the Borrower's Contracts. e) Borrower understands that the security interest granted herein Secures Borrower's performance and payment of all of its obligations to Lender whether now existing or hereinafter incurred, however such obligations may be evidenced including without limitation all principal, interest, fees and/or out-of-pocket expenses now or becoming due to Lender (collectively the "Liabilities"). f) Borrower further acknowledges that at the time of execution hereof Lender has agreed, subject to final due diligence on a case by case basis, to make loans to Borrower in accordance with the Term Sheet attached hereto as Exhibit A and the Funding Policies attached hereto as Exhibit B (as either exhibit may be subsequently amended), incorporated herein and made a part hereof, and executed by Borrower and Lender in connection herewith, and provided that the conditions contained therein and herein are satisfied. It is understood that the attachment of the Term Sheet hereto is not intended to limited the obligations to be secured by the security interests granted herein. g) Other than execution of an Assignment of Claim with respect to Contracts and the execution and filing of the UCC-1 Financing Statements in the following location(s), State of Rhode Island; no consent, approval, filing or registration is necessary for the valid execution, delivery or performance by Borrower of this Agreement or with respect to any of the Liabilities. h) Borrower's chief executive office and place where Borrower keeps its books and records relating to the collateral is 475 Kilvert Street, Warwick, RI and Borrower's state of incorporation is Rhode Island. i) Neither the Contracts nor any of the other collateral pledged hereunder are subject to any lien, encumbrance or security interest other than in favor of Lender, except as specifically noted on Schedule 1. FORM Financing and Security Agreement REVISED 10/01/97 j) Borrower is in compliance with all applicable statutes, regulations, ordinances, court decrees, or other directives of the United States of America, and all states, counties, municipalities, and agencies with respect to the manufacture and sales of its goods, the rendition of its services and/or its conduct of business. Without limiting the foregoing, Borrower has filed all federal, state, and local tax returns and other reports it is required to file and has paid or made adequate provisions for payment of all such taxes, assessments and other government charges. k) The execution, delivery of this Agreement, and the performance by Borrower of its obligations hereunder, do not conflict with any provision of law applicable to Borrower or of any agreement binding on it. 2. Lender shall have the right to charge Borrower for the amount of any default, or of any allowance, discount, return, defense, setoff or offset taken or claimed by any payors on the Contract(s). Lender shall have the right to deduct said amount from any other billing rights or monies due to Borrower, whether included under the terms of this Financing Agreement, subsequent amendments to this Financing Agreement, or any other similar agreement, past or future, between Borrower and Lender. 3. Said Contracts shall be the property of Borrower and shall be collected by Lender but, IF FOR ANY REASON ANY PAYMENTS ASSIGNED TO THE LENDER SHOULD BE --- PAID TO BORROWER, BORROWER SHALL PROMPTLY NOTIFY LENDER OF SUCH PAYMENT, SHALL HOLD ANY CHECK, DRAFT, OR MONIES ("PAYMENTS") SO RECEIVED FOR THE BENEFIT OF LENDER AND SHALL PAY OVER SUCH PAYMENTS TO LENDER ON THE SAME BUSINESS DAY. Borrower acknowledges that any failure to pay over such Payments immediately to Lender shall be a default hereunder and may constitute misappropriation of funds and may subject the Borrower to criminal liability. The forgoing not withstanding, Borrower and Lender agree that any failure of the Borrower to remit Payments to the Lender within five (5) business days after receipt by Borrower will result in the Lender assessing, at its sole option, a conversion charge equal to five percent (5%) of the amount of face value of such Payments. Demand or collection of such conversion charges shall not constitute a waiver by the Lender of rights it may have to declare and Event of Default and exercise remedies as a result of Borrower's failure to immediately pay such Payments to the Lender. Exercise of these rights by Lender shall in no way limit or restrict any other rights accruing to Lender hereunder or at law. 4. Borrower shall immediately advise Lender, in writing if: a) Borrower's place of business and record keeping is changed or a new place is added or Borrower changes its state of incorporation; b) There occurs any circumstance or situation, including without limitation any customer disputes and/or supplier/subcontractor lien filings related to or which may impact upon full payment of any invoices submitted or to be submitted for financing under the Contract(s); c) There are any changes, modifications, amendments or terminations of said Contracts; d) There are any changes in the senior management of the Borrower or should any person previously authorized to execute loans documents on behalf of the Borrower be terminated or relieved of their authority to execute such documents; e) There is, or is threatened, any attachment or other legal process levied against Borrower including without limitation, (i) any assessment made concerning any tax liability, (ii) if any taxing authority provides any notice of an intent to place a levy or lien, or (iii) if any tax lien or levy is actually recorded; f) There are any previously, undisclosed adverse changes with respect to Borrower's financial condition, the Borrower's Contracts or the Borrower's performance under said Contracts occur; g) Borrower dissolves, merges or consolidates with or into my corporation or otherwise change its identity or corporate or business structure; and/or h) Borrower changes its corporate name or uses any trade name not previously disclosed in writing to the Lender. 5. To further secure the Liabilities, Borrower hereby grants Lender a security interest in all present and future accounts, accounts receivable, instruments, documents, contract rights, chattel paper, inventory, equipment, fixtures, money deposit accounts, insurance policies, reserves, reserve accounts, general intangibles, and proceeds thereof presently existing or hereafter arising, either now owned or hereafter acquired by Borrower, and whether or not relating to the Contracts, and all goods and inventory in all stages of manufacture, and the interest of Borrower in any goods, products, and proceeds thereof, and all books and records pertaining to security and agrees to cooperate fully with Lender with respect to filing appropriate financing statements to perfect and evidence same. Lender is to be authorized to notify all contracting entities and/or its designated payors ("Account Debtors") of Borrower that all future payment(s) on Contract(s) shall be made directly to Lender without endorsement. Any surplus payments received by Lender shall be refunded to Borrower. Upon payment in full of the Liabilities (and provided that Lender has no further obligation to provide financing), and, at Borrower's written request, Lender agrees to release its security interest under this Paragraph. Borrower shall be responsible for preparing and filing any termination statements reasonably required in connection therewith; provided that Lender shall cooperate with Borrower and shall not unreasonably withhold its consent and acknowledgment of the same. FORM Financing and Security Agreement REVISED 10/01/97 2 6. Prior to an Event of Default, Lender shall apply payments on invoices under Contract(s) in the following order and manner, unless otherwise agreed to in writing between the parties: a) First, to accrued interest and/or servicing fees on the amount of the ----- invoice funded, if applicable; b) Second, to any other outstanding fee due by Borrower to Lender in ------- accordance with the terms of the Term Sheet, c) Third, to the principal balance of the invoice funded, if applicable; ----- d) Fourth, to accrued interest and/or servicing fees on advances on any ------ other financed invoices on which payment shortfalls have occurred; e) Fifth, to the principal balance(s) on any other invoices on which ----- payment shortfalls have occurred; f) Sixth, to satisfy any previously agreed upon third party payments, ----- pursuant to a Third Party Agreement to which both Lender and Borrower are parties; g) Seventh, to reduce outstanding balances of any Mobilization, Temp ------- Mobe or Purchase Order loans owed by Borrower, with applications first made to retire accrued interest and fees, and then to outstanding principal balances, if applicable; h) Eighth, to retire any other outstanding Liability then due and ------ payable to Lender by Borrower; and i) Ninth, with any remaining monies being paid by Lender to Borrower, ----- less applicable deductions pursuant to the provisions of Paragraph 2. After the occurrence of an Event of Default, Lender shall be entitled to apply any payments or proceeds received by it against the Liabilities, whether interest, fees, principal, costs of collection or otherwise, in such manner and order as Lender may, at its sole discretion, determine. LENDER WILL NOT BE HELD RESPONSIBLE FOR FUNDS WHICH ARE NOT PROPERLY ADDRESSED TO THE APPROPRIATE LOCKBOX OR LOCKBOX ACCOUNT REFLECTED IN THE NOTICE OF ASSIGNMENT. Credit for such misdirected funds will be given only when such funds are credited to Lender's account. Borrower is urged to make sure that Account Debtors properly identify all checks and wires sent to the Lender's Lockbox or Lockbox Account on behalf of the Borrower. Should funds received by Lender not be adequately marked so as to enable Lender to identify the proper Borrower, Borrower's contract number or Borrower's invoice number, which was detailed in the Promissory Note, Lender will credit the Borrower as soon as these funds are properly identified, to reflect the date said funds were credited to Lender's account. 7. In the event any Liabilities reach their maturity date and still remain unpaid in part or in their entirety, Lender, at its sole option, may do one or more of the following: a) Require the Borrower to pledge additional collateral to secure the Liabilities, thereby replacing the original collateral, with interest rate and servicing fee remaining the same as on the original note; b) Allow any matured note(s) to continue to age with the interest rate otherwise payable thereunder increasing immediately and without notice and thereafter shall be payable at a rate of four percent (4%) per annum in excess of the rate otherwise payable with the servicing fee remaining the same rate as on the original note until the obligation thereunder is paid in full or sufficient collateral acceptable to the Lender is provided; c) Declare an Event of Default under paragraph 8 and exercise its remedies hereunder or otherwise available to it; or d) Rewrite any matured note(s) with the new note's principal reflecting (i) any unpaid principal balance and any unpaid interest accruals on the matured note(s) and (ii) a servicing fee on the outstanding balance(s) equal one percent (1%) per 30-day period or fraction thereof. The interest rate on the new note will be calculated at two percent (2%) in excess of the interest rate on the original note. 8. If any of the following events ("Events of Default") shall occur and be continuing: a) Any Liability is not paid in a timely manner by or on behalf of the Borrower; b) The filing of any petition by or against the Borrower or any guarantor or surety for any Liability (each an "Obligor"), or the commencement of any proceedings for the relief or readjustment of the indebtedness of the Obligor, either through reorganization, composition, extension or otherwise, under any law relating to bankruptcy, insolvency or reorganization or relief of debtor; c) The general nonpayment by any Obligor of their respective debts as such debts become due, or the admission in writing by an Obligor of its inability to pay its debts generally, the making by an Obligor of a general assignment for the benefit of creditors or the taking advantage by any Obligor of any insolvency law; d) Any seizure, vesting or intervention by or under authority of a government, by which the management of an Obligor is displaced or its authority in the conduct of its business is curtailed; e) The appointment of a receiver or conservator of any property of an Obligor; f) The assertion of any defense, setoff counterclaim or reduction in the projected payment from the amount shown on the original invoice by any Account Debtor under any Contract; FORM Financing and Security Agreement REVISED 10/01/97 3 g) If the Borrower fails to perform any of its covenants and/or reporting obligations to the Lender under this Agreement when and as required herein, time being of the essence; h) If there occurs any event of default under any other document executed in connection with any of the Liabilities; i) Borrower submits any invoice(s) for financing on which Borrower has already received payment or on which Borrower otherwise has knowledge payment(s) will not be properly made to Lender. j) If Borrower fails to comply in a timely manner with any federal, state or local tax or other reporting requirements (including without limitation requirements relating to the filing of payroll tax returns), or fails to make timely payment of all tax or municipal obligations, or if any federal, state or local government asserts or files any tax or other statutory lien or levy on, or claim of set-off against, any assets of the Borrower, or otherwise claims or asserts in writing that the Borrower has failed to comply with its tax or other payment obligation or otherwise states in writing its intention to file any lien against the Borrower's assets for failure to pay any or all required tax or other obligations. k) If any representation or warranty contained herein or any information, report, financial statement, exhibit, certificate or schedule furnished by or on behalf of the Borrower or any Obligor in this Agreement or in connection with this Agreement whether provided prior to, simultaneous with or after the execution of this Agreement, contains any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements herein or therein not misleading or in the Borrower provides information to the Lender which is inconsistent with the information provided by the Borrower to any Account Debtor or received by the Borrower from any Account Debtor pursuant to any Contract or if the Borrower takes any action, whether intentional or unintentional, which has the effect of diverting from the Lender any of the payments receivable or to be receivable under my Contract which has been assigned to the Lender, except as expressly set forth in this Agreement or otherwise in writing by the Lender. Then or at any time after the happening of any such Event of Default, the Lender may seek any and all remedies available for the enforcement of this Agreement at law or in equity, and without limitation, the Lender may also, in its sole discretion, but shall not be obligated to, (i) advance any further funds to Borrower, and/or (ii) declare all Liabilities payable by the Borrower to be forthwith due and payable and/or (iii) exercise any or all of its rights to collect on the collateral hereunder. If it becomes necessary for Lender to utilize collection efforts or engage an attorney to enforce its rights against Borrower, Borrower agrees to pay all expenses in connection therewith, including reasonable attorney's fees and costs. 9. Borrower will, upon any request of the Lender, within five (5) business days, provide the Lender with its latest financial statements, current accounts receivable and/or accounts payable aging reports and a detailed inventory of all collateral encumbered by the security interest granted to the Lender. 10. Should any of the Contract(s) being financed by the Lender be construction projects or otherwise contain provisions under which Borrower's subcontractors and/or suppliers have the right to petition the issuer or owner of the Contract(s) for direct payment, Borrower agrees that all such payments will be made to such suppliers and/or subcontractors in a timely manner; as Borrower agrees that to fail to make such payments could impair the Lender's ability to collect in full on invoices financed by the Lender. Borrower's failure to make such timely payments shall be an Event of Default hereunder and may constitute misappropriation of funds. 11. Lender may use all reasonable efforts, including direct contact with Account Debtor(s), to collect amounts due under this Financing Agreement. 12. In the event it should become necessary for the Lender to enforce its rights hereunder against my Account Debtor(s) under any Contract(s), Borrower agrees to pay reasonable attorneys' fees, up to a maximum amount permitted by law. In such event, Borrower will fully cooperate with Lender in connection with such collection effort, and will provide witnesses and documents, at Borrower's sole cost and expense, as may be required in connection with such efforts. 13. Borrower hereby grants a limited power of attorney to Lender to execute and ----------------- file financing statements pursuant to the Unifom Commercial Code in Borrower's name, to file Assignments of Claims, Notices of Assignment, Notices of Releases of Assignment and Releases of Assignment with Account Debtors in Borrower's name, and to endorse Borrower's name, and to negotiate or to deposit, any and all checks, notes, drafts, or other orders for payment of money payable or endorsed to Borrower which come into Lender's possession hereunder. 14. Borrower understands that funding of the loan(s) contemplated by the Term Sheet attached hereto, the Funding Policies attached hereto and executed by Lender and Borrower, this Agreement and the other documents executed in connection with this Agreement will be made to, or on behalf of the Borrower, only after receipt and approval of properly executed copies of Assignments of Claim, Notices of Assignment, Notices of Release of Assignment and Releases of Assignment when applicable, UCC-1 Financing Statements, Borrower Promissory Notes, Borrower Disbursement Summaries, complete copies of the Borrower's Assigned Contracts, duplicate copies of the Borrower's invoices under Contract(s) identical to those submitted to respective Account Debtors, related invoice acceptances/acknowledgments from the Account Debtors, and such FORM Financing and Security Agreement REVISED 10/01/97 4 other documents as may be required by Lender to secure proper collateral for Lender and ensure the Lender's first security position as a lender to the Borrower. Borrower further understands that funding any such loans are conditional upon Lender's completion of its due diligence with respect to Borrower's and Account Debtors' creditworthiness, the absence of any material changes in the finances, business operations, business prospects of the Borrower or performance by either Borrower or Accounts Debtor(s) under any Contract(s) and is subject to the absolute right of the Lender, in its sole discretion, to finance any invoice submitted for financing. The Borrower agrees that the Lender may authorize transfers of proceeds of loans and/or final settlements of invoices under the Contract(s) either directly to the Borrower or to designated third parties upon the mutual written agreement of the Lender and the Borrower or, at Lender's sole option, to pay off shortfalls on existing invoice payment under one or more notes or to reduce Borrower's obligations under Mobilization or Temp Mobe notes as outlined in Paragraph 6. 15. The term of this Agreement shall extend until the payment in full by Borrower of all Liabilities due to the Lender or the termination of the last Contract(s) upon which Lender has an acknowledged Assignment(s) of Claim, whichever comes last. However, this does not affect the right of the Borrower to prepay Liabilities, in whole or in part, without penalty, at any time. 16. Borrower acknowledges that any reports, audits, credit checks or similar investigations have been or will be performed by or for Lender's own purposes and not for the benefit of Borrower, and Borrower agrees that it has no right to rely thereon. Borrower further agrees that any lockbox or other procedure established by Lender to collect payment under the Contract(s) are intended for Lender's benefit and not for the benefit of Borrower, and Lender shall have no duty or obligation to Borrower for any loss or damage to Borrower as a result thereof except for Lender's willful misconduct. Lender and Borrower acknowledge that this Agreement shall not create any (i) agency, (ii) partnership or (iii) --- joint venture relationship between Lender and Borrower. 17. Borrower acknowledges and agrees that Lender may assign or sell participating interests in all or any portion of the Liabilities and any assignee or purchaser shall have a beneficial interest in the collateral pledged herein. Borrower agrees that in no event shall it have or acquire any rights or claims with respect to or against any such persons. 18. This Agreement may, from time to time, be subsequently amended by the parties to provide for the purchase and sale or financing of such Contract(s), along with all attendant rights herein described, as may be submitted by Borrower and accepted by Lender under terms agreeable to both parties. Such amendments to this Agreement shall be made in writing and signed by both parties, and shall be subject to all the terms and conditions herein described, except where specifically noted under the terms of said amendment(s). 19. Borrower hereby submits to jurisdiction in the State of New Jersey for the enforcement of this Agreement or any claim(s) hereunder, and hereby waives any and all rights under the laws of any foreign jurisdiction to object to such jurisdiction. Any claim by Borrower against Lender shall be brought in the Superior Court for the State of New Jersey only. THE PARTIES HEREBY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY in any action, suit, counterclaim or cross claim arising in connection with, out of or otherwise relating to this Agreement, the other loan documents, the obligations, the collateral in any transaction arising therefrom a related thereto. This Agreement shall be construed in accordance with the laws of the State of New Jersey. 20. Borrower agrees to indemnify and hold the Lender, its officers, directors, employees, principals and shareholders, harmless from and against any loss, liability, expense, damage or injury suffered or sustained resulting from third- party claims and arising from (i) acts or omissions of the Borrower, (ii) acts or omissions of any agent, assignee, broker ordelegee of the Borrower, or (iii) otherwise in connection with the financing provided hereby or any of the activities of Borrower so funded. Borrower's obligations to provide such indemnification shall survive the term of this Agreement and shall continue in full force and effect for a period of sixty (60) months from the date of such termination. 21. Whenever, by the terms of this Agreement, notice shall be given, such notice shall be in writing and sent by facsimile transmission (provided evidence of transmission is maintained), or national overnight or courier delivery service, addressed to the respective addresses of the parties set forth on the first page of this Agreement, or at such other telephone numbers or addresses as have, from time to time, been designated by like notice. 22. The provisions of this Agreement are severable. Should any provisions herein be found to be invalid or unenforceable by a court of competent jurisdiction, the other provisions shall remain in full force and effect as though the invalid or unenforceable provision were never a part hereof. 23. No waiver of or failure to enforce any provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision of this Agreement, nor shall such waiver or failure to enforce constitute a continuing waiver of any provision of this Agreement. 24. The parties hereby represent that each has caused, and will cause, the proper corporate or individual actions to be taken by each respectively, to effectuate the rights and obligations granted under this Agreement. FORM Financing and Security Agreement REVISED 10/01/97 5 25. In connection with any disagreement or litigation arising out of, or in connection with, this Agreement, Borrower agrees to reimburse Lender for all of its expenses in connection therewith, including reasonable attorneys' fees, at the trial and appellate levels, unless Borrower prevails in a final judgment which is unappealable or unappealed. 26. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit and be enforceable by the successors in interest of the respective parties hereto. Nothing contained herein, expressed or implied, is intended nor shall it be construed to confer to or give to any person, firm, or corporation other than the parties hereto any rights or remedies under or by reason of this Agreement. 27. Neither party may assign this Agreement without the other's written consent, which consent shall not be unreasonably withheld. Nothing herein contained shall limit the right of the Lender to assign or sell, all or any portion of the Liabilities. 28. Reference to the masculine shall include the feminine and neuter, and vice ---- versa. Reference to the singular shall include the plural, and vice versa. - ----- ---------- 29. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof, and merges and supersedes all prior discussions, agreements, and understandings of every and any nature between them. No party shall be bound by any condition, definition, warranty, or representation, other than as expressly set forth or provided for in this Agreement, or as may be, on or subsequent to the date hereof, set forth in writing and signed by the parties hereto. 30. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which shall constitute the entire instrument. Signature pages may be exchanged by telefacsimile to expedite the closing, with original signatures to be exchanged as soon as possible thereafter. 31. By executing this Agreement, the parties acknowledge that they have been fully advised by independent counsel as to the ramifications of the terms and provisions of this Agreement, and the signatories have authority to act on behalf of the respective entities in executing this Agreement, for the purposes herein contained. IN WITNESS WHEREOF, the parties have executed this Financing Agreement and affixed their signatures on the date first above written. LENDER: PRINVEST FINANCIAL CORP By: /s/ Pamela K. Wilson 1/12/98 ---------------------- --------- Signature Date ACCEPTED AND AGREED TO: BORROWER: NETWORK SIX, INC. By: /s/ Kenneth C. Kirsch 12/31/97 --------------------- -------- Signature Date President & CEO ----------------- Print Name & Title FORM Financing and Security Agreement REVISED 10/01/97 6 EXHIBIT A TERM SHEET In consideration of the services being rendered by PrinVest Financial Corp (the "Lender") in providing the contract financing to Network Six, Inc. ("Borrower"), certain administrative procedures with respect to such financing will be necessary, and the Borrower agrees to pay Lender as follows: GENERAL FEES ------------- An Enrollment Fee of $350.00 (paid). -------------- An Origination Fee of $5,000.00, as a one time charge deducted from the first --------------- funding. SERVICING FEES -------------- A per diem Servicing Fee of 0.0167% of each funded amount collected at the time ------------- payments are received and processed. A Servicing Fee of one $1.00 for each non-financed "pass through" invoices will ------------- be assessed. INTEREST RATES -------------- - -------------------------------------------------------------------------------- All interest rates are based on a 360-day year, but charged on the number of days or periods elapsed. All Prime-based interest rates are based on the Prime Rate as published in "The Wall Street Journal" on the date of funding - -------------------------------------------------------------------------------- An Interest rate on Accounts Receivable (invoice) financing of Prime plus 1.5% ------------------- per annum collected on a per diem basis, subject to the minimum 5day OID period calculation, on the net outstanding balance of monies advanced to, or on behalf of, Borrower, for all eligible invoices, plus any accrued fees and/or charges incurred in providing such financing (other than previous interest charges) will be charged. MONTHLY SURCHARGE ------------------ In the event the Borrower's outstanding principal loan balance drops below $1,000,000 at any time during any fiscal month (refer to Exhibit C), the Borrower will be assessed a surcharge equal to 3.5% per annum on the Borrower's average daily outstanding loan balance for such month. This surcharge will be captured from future advances and/or residuals, at the Lender's discretion. ADVANCE RATES -------------- The above fee and interest rate schedules reflect a receivables financing advance rate of: * 80% on acknowledged and/or approved invoices. RESIDUAL PAYMENTS ----------------- Residual payments will be forwarded to the Borrower: * Within three (3) business days after funds are credited to the Lender's account. BORROWER'S CREDIT LIMIT ----------------------- THE LENDER HAS APPROVED AN OVERALL CREDIT LIMIT OF $1,500,000.00 FOR THE BORROWER; SAID LIMIT REPRESENTING THE MAXIMUM OUTSTANDING BALANCE BORROWER ------- ----------- ------- WILL BE PERMITTED AT ANY ONE TIME. In the event, either by consent or circumstances, the Borrower's outstanding balance exceeds the aforementioned credit limit, such event shall not be considered a waiver or change to the credit limit; and Lender reserves the right to limit future advances so that Borrower does not exceed its credit limit. Upon demand by the Lender, if Borrower's outstanding principal loan balance exceeds its credit limit, Borrower will pay Lender sufficient funds to reduce its outstanding balance below its credit limit. The foregoing Credit Limit is subject to the absolute right of the Lender, in its sole discretion, to finance or not finance any invoice submitted for funding. 7 FORM Financing and Security Agreement REVISED 10/01/97 OTHER TERMS AND CONDITIONS -------------------------- The following terms and conditions must be met prior to the first funding: * All invoices submitted for financing must be accompanied by a completed invoice verification form and signed by Borrower's account debtor. Invoice verification form to be supplied by the Lender. * Borrower must provide written authorization from the Purchasing Agent at the State of Rhode Island authorizing the assignment of proceeds to Lender for both the Dept. Of Human Services and the Dept. Of Health contracts. Proceeds must be remitted to the Lender's lockbox as shown on page 8 of the Financing & Security Agreement. * Borrower must provide written authorization from the proper person at the State of Maine authorizing the assignment of proceeds to Lender for the Dept. Of Human Services contract. Proceeds must be remitted to the Lender's lockbox as shown on page 8 of the Financing & Security Agreement. * Lender must be in receipt of UCC-3 releases from Unisys Corp for the dollar amount of the Maine Dept. of Human Services contract that Network Six will fund with Lender. * Lender must be in receipt of UCC-3 terminations from Citizens Bank for both Network Six, lnc. and Network Six, Inc. * Borrower must provide Lender with copy of complete Articles of Incorporation. If either Mobilization, Temp Mobe or Purchase Order loans are being provided, Borrower warrants Borrower will use such loans only for those purposes ---- specifically outlined in the use of proceeds statement required by and submitted to the Lender as a prerequisite for consideration of such financing. Borrower will also be required to submit Accounts Payable and Accounts Receivable Aging reports, and Financial Statements each quarter, as well as provide audited Financial Statements once a year, if available. In the event any payments received on behalf of the Borrower are subsequently returned by the Borrower's bank or the Borrower's customer's bank for insufficient funds or any other reason which was not caused by a mistake on the part of the Lender, Borrower acknowledges the greater of $50.00 "return check charge", or the maximum allowed under law, will be assessed. NETWORK SIX, INC. IS RESPONSIBLE FOR INDICATING THE FOLLOWING PAYMENT INFORMATION ON ALL INVOICES SUBMITTED FOR FINANCING BY PRINVEST.: REMIT PAYMENT TO: PRINVEST FINANCIAL CORP FBO: NETWORK SIX, INC. P.O. BOX 6453, BOSTON, MA 02212-6453 Senior Officers and/or shareholders of Borrower will not increase benefits to themselves or one another; nor will they repay existing loans to any officers, stockholders or employees of the Borrower; nor will the company make any new loans made to any officers and/or shareholders by Borrower during such time as any Mobilization loans from the Lender remain outstanding. In the event Lender determines that there are reasonable grounds to believe Borrower has experienced material financial, contract or other changes, Lender reserves the right to undertake an on-site audit of Borrower at Borrower's expense. Bank wire and lock box fees, UCC search and filing fees, messenger costs, postal and/or overnight mail, third-party payment fees and other costs incurred by Lender (including, but not limited to, reasonable attorneys' fees and insurance bonding premiums) will be charged to Borrower as they are incurred. These interest rates, fees and other charges; authorized advance rates; credit limits and other terms and conditions contained herein are subject to change with a 30-day advance written notice by the Lender. This Term Sheet only commits Lender to the financing of the Contract(s) stated on Schedule 1. Lender reserves the right of first refusal to provide financing on any and all new contracts awarded to Borrower with a mutually agreed upon rate schedule.The following terms mean; A) "ACCOUNTS RECEIVABLES FINANCING", "ACCOUNTS RECEIVABLE LOANS", "INVOICE FINANCING" OR "INVOICE LOANS" refers to loans made by Lender to Borrower which are backed by receivables due on specific invoices submitted to Account Debtors under Contracts whose proceeds have been assigned to the Lender. B) "MOBILIZATION" and/or "WORKING CAPITAL" Financing or Loans refers to loans made by Lender to Borrower which are not backed by particular invoices, but which are Contract-specific; pursuant to a Contract assigned to the Lender. 8 FORM Financing and Security Agreement REVISED 10/01/97 C) "TEMP MOBE FINANCING" or "TEMP MOBE LOAN" refers to both Overhead Financing and Purchase Order Financing. D) "OVERHEAD FINANCING" or "OVERHEAD LOAN" refers to advances made by Lender to Borrower to pay for general overhead expenses, including payroll costs, to produce good or services to generate an identifiable invoice pursuant to a Contract assigned to the Lender. These loans will be converted into an Accounts Receivable Loan upon the receipt of the invoice for which the Overhead Financing funds were used. E) "PURCHASE ORDER FINANCING" or "PURCHASE ORDER LOAN" refers to advances made by Lender to Borrower to purchase materials to produce good or services to generate an identifiable invoice pursuant to a Contract assigned to the Lender. These loans will be converted into an Accounts Receivable Loan upon the receipt of the invoice for which the Purchase Order funds were used. F) "RESIDUALS" are defined as that portion of an invoice payment received on behalf of a Client under an assigned Contract which remains after the payment has been applied to repay both principal advances made by Lender to Borrower against that invoice together with interest accruals on such advances. If no advances were made against an invoice for which payment is received, the total amount of such payments will be considered as Residuals, in the absence of specific written agreements to the contrary. G) "OID PERIOD" is that minimum period of time on which interest charges and servicing fees will be charged, irrespective or how quickly after a funding payment is received by and credited to the Lender's account." ACCEPTED AND EXECUTED this 31 day of December , 1997 . ---------------- ----------- --- NETWORK SIX, INC. By: /s/ Kenneth C. Kirsch 12/31/97 --------------------- -------- Signature Date PRINVEST FINANCIAL CORP By: /s/ Pamela K. Wilson 1/12/98 --------------------- -------- Signature Date 9 FORM Financing and Security Agreement REVISED 10/01/97 EXHIBIT B FUNDING POLICIES PrinVest Financial Corp ("Lender") would like to welcome Network Six, Inc. ("Borrower") as a new PrinVest client. We are dedicated to providing reliable and timely fundings together with a responsive and professional level of service to our clients, one unmatched by our competitors. While we understand your need for funding is sometimes urgent, there are procedures to which we must adhere. So that you will be fully aware of our funding policies and to facilitate the growth of a long-term relationship, please make note of the following telephone and facsimile numbers which will connect you directly to our Servicing Department and your Account Executive. TELEPHONE: (609) 219-9000 FACSIMILE: (609) 844-0449 SCHEDULE FOR FUNDING ALL APPROVED INVOICES WILL BE FUNDED NOT LATER THAN THE FOLLOWING BUSINESS DAY. After Lender receives your request for a funding, together with copies of all invoices to be financed and all related invoice approvals, acceptances or, --- acknowledgments (remember, it is your responsibility to provide the necessary ---- invoice approvals, acceptances or acknowledgments in support of your invoices being submitted for financing) , a Promissory Note and Disbursement Summary are prepared and faxed to you. These documents detail your interest obligations, all funding and wire fees, out-of-pocket deductions, and net disbursements to or on behalf of your company. Have an authorized company representative (designated by a written Resolution of your Board of Directors) (a) sign, seal and have witnessed the Promissory Note, (b) sign and date Disbursement Summary and (c) return both documents to Lender via facsimile prior to 2:30pm. Upon receipt of those documents, funds will be -------- wired as detailed in the Disbursement Summary. - -------------------------------------------------------------------------------- You must also make a clean, hard copy of each Promissory Note (signed, sealed ---- and witnessed); and then return each executed copy to the Lender by air express or first class mail; to guaranty receipt by the Lender within a maximum of five (5) business days. A failure to return signed originals of Promissory Notes can delay future fundings. - -------------------------------------------------------------------------------- RECEIPTS OF PAYMENT Once Lender obtains notification of payments and those funds have been credited to its account for your firm's benefit, Lender will apply those monies to your account, as appropriate. If Residuals are being applied to Mobilization notes or to offset shortfalls on any previously paid invoices financed by Lender, such applications will be made by Lender. You will be provided with a weekly report detailing all receipts for the preceding and their applications, together with copies of all check stubs and wire advices. Interest charges are calculated from the day to, and inclusive of, the day verified funds are received and properly credited to the Lender Lockbox Account identified in the respective Notice of Assignment. If you have any questions, please contact your Account Executive or Sales Representative, whom will be glad to assist you. 10 FORM Financing and Security Agreement REVISED 10/01/97 SCHEDULE 1 to the FINANCING AND SECURITY AGREEMENT CONTRACT COLLATERAL
- --------------------------------------------------------------------------------------------- Contracting Entity Contract Number Contract Date Indicate Assignee If Now Under Assignment(1) RI Dept. Of Health All RI Dept of Human Services All Maine Dept. of Human Services All - ---------------------------------------------------------------------------------------------
Note: (1) Borrower hereby warrants that none of the above listed contracts, other than those indicated above have been previously assigned; and that it will assist the Lender to secure all necessary releases of assignment and releases of filed notices of assignment, with time being of the essence. FINAL PAGE 11 Form: Borrowing Resolutions for Corporations Revised: 02/03/97 BORROWING RESOLUTION OF THE BOARD OF DIRECTORS OF Network Six, Inc. I HEREBY CERTIFY that I am the duly elected and qualified Secretary of Network Six, Inc., and the keeper of the records and corporate seal of said corporation; that the following is a true and correct copy of resolutions duly adopted at a meeting of the Board of Directors thereof, held in accordance with its by-laws at its corporate offices located at 475 Kilvert Street, Warwick, RI O2886, on the 31 day of December 1997 ; and that the same are now in full force. ----- ---------- - COPY OF THE APPROVED RESOLUTION AUTHORITY TO PROCURE LOANS "BE IT RESOLVED, that the (insert titles only) President or Treasurer ---------------------- of this Corporation, or his/her successors in office, and any (insert number required to sign) 1 of them be hereby authorized, on behalf of, and in the - name of this Corporation to: (a) Negotiate and procure loans, letters of credit and/or other credit facilities from PrinVest Financial Corp, a New Jersey corporation (the "Lender") in an amount not to exceed Three Million Dollars, $3,000,000.00 --------------------- in the aggregate at any one time outstanding. (b) Discount with or through the Lender commercial or other business paper belonging to this Corporation, made or drawn by or upon third parties, without limit as to amount; (c) Give security for any liabilities of this Corporation to the Lender by pledge or assignment or lien upon any real or personal property, tangible or intangible, of this Corporation; and (d) Execute in such form as may be required by the Lender all notes and other evidences of such loans, letters of credit or other credit facilities, all instruments or pledges, assignment or lien, lockbox and other account agreement, or other certificates, documents and agreements in connection with any of the foregoing." "RESOLVED FURTHER, that any of the aforesaid officers may direct and authorize the Lender or any other third party to pay the proceeds of any such loans, credit facilities or discounts, whether so payable to the order of any of said persons in their individual capacities or not and whether such proceeds are deposited to the individual credit of any said persons or not and the Lender shall be fully protected, indemnified and held harmless from any liability by the Corporation in following such direction." "RESOLVED FURTHER, that this resolution shall continue in force and the Lender may consider the holders of said offices and their signatures, respectively, to continue as set forth in the certificate of the Secretary of this Corporation accompanying a copy of this resolution when delivered to the Lender or in any similar subsequent certificates, until notice to the contrary in writing is duly served on the Lender." I HEREBY FURTHER CERTIFY that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures of each respectively appear as follows: 12 Form: Borrowing Resolution for Corporations Revised: 02/03/97 (PLEASE SUPPLY GENUINE SIGNATURES HEREUNDER)
TITLE NAME SIGNATURE - ------------------------ ----------- ----------- (typed or printed) President Kenneth C. Kirsch /s/ Kenneth C. Kirsch ------------------ ---------------------- Vice President ------------------ ---------------------- Treasurer Dorothy M. Cipolla /s/ Dorothy M. Cipolla ------------------ ---------------------- Assistant Treasurer ------------------ ---------------------- Secretary Dorothy M. Cipolla /s/ Dorothy M. Cipolla ------------------ ---------------------- Assistant Secretary ------------------ ---------------------- (Other) ------------------ ----------------------
IN WITNESS WHEREOF, I have hereunto affixed my name as Secretary and have caused the corporate seal of said Corporation to be affixed hereto this 31 day of December , 1997 . - ----- -------------- ---- /s/ Dorothy M. Cipolla ------------------------ Secretary I hereby certify that I am a Director of said Corporation and that the foregoing is a correct copy of resolutions passed as therein set forth, and that the same are now in full force. By: /s/ Kenneth C. Kirsch 12/31/97 ------------------------------- ---------- Director (other than Secretary) Date 13 FORM State Government Instrument of Assignment REVISED 01/10/97 STATE AND MUNICIPAL GOVERNMENT INSTRUMENT OF ASSIGNMENT OF CLAIM Company: Network Six, Inc. ("Assignor") ADDRESS: 475 Kilvert Street CITY/STATE/ZIP: Warwick, RI 02886 ISSUING ENTITY: Maine Dept. of Human Services ("Purchaser") Director, Bureau of Child and Family Services 11 State House StationAugusta, ME 02886 CONTRACT NUMBER(S): ALL ("Contract") KNOW ALL MEN BY THESE PRESENTS: For value received, the undersigned Assignor does hereby sell, assign, set over, and transfer to PrinVest Corp, a New Jersey corporation, located at 3 Princess Road, Lawrenceville, NJ 08648 ("ASSIGNEE"), as agent for others, all rights to and interests in all moneys due or to become due, including modifications and renewals thereof, and any and all amendments thereof and supplements thereto, from the aforementioned Purchaser accruing under the aforementioned Contract; together with all the moneys now due and all the moneys hereafter to become due to Assignor on account of any increases in or amendments, additions, or supplements to the Contract or any extensions thereof, or additional work done and/or materials and supplies furnished thereunder, or any modification, amendment, change order, or other arrangement relating to the Contract. Assignor hereby irrevocably constitutes and appoints Assignee the true and lawful attorney of Assignor to demand, receive, and enforce payments, and to give receipts, releases, and satisfactions, either in the name of Assignor or in the name of Assignee, in the same manner and with the same effect as Assignor could do if this Assignment had not been made. The Assignee shall not be held responsible for the performance of any work on any of the items mentioned in said Contract. SIGNED, SEALED, AND DELIVERED: ATTEST: ASSIGNOR: Corporate Secretary/Notary NETWORK SIX, INC. BY: /s/ Robert W. Vera, Jr. BY: /s/ Kenneth C. Kirsch 12/31/97 ------------------------- ------------------------------- Signature Signature Date DATE: 12-31-97 Kenneth C. Kirsch, President & CEO --------- ---------------------------------- Print Name and Title (Seal) 14 FORM State Government Instrument of Assignment REVISED 01/10/97 STATE AND MUNICIPAL GOVERNMENT INSTRUMENT OF ASSIGNMENT OF CLAIM COMPANY: Network Six, Inc. ("Assignor") ADDRESS: 475 Kilvert Street CITY/STATE/ZIP: Warwick, RI 02886 ISSUING ENTITY: RI Dept. of Human Services - Management Services ("Purchaser") 600 New London AvenueCranston, RI 02920 CONTRACT NUMBER(S): ALL ("Contract"') KNOW ALL MEN BY THESE PRESENTS: For value received, the undersigned Assignor does hereby sell, assign, set over, and transfer to PrinVest Corp, a New Jersey corporation, located at 3 Princess Road, Lawrenceville, NJ 08648 ("ASSIGNEE"), as agent for others, all rights to and interests in all moneys due or to become due, including modifications and renewals thereof, and any and all amendments thereof and supplements thereto, from the aforementioned Purchaser accruing under the aforementioned Contract; together with all the moneys now due and all the moneys hereafter to become due to Assignor on account of any increases in or amendments, additions, or supplements to the Contract or any extensions thereof, or additional work done and/or materials and supplies furnished thereunder, or any modification, amendment, change order, or other arrangement relating to the Contract. Assignor hereby irrevocably constitutes and appoints Assignee the true and lawful attorney of Assignor to demand, receive, and enforce payments, and to give receipts, releases, and satisfactions, either in the name of Assignor or in the name of Assignee, in the same manner and with the same effect as Assignor could do if this Assignment had not been made. The Assignee shall not be held responsible for the performance of any work on any of the items mentioned in said Contract. SIGNED, SEALED, AND DELIVERED: ATTEST: ASSIGNOR: Corporate Secretary/Notary NETWORK SIX, INC. BY: /s/ Robert W. Vera, Jr. BY: /s/ Kenneth C. Kirsch 12/31/97 ------------------------- --------------------- -------- Signature Signature Date DATE: 12-31-97 Kenneth C Kirsch, President & CEO -------- ----------------------------------- Print Name and Title (Seal) 15 FORM State Government Instrument of Assignment REVISED 01/10/97 STATE AND MUNICIPAL GOVERNMENT INSTRUMENT OF ASSIGNMENT OF CLAIM Company: Network Six, Inc. ("Assignor") Address: 475 Kilvert Street City/State/Zip: Warwick, RI 02886 Issuing Entity: RI Dept of Health ("Purchaser") 3 Capitol Hill, Room 302 Providence, RI 02908 Contract Number(s): ALL ("Contract") KNOW ALL MEN BY THESE PRESENTS: For value received, the undersigned Assignor does hereby sell, assign, set over, and transfer to PrinVest Corp, a New Jersey corporation, located at 3 Princess Road, Lawrenceville, NJ 08648 ("ASSIGNEE"), as agent for others, all rights to and interests in all moneys due or to become due, including modifications and renewals thereof, and any and all amendments thereof and supplements thereto, from the aforementioned Purchaser accruing under the aforementioned Contract; together with all the moneys now due and all the moneys hereafter to become due to Assignor on account of any increases in or amendments, additions, or supplements to the Contract or any extensions thereof, or additional work done and/or materials and supplies furnished thereunder, or any modification, amendment, change order, or other arrangement relating to the Contract. Assignor hereby irrevocably constitutes and appoints Assignee the true and lawful attorney of Assignor to demand, receive, and enforce payments, and to give receipts, releases, and satisfactions, either in the name of Assignor or in the name of Assignee, in the same manner and with the same effect as Assignor could do if this Assignment had not been made. The Assignee shall not be held responsible for the performance of any work on any of the items mentioned in said Contract. SIGNED, SEALED, AND DELIVERED: ATTEST: ASSIGNOR: Corporate Secretary/Notary NETWORK SIX, INC. BY: /s/ Robert W. Vera, Jr. BY: /s/ Kenneth C. Kirsch 12/31/97 ------------------------- ----------------------- ---------- Signature Signature Date: DATE: 12-31-97 Kenneth C. Kirsch, President & CEO -------- ---------------------------------- Print Name and Title (Seal) 16 FORM: Amendment to the Financing and Security Agreement REVISED: 10/01/96 AMENDMENT TO THE FINANCING AND SECURITY AGREEMENT THIS AMENDMENT to a certain Financing and Security Agreement (the "Financing Agreement") dated 12/31/97 (the "Amendment") is made this ----------- __________ day of December 1997, between PrinVest Financial Corporation, a New Jersey corporation, whose principal business address is 3 Princess Road, Lawrenceville, NJ 08648 ("Lender"), and Network Six, Inc., a Rhode Island corporation, whose principal business address is 475 Kilvert Street, Warwick, RI 02886 ("Borrower"). 1. The following sections of the Financing Agreement are amended as follows: * Page 1, Paragraph 2, Lines 8 and 9 is changed to read, "... therefrom, now existing or hereafter entered into (together "Contracts"), but limited to such accounts and accounts receivable as listed on Schedule 1, as may be amended by the parties. ..." * Page 2, Section 5, Paragraph 1 is changed to read, "To further secure the Liabilities, Borrower hereby grants Lender a security interest in specific present and future accounts and accounts receivable as listed in schedule one, and amended from time to time and proceeds thereof presently existing or hereafter arising, all interest of the Borrower in said accounts, accounts receivable and/or proceeds thereof, and all books and records pertaining thereto; and agrees to cooperate fully with Lender with respect to filing appropriate financing statements to perfect and evidence same." * Page 2, Section 5, Paragraph 2, last sentence is changed to read "Lender shall be responsible for preparing and the Borrower shall be responsible for filing any termination statements reasonably required in connection therewith; provided that Lender shall cooperate with Borrower and shall not unreasonably withhold its consent and acknowledgment of the same." * Page 3, Section 6(f) will only be relevant if the Lender and Borrower enter into a third-party payment agreement. * Page 4, Section 9 is changed to read, "Borrower will, upon any request of the Lender, within five (5) business days, provide the Lender with its financial statements for the last closed month, current accounts receivable and/or accounts payable aging reports and a detailed inventory of all collateral encumbered by the security interest granted to the Lender. * Page 5, Section 21 is amended to reflect that all information being provided by the Lender to the Borrower will be directed to Ms. Dorothy M. Cipolla, Chief Financial Officer; unless the Lender receives subsequent written instructions to the contrary. 2. All of the definitions, terms and conditions of the aforereferenced Financing Agreement between Lender and Borrower remain in full force and effect as part and parcel of Amendment, except as specifically changed here. 3. This Amendment must be executed by Network Six, Inc. and returned to PrinVest Financial Corp within seven (7) days of the date set forth above. This Amendment contains the entire understanding of the parties with regard to this Amendment. No waiver or modification to the provisions of this Amendment will be valid unless in writing and signed by both parties. Borrower herein affirms it has no defenses, counter-claims, set off or other claim against Lender, its agents or assignees, or with respect to Borrower's obligations under the Financing Agreement. IN WITNESS WHEREOF, the parties have executed this Amendment and affixed their signatures on the date first above written. LENDER: PRINVEST FINANCIAL CORP BY: /s/ Pamela K. Wilson ---------------------- Signature Pamela K. Wilson, Director 1/12/98 ---------------------------- --------- Print Name and Title Date BORROWER: NETWORK SIX, INC. BY: /s/ Kenneth C. Kirsch ----------------------- Signature 17 EX-10.18 4 CONTRACT DATED APRIL 1997 Exhibit 10.18 STATE OF MAINE DEPARTMENT OF HUMAN SERVICES 11 STATE HOUSE STATION AUGUSTA, MAINE 04333-0011 ANGUS S. KING, JR. KEVIN W. CONCANNON GOVERNOR COMMISSIONER February 24, 1997 Mr. Joseph Murray Network Six, Inc. 475 Kilvert Street Warwick, R.I. 02886 RE: MACWIS Contract Dear Mr. Murray: Enclosed please find the final version of the MACWIS Contract. It is my determination that this version is reasonable in accommodating the issues raised in the past. The State of Maine has dedicated significant resources to the initiation of this contract and the enclosed version is the final iteration. Please notify Peter Walsh of your final decision on this matter within twenty four hours of the receipt of this document. As you are aware, prior to a final signing of this document the following documents will need to be received: * A copy of the required performance bond * Certification that any required insurance polices have been issued. I acknowledge that this has been a long process for all involved and the State of Maine is very eager to begin this exciting project. We await your response. Sincerely, Kevin W. Concannon Commissioner Maine Department of Human Services cc: Peter Walsh: Deputy Commissioner of Programs Rudy Naples: Deputy Commissioner of OMB Nancy Carlson: Director of the Bureau of Child and Family Services Joseph Radziszewski: Director of the Division of Data Processing Janice Cooper: MACWIS Project Manager STATE OF MAINE CONTRACT FOR SPECIAL SERVICES Commencement Date April 1, 1997 ------------- Dollar Amount $6,265,738.00 Termination Date March 1, 1999 --------------- ------------- THIS AGREEMENT, made this 1st day of April, 1997, is by and between the State of Maine, Department of Human Services, hereinafter called "Department," and Network Six, Inc., hereinafter called "Contractor." The type of organization of the Contractor is: _____1. An individual doing business as__________________________ _____2. A partnership. __X__3. A corporation of the State of Rhode Island --------------------------- _____4. Other: __________________________________________________ The principal office of the Contractor is located at (street, city, state, zip): 475 Kilvert Street, Warwick, Rhode Island 02886 The Employer Identification Number (Federal tax identification number) of the Contractor is 05-036-6090 ----------- WITNESSETH, that for and in consideration of the payments and agreements hereinafter mentioned, to be made and performed by the Department, the Contractor hereby agrees with the Department to furnish all qualified personnel, facilities, materials and services and in consultation with the Department, to perform the services, study or projects described in Rider B. The following riders are hereby incorporated into this contract: Rider A - Payment and Other Provisions Rider B - Specifications of Work to be Performed IN WITNESS WHEREOF, the Department and the Contractor, by their representatives duly authorized, have executed this agreement in three original copies. CONTRACTOR: DEPARTMENT: Network Six, Inc. Maine Department of Human Services - -------------------------- ---------------------------------- Contractor Name Department Name By: /s/ Kenneth C. Kirsch By: ----------------------- -------------------------------- Authorized Signature Authorized Signature Kenneth C. Kirsch, President/CEO Kevin W. Concannon, Commissioner - -------------------------------- ---------------------------------- Typed Name and Title Typed Name and Title APPROVED, CONTRACT REVIEW COMMITTEE: APPROVED, ATTORNEY GENERAL (if applicable): Date: ______________________, 1997 Date: ___________________________, 1997 Chairman Attorney General *By Bureau of Purchases STATE OF MAINE MAINE AUTOMATED CHILD WELFARE INFORMATION SYSTEM CONTRACT FOR SPECIAL SERVICES
TABLE OF CONTENTS INTRODUCTION AND RECITALS............................................. 1 RIDER A: PAYMENT AND OTHER PROVISIONS................................. 3 1.0 General Provisions........................................... 3 1.1 Definitions.................................................. 3 1.2 Contract Defined; Order of Priority.......................... 7 1.2.1 Deviations From The RFP............................... 7 1.3 Modification................................................. 7 1.4 Contract Approval............................................ 7 1.5 Updated Detailed Project Plan................................ 8 1.6 Beginning Of Work............................................ 8 1.7 Contract Price............................................... 8 1.8 Invoices and Payments....................................... 8 1.9 Benefits and Deductions...................................... 8 1.10 Independent Capacity......................................... 8 1.11 Contract Administrator...................................... 9 1.12 Project Manager.............................................. 9 1.13 Subletting, Assignment or Transfer........................... 9 1.14 Equal Employment Opportunity Assurances...................... 9 1.14.1 Non-Discrimination in Employment Assurances........... 9 1.14.2 Non-Discrimination in Advertising Assurances.......... 10 1.14.3 Labor Union Assurances................................ 10 1.14.4 Subcontractor Assurances.............................. 10 1.14.5 Civil Rights Act and Rehabilitation Act Assurances.... 10 1.15 Employment and Personnel..................................... 10 1.16 State Employees Not to Benefit............................... 11 1.17 Warranty..................................................... 11 1.18 Access to Records............................................ 11 1.19 Governmental Requirements.................................... 11 1.20 Interpretation and Performance............................... 11 1.20.1 Governing Law......................................... 11 1.20.2 Severability.......................................... 11 1.20.3 Reliance on Policy Determinations..................... 11 1.20.4 Titles Not Controlling................................ 12 1.20.5 Gender and Number..................................... 12 1.20.6 No Rule of Construction............................... 12 1.21 State Held Harmless.......................................... 12 1.22 Entire Agreement............................................. 13 1.23 Advertising Award............................................ 13 1.24 Notices...................................................... 13
2.0 Type Of Contract............................................. 13 2.1 Term Of The Contract......................................... 13 2.2 Limitation................................................... 14 2.3 Fiscal Year.................................................. 14 3.0 Termination Of Contract...................................... 14 3.1 Termination Claims........................................... 15 3.2 Default By Contractor........................................ 15 3.3 Assurances Before Breach..................................... 16 3.4 State Options At Termination................................. 16 4.0 Contractor Freedom From Liability (Force Majeure)............ 16 5.0 Liquidated Damages Failure To Meet Performance Standards..... 17 5.1 Documentation................................................ 18 5.2 Timeliness of the Project.................................... 18 5.3 Deliverables and Report Production........................... 19 5.4 Performance Standard Measurements............................ 19 5.5 Systems User Documentation................................... 19 6.0 Failure To Perform........................................... 20 7.0 Contractor Personnel......................................... 20 8.0 Changes In Scope............................................. 21 8.1 Changes In Scope (CIS)....................................... 21 8.2 Impact of CIS................................................ 21 8.3 Negotiations of CIS.......................................... 22 8.4 Failure to Negotiate CIS..................................... 22 8.5 Change Orders Within Scope................................... 22 8.6 Events Constituting CIS...................................... 22 8.7 Final Decisions Regarding CIS................................ 23 8.8 Restrictions of CIS.......................................... 23 8.9 Claims for Compensation for CIS.............................. 24 8.10 Authority to Issue Change Orders............................. 24 8.11 Modifications Which Do Not Constitute CIS.................... 24 8.12 Change Rates for CIS......................................... 24 9.0 Disputes..................................................... 24 10.0 Confidentiality Of Information............................... 25 11.0 Prime Contractor Responsibilities............................ 25 11.1 Subcontracts................................................. 25 12.0 Ownership Of Information..................................... 26 12.1 Custom Software.............................................. 26 12.2 COTS Software................................................ 28 13.0 Liability.................................................... 29 14.0 Waiver....................................................... 29 15.0 Warranty..................................................... 29
16.0 Insurance....................................................... 30 16.1 Minimum Insurance............................................... 30 16.2 Certificates.................................................... 30 16.3 Notice Of Change................................................ 31 16.4 Liability Not Limited........................................... 31 16.5 Insurance Of Assumed Contractual Risk........................... 31 17.0 Payment......................................................... 31 17.1 Invoices........................................................ 32 17.2 Method Of Charging.............................................. 32 18.0 Inspection And Approval......................................... 32 19.0 Conflict Of Interest............................................ 32 20.0 State Property.................................................. 33 21.0 Federal Inspections............................................. 33 22.0 Copies Of Reports............................................... 33 23.0 Copyright Of Data............................................... 33 24.0 Training........................................................ 34 25.0 Patent, Copyright And Other Proprietary Indemnification......... 34 26.0 Application Program Source Code................................. 34 27.0 Accounting Requirements......................................... 34 28.0 Audit Requirements.............................................. 34 29.0 Records Retention Requirements.................................. 35 30.0 Audit Liabilities............................................... 35 31.0 Taxes........................................................... 35 32.0 Price Protection................................................ 36 33.0 Lobbying Certification.......................................... 36 34.0 Pricing And Discount............................................ 36 35.0 Cover........................................................... 36 36.0 Additional Defaults............................................. 37 37.0 Performance Assurance........................................... 37 RIDER B: SPECIFICATIONS OF THE WORK TO BE PERFORMED...................... 39
INTRODUCTION AND RECITALS This Contract is entered into as of __________________________ by and between the State ofMaine, Department of Human Services (hereinafter referred to as "State", "DHS" or "Department") and Network Six, Incorporated (hereinafter referred to as the "Contractor"). WHEREAS, the Department desires to implement a Maine Automated Child Welfare Information System (hereinafter referred to as "MACWIS"); and WHEREAS, the Department is authorized by the laws of the State of Maine to contract with organizations for the implementation of such a system; and WHEREAS, the Department solicited proposals for such implementation by issuing a Request for Proposals issued by the Department on December 4, 1995; and WHEREAS, the Department evaluated all proposals received in response to the Request for Proposals in a fair and unbiased manner; and WHEREAS, the Department reviewed the proposed systems of all responding vendors at system demonstrations and presentations by the key contractor employees proposed for the project; and WHEREAS, the Department further interviewed the key employees of the two highest scoring responding vendors; and WHEREAS, the Department selected the Contractor as the successful vendor for the transfer, design, development, implementation and testing of MACWIS after evaluating its proposal, reviewing its proposed system, conducting key employee interviews and determining that the Contractor's and Subcontractor's key employees to be assigned to the design, development and implementation of the proposed system possessed abilities and could deliver a level of service not available from other proponents; and WHEREAS, the State's Contract Review Committee approved the selection of the Contractor; and WHEREAS, the Contractor is qualified and willing to perform its duties as set out herein subject to the terms and conditions stated below; and WHEREAS, the Contractor has agreed to supplement its personnel with the appropriate technical consultants and subcontractors as necessary to satisfactorily complete its duties and responsibilities; and WHEREAS, the Contractor acknowledges that the Department may use Consultant assistance to help it monitor the Contractor's performance under this Contract and the Contractor agrees that it will cooperate with and provide State Consultants with any information that is reasonably needed to monitor the Contractor's work under this Contract; NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual promises contained herein, the Department and the Contractor agree as follows: RIDER A PAYMENT AND OTHER PROVISIONS 1.0 GENERAL PROVISIONS 1.1 DEFINITIONS The following terms used in this Contract shall be defined as follows, unless the context clearly indicates otherwise: ACF: (Federal) Administration for Children and Families (DHHS) AFDC: Aid to Families with Dependent Children APD: Advance Planning Document. The MACWIS APD was submitted in separate Planning (PAPD) and Implementation (IAPD) versions. ASPIRE: Additional Support for People in Retraining and Education BCFS: (State) Bureau of Child and Family Services (DHS) BFI: (State) Bureau of Family Independence (formerly Bureau of Income Maintenance) (DHS) BIS: (State) Bureau of Information Services (DOAFS) CONTRACTOR: Network Six, Incorporated (NSI) and any of its subsidiaries, affiliated entities, or successors. CONTRACTOR'S Kenneth C. Kirsch, President of NSI, or his successor DISPUTE RESOLUTION AUTHORITY: CSE: Child Support Enforcement DAY: A calendar day, unless otherwise specified in this Contract DELIVERABLE: The work products produced by the Contractor for submission to DHS for its review and approval in accordance with the provisions of this Contract DEPARTMENT: (State) Department of Human Services DHHS: (Federal) Department of Health and Human Services DHS: (State) Department of Human Services DHS-DDP: (State) Department of Human Services - Division of Data Processing DHS-DP: DHS-DDP DISPUTE RESOLUTION Kevin W. Concannon, Commissioner of DHS, or his successor, and AUTHORITIES: Kenneth C. Kirsch, President of NSI, or his successor DOAFS: (State) Department of Administrative and Financial Services DSER: (State) Division of Support Enforcement and Recovery (BFI) EFFECTIVE The effective date of this Contract is the date the Contract is DATE: fully executed by the State and the Contractor, subsequent to the contract's approval by both the U.S. Department of Health and Human Services and the State's Contract Review Committee EFFP: Enhanced Federal Financial Participation EVENT: Any written or oral communication, direction, instruction, interpretation or determination by or from the State's Contract Administrator, Project Manager, or any duly designated and authorized representative thereof, or any omission of the State's Contract Adiministrator, Project Manager, or any duly designated and authorized representative thereof. FAMIS: Family Assistance Management Information System FFP: Federal Financial Participation FNS: (Federal) Food and Nutrition Service HCFA: (Federal) Health Care Financing Administration IAPD: Implementation Advance Planning Document ICWIS: Indiana Child Welfare Information System IDRT: The Interim Dispute Review Team, consisting of the following persons or their successors: Peter Walsh, Deputy Commissioner for Programs, DHS, and Donna Guido, Vice President, NSI. If a dispute involves the Subcontractor, then the IDRT shall also include Rudolph Naples, Deputy Commissioner, Office of Management and Budget, DHS, and Christopher Burpo, MACWIS Engagement Principal, Unisys IV-A: Medicaid Eligibility Program/Title IV-A of the Social Security Act Administered in Maine by the Bureau of Family Independence (BFI) IV-D: Child Support Enforcement Program/Title IV-D of the Social Security Act Administered in Maine by the Division of Support Enforcement and Recovery (DSER) IV-E: Child Welfare Program/Title IV-E of the Social Security Act Administered in Maine by the Bureau of Child and Family Services (BCFS) JET: Job Exploration and Training JOBS: Job Opportunities and Basic Skills training KEY PERSONNEL: Key Personnel are defined as the following individuals: the Contractor's Project Manager: Eileen Cerbarano, NSI; the Deputy Project Manager/Implementation Manager: John O'Cassidy, NSI; the Application Development Manager/Lead Analyst: Gerry O'Brien,Unisys; the two (2) Policy Specialists (part time, to the extent that their time is allocated to the project per the RFP or the latest mutually agreed upon version of the Project Plan): Gerry Robinson, Unisys, and Joseph Murray, NSI; the Lead Programmer: J. R. Sandavi, Unisys; the Intake Team Leader: Gary Romeo, Unisys; the Case Management Team Leader: Chris Cox, Unisys; the Resource Management Team Leader: Juan Ribot, Unisys; the Financial Management/Interfaces Team Leader: James Gillett, NSI; the Technical Team Leader/Database Specialist: Peter Philp, NSI; the Training Team Leader/Help Desk: Martin Tenesh, NSI; the Conversion Team Leader: Henry Ruppenthal, NSI; and the Development Tool Specialist: Chris Turner, NSI. This definition of key personnel supersedes and replaces any and all earlier - ---------------------------------------------------------------------------- such definitions in the Request for Proposal and the Contractor's proposals - ------------------------------------------------------------------------- submitted in response to the Request for Proposal. - -------------------------------------------------- MACWIS: Maine Automated Child Welfare Information System MFASIS: Maine Financial and Administration Services Information System MMIS: Medicaid Management Information System NECSES: New England Child Support Enforcement System PAPD: Planning Advance Planning Document PRIME CONTRACTOR: Contractor PROPOSAL: The proposal submitted by the Contractor in response to the RFP. REQUEST FOR The State's Request for Proposal for MACWIS, as amended and PROPOSAL: supplemented by the MACWIS Bidders' Conference Questions and Answers dated January 4, 1996 and the MACWIS Bidders' Conference Additional Questions and Answers dated February 1, 1996 RFP: Request for Proposal RIDERS: Written materials that are attached to this Contract and/or incorporated by reference SACWIS: Statewide Automated Child Welfare Information System SIRU: (State) Special Investigations and Recovery Unit SSA: (Federal) Social Security Administration SSN: Social Security Number STATE: The State of Maine STATE'S Kevin W. Concannon, Commissioner of DHS, or his successor DISPUTE RESOLUTION AUTHORITY: SUBCONTRACTOR: Any person not in the employ of the Contractor, or any organization not owned by the Contractor including its officers, employees or agents, performing work which is the responsibility of the Contractor under this Contract, including any technical consultant, firm, or corporation retained by the Contractor to furnish or supply services, materials, equipment or supplies in connection with this Contract SUBCONTRACTOR: Unisys, Inc., and any of its subsidiaries, affiliated entities, or successors and agents performing work that is the responsibility of the Subcontractor under this Contract, including any technical consultant, firm, or corporation retained by the Subcontractor to furnish or supply services, materials, equipment or supplies in connection with this Contract TRANSFER As specified in the Contractor's proposal the Transfer System SYSTEM: is the State of Indiana SACWIS, known as ICWIS. The transfer system includes any additional components developed and implemented subsequent to the submission of the Contractor's proposal. USDA: (Federal) United States Department of Agriculture 1.2 CONTRACT DEFINED; ORDER OF PRIORITY The contract between the State of Maine and the Contractor shall include the terms set forth in: (i) this Rider A and any cover sheet attached hereto; (ii) Rider B, which incorporates by reference both the Request for Proposal, as amended and supplemented by the MACWIS Bidders' Conference Questions and Answers dated January 4, 1996, and the MACWIS Bidders' Conference Additional Questions and Answers dated February 1, 1996 (the "RFP"), and the Contractor's Proposal submitted in response to the RFP (the "Proposal"), subject to the terms set forth below in Section 1.2.1 of this Rider A; and (iii) any subsequent contract amendments duly agreed to and signed by both parties (collectively, the "Contract"). In the event of a conflict in language among the documents referenced above, the provisions and requirements set forth and/or referenced in this Rider A or any subsequent amendments shall govern, followed in priority by the RFP and the Contractor's Proposal. In the event that an issue is addressed in one document that is not addressed in the other documents, no conflict in language shall be deemed to occur. However, the State reserves the right to clarify any contractual relationship in writing with the agreement of the Contractor, and such written clarification shall govern in case of conflict with the applicable requirements stated in the RFP or the Contractor's proposal. 1.2.1 DEVIATIONS FROM THE RFP The requirements appearing in the RFP are a part of the terms and conditions of this Contract. The State has reviewed the Proposal and accepts as part of this Contract those deviations from the specifications contained in Section 3 of the RFP that pertain to the Contractor's scope of work with respect to the MACWIS system and that have been specifically identified by the Contractor in Sections III, IV, V, VI, VII, and 8.1.2 of the Proposal; provided, however, that in no event shall anything contained in the Proposal be deemed to supersede or contravene the terms and conditions set forth in this Rider A. 1.3 MODIFICATION No modification or change of any provision in this Contract shall be made, or be construed to have been made, unless such modification is mutually agreed to in writing by the Contractor and the State. The contract modification will be incorporated as a written amendment to this Contract. Memoranda of understanding and correspondence shall not be construed as amendments to this Contract. 1.4 CONTRACT APPROVAL In Maine, authority to approve contracts on behalf of the State is vested in the initiating department, the State Contract Review Committee and the Attorney General. The Contractor shall sign this Contract which shall then be forwarded for approval and signature by all appropriate officials in the Maine State government and approval by the federal funding agencies. Whenever the State is required by terms of this Contract to provide written notice to the Contractor, such notice must be signed by the State's Contract Administrator or Project Manager, as appropriate under the applicable provisions of this Contract. 1.5 UPDATED DETAILED PROJECT PLAN Within thirty (30) days of execution of this Contract, the State and the Contractor shall prepare an Updated Detailed Project Plan which shall detail due dates for each of the contract deliverables. The Updated Project Plan shall be incorporated into this Contract and made a part thereof. All deliverables approved by the Department shall be considered part of this Contract. In the event any disagreement arises as to any term or provision to be included in the Updated Project Plan, the State's Project Manager shall determine such term or provision, subject to the dispute resolution procedures set forth in Section 9, Disputes. 1.6 BEGINNING OF WORK The Contractor must not commence any billable work until this Contract has been fully executed by the parties and has been approved by the U.S. Administration for Children and Families. Subsequent to federal approval, the Project Manager will notify the Contractor in writing that work may commence. 1.7 CONTRACT PRICE This is a fixed price.contract to provide the personal services, together with supporting materials, as specified in Rider B for the amount of $6,265,738.00. 1.8 INVOICES AND PAYMENTS Payment shall be made by the Department within 45 days after receipt of an approved itemized invoice submitted by the Contractor upon its usual billing forms or business letterhead. 1.9 BENEFITS AND DEDUCTIONS The Contractor understands and agrees that at all times during the term of this Contract it shall be acting in its capacity as an Independent Contractor for whom no Federal or State Income Tax will be deducted by the Department, and for whom no retirement benefits, survivor benefit insurance, group life insurance, vacation and sick leave, and similar benefits available to State employees will accrue. The Contractor further understands that annual information returns as required by the Internal Revenue Code or State of Maine income tax law will be filed by the State Controller with the Internal Revenue Service and the State of Maine Bureau of Taxation, copies of which will be furnished to the Contractor for its Income Tax records. 1.10 INDEPENDENT CAPACITY The parties hereto agree that the Contractor, and any agents and employees of the Contractor, in the performance of this agreement, shall act in an independent capacity and not as officers or employees or agents of the State. 1.11 CONTRACT ADMINISTRATOR All invoices, progress reports, correspondence, notices and related submissions from the Contractor shall be directed to: Name: Nancy D. Carlson, Esq. Title: Director, Bureau of Child and Family Services Maine Department of Human Services Address: 11 State House Station Augusta, Maine 04333-0011 who is designated as the Contract Administrator on behalf of the Department for this Contract. The Contract Administrator shall be the Department's representative during the period of this agreement. He or she has authority to stop the work if necessary to ensure its proper execution. He or she shall certify to the Department when payments under this Contract are due and the amounts to be paid. 1.12 PROJECT MANAGER The Contract Administrator may designate, in writing, a person or persons with delegated authority to act on the Contract Administrator's behalf (the "Project Manager"), and the Contractor may rely upon such designation until given notice of its revocation; provided, however, that in no event shall any such designation be effective to allow the Project Manager, without the approval of the Contract Administrator, to (i) authorize the payment of invoices; (ii) consent to any amendment or modification of this Contract, except as provided in Section 8, Changes in Scope; or (iii) terminate this Contract. 1.13 SUBLETTING, ASSIGNMENT OR TRANSFER The Contractor shall not sublet, sell, transfer or assign or otherwise dispose of this Contract or any portion thereof, or of its right, title or interest therein, without written request to and written consent of the Contract Administrator, except to a bank. No subcontracts or transfer of this Contract shall in any case release the Contractor of its liability under this Contract. 1.14 EQUAL EMPLOYMENT OPPORTUNITY ASSURANCES During the performance of this Contract, Contractor agrees as follows: 1.14.1 NON-DISCRIMINATION IN EMPLOYMENT ASSURANCES The Contractor will not discriminate against any employee or applicant for employment relating to this Contract because of race, color, religious creed, sex, sexual orientation, national origin, ancestry, age, or physical handicap, unless related to a bona-fide occupational qualification. Contractor will take affirmative action to ensure that applicants are employed and employees are treated during employment, without regard to their race, color, religious creed, sex, sexual orientation, national origin, ancestry, age or physical handicap. Such action shall include, but not be limited to the following: employment, upgrading, demotions, or transfers; recruitment or recruitment advertising; layoffs or terminations; rates of pay or other forms of compensation; and selection for training including apprenticeship. Contractor agrees to post in conspicuous places available to employees and applicants for employment notices setting forth the provisions of this non-discrimination clause. 1.14.2 NON-DISCRIMINATION IN ADVERTISING ASSURANCES Contractor will, in all solicitations or advertising for employees placed by or on behalf of Contractor relating to this Contract, state that all qualified applicants will receive consideration for employment without regard to race, color, religious creed, sex, sexual orientation, national origin, ancestry, age, or physical handicap. 1.14.3 LABOR UNION ASSURANCES Contractor will send to each labor union or representative of the workers with which Contractor has a collective bargaining agreement, or other contract or understanding, whereby Contractor is furnished with labor for the performance of this Contract, a notice, to be provided by the contracting department or agency, advising the said labor union or workers' representative of Contractor's commitment under this section and shall post copies of the notice in conspicuous places available to employees and the applicants for employment. 1.14.4 SUBCONTRACTOR ASSURANCES Contractor will cause the foregoing provisions to be inserted in any subcontracts for any work covered by this Contract so that such provisions shall be binding upon each subcontractor, provided that the foregoing provisions shall not apply to contracts or subcontracts for standard commercial supplies or raw materials. The Contractor, or any subcontractor holding a contract directly under the Contractor, shall, to the maximum feasible extent, list all suitable employment openings with the Maine Employment Security Commission. This provision shall not apply to employment openings which the Contractor, or any subcontractor holding a contract under the Contractor, proposes to fill from within its own organization. Listing of such openings with the Employment Services Division of the Maine Employment Security Commission shall involve only the normal obligations attached to such listings. 1.14.5 CIVIL RIGHTS ACT AND REHABILITATION ACT ASSURANCES Compliance with Title VI of Civil Rights Act of 1964 (42 U.S.C. & 2000d et seq.); section 504 of the Rehabilitation Act of 1973, as amended (29 U.S.C. & 794); and the United States Administration for Children and Families Regulations found in 45 C.F.R., parts 80 and 84, is required of the Contractor and all subcontractors. 1.15 EMPLOYMENT AND PERSONNEL The Contractor shall not engage on a full-time, part-time or other basis during the term of this Contract any professional or technical personnel who are or have been at any time during the term of this Contract in the employ of any State Department or Agency, except regularly retired employees, without the written consent of the public employer of such person. Further, the Contractor shall not engage on this project on a full-time, part-time or other basis during the term of this Contract any retired employee of the Department who has not been retired for at least one year, without the written consent of the Contract Review Committee. 1.16 STATE EMPLOYEES NOT TO BENEFIT No individual employed by the State at the time this Contract is executed or any time thereafter shall be admitted to any share or part of this Contract or to any benefit that may arise therefrom directly or indirectly due to his or her employment by or financial interest in the Contractor or any affiliate of the Contractor. 1.17 WARRANTY The Contractor warrants that it has not employed or written any company or person, other than a bona fide employee working solely for the Contractor, to solicit or secure this Contract, and that it has not paid, or agreed to pay any company or person, other than a bona fide employee working solely for the Contractor any fee, commission, percentage, brokerage fee, gifts, or any other consideration, contingent upon, or resulting from the award for making this Contract. For breach or violation of this warranty, the Department shall have the right to annul this Contract without liability or, in its discretion, to deduct from the contract price or consideration, or otherwise recover the full amount of such fee, commission, percentage, brokerage fee, gifts, or contingent fee. 1.18 ACCESS TO RECORDS The Contractor shall maintain all books, documents, payrolls, papers, accounting records and other evidence pertaining to costs incurred under this agreement and to make such materials available at the Contractor's offices at all reasonable times during the term of this Contract and for three years from the date of the expiration of this Contract, for inspection by the Department or any authorized representative of the State of Maine and copies thereof shall be furnished, if requested. 1.19 GOVERNMENTAL REQUIREMENTS The Contractor warrants and represents that all governmental ordinances, laws and regulations shall be complied with, subject to the provisions of Section 8.5, Change Orders Within Scope. 1.20 INTERPRETATION AND PERFORMANCE 1.20.1 GOVERNING LAW This agreement shall be governed by the laws of the State of Maine as to interpretation and performance. 1.20.2 SEVERABILITY Whenever possible, each provision of this Contract shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Contract or the application thereof to any person(s) or circumstances shall be deemed to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Contract. 1.20.3 RELIANCE ON POLICY DETERMINATIONS The State shall determine all program policy. The Contractor may from time to time request the State to make policy determinations or to issue operating guidelines required for proper performance of this Contract, and the State's Project Manager shall respond in writing in a timely manner. The Contractor shall be entitled to rely upon and act in accordance with such written policy determinations and operating guidelines, unless subsequently amended, modified or changed in writing by the Department, and shall incur no liability in doing so unless the Contractor acts negligently, maliciously, fraudulent, or in bad faith. Nothing contained in this Contract or in any agreement, determination, operating guideline, or other communication from the Department shall relieve the Contractor of its obligation to keep itself informed of applicable State and federal laws, regulations, policies, procedures and guidelines, and, subject to the provisions of Section 8.5, Change Orders Within Scope, to be in complete compliance and conformity therewith. 1.20.4 TITLES NOT CONTROLLING Titles of paragraphs used herein are for the purpose of facilitating ease of reference only and shall not be construed to imply a contractual construction of language. 1.20.5 GENDER AND NUMBER The use of the masculine, feminine, or neuter gender, or of the singular or plural number, from time to time herein shall not be so construed as to require a particular implication therefrom, and any such gender or number may be implied as the context may require. 1.20.6 NO RULE OF CONSTRUCTION The parties acknowledge that this Contract was initially prepared by the State solely as a convenience and that all parties hereto, and their counsel, have read and fully negotiated all the language used in this Contract. The parties acknowledge that, because all parties and their counsel participated in negotiating and drafting this Contract, no rule of construction shall apply to this Contract that construes ambiguous or unclear language in favor of or against any party because such party drafted this Contract. 1.21 STATE HELD HARMLESS The Contractor agrees to indemnify, defend and hold harmless the State, its officers, agents and employees front any and all claims and losses accruing or resulting to any and all contractors, subcontractors, material-persons, laborers and any other person, firm or corporation furnishing or supplying work, services, materials or supplies in connection with the performance of this Contract and from any and all claims and losses accruing or resulting to any person, firm or corporation who may be injured or damaged by the Contractor or any subcontractor in connection with the performance of this Contract and against any liability, including costs and expenses for violation of proprietary rights, copyrights, or rights of privacy, arising out of publication, translation, reproduction, delivery, performance, use or disposition of any data furnished under this Contract or based on any libelous or other unlawful matter contained in such data. The Contractor further agrees to procure liability insurance, naming the State as an insured, for the purpose of insuring against potential liabilities of the Contractor pursuant to this Section 1.21. Said insurance shall be subject to the approval of the State and shall remain in effect for the full term of this Contract. Failure to maintain such insurance shall constitute a default, subject to an applicable remedies set forth in Section 3 of this Rider A. The State shall give the Contractor prompt written notice of each such claim or suit and full right and opportunity (subject to the approval of the Attorney General) to conduct the Contractor's own defense thereof, together with full information and all reasonable cooperation. 1.22 ENTIRE AGREEMENT This Contract contains the entire agreement of the parties, and neither party shall be bound by any statement or representation not contained herein. 1.23 ADVERTISING AWARD The Contractor shall not refer to awards in commercial advertising in such a manner as to state or imply that the Contractor or its services are endorsed or preferred by the State of Maine. News releases pertaining to this project will not be made without prior approval from the State of Maine. 1.24 NOTICES After contract award, all notices under this Contract shall be deemed duly given: . upon delivery, if delivered by hand against receipt; or . three (3) business days after posting if sent by registered or certified mail, return receipt required. All notices to the State are to be delivered concurrently to the State's Contract Administrator and Project Manager at the address given in Section 1.11 of this Rider A or to such other address or party as is designated. All notices to the Contractor are to be delivered to the following address: Eileen Cerbarano Network Six, Inc. 475 Kilvert Street Warwick, Rhode Island 02886 Either party may change its address for notification purposes by giving written notice of the change and setting forth the new address and an effective date. 2.0 TYPE OF CONTRACT This Contract is a contact for personal services on the basis of a firm fixed price for the design, development, implementation and warranty support of MACWIS. 2.1 TERM OF THE CONTRACT The term of this Contract shall begin on the first day after this Contract has been approved by the U.S. Administration for Children and Families and has been fully executed by the parties, and shall expire twenty four (24) months later, or at the completion of all specified tasks and delivery of all contracted products, goods, and services as defined in this Contract including performance of any warranty and/or maintenance agreements, whichever is the later date, unless earlier terminated pursuant to the terms of this Contract. 2.2 LIMITATION This Contract is subject to available budgetary appropriations and shall not create any obligation on behalf of the Department in excess of such appropriations. Subject to this limitation, and to the extent possible, the Contractor shall be paid for work performed prior to termination in accordance with Sections 3 and 3.1 of this Rider A. In the event that the amount of funds appropriated is such that the Department must restrict or terminate funding for this Contract, the Department will provide the Contractor with immediate written notice of said restriction or termination of funding. The State may, in its sole discretion, also terminate this Contract upon thirty (30) days notice to the Contractor as a result of said restriction or termination of funding. It is understood by the parties that the termination clause regarding non- appropriation of funds by the Legislature is a requirement of both State law and the Maine Constitution. Within this requirement, however, the Department warrants that it will include a request to the Governor for each biennium during the contract period. 2.3 FISCAL YEAR For the purposes of this Contract, "state fiscal year" will be defined as the state fiscal year: July 1 through June 30. "Federal fiscal year" will be defined as October 1 through September 30. 3.0 TERMINATION OF CONTRACT Notwithstanding any other provision of this Contract, the performance of work under this Contract may be terminated by the Department in whole or in part whenever, for any reason, the Contract Administrator shall determine that such termination is in the best interest of the Department. Any such termination shall be effected by delivery to the Contractor of a Notice of Termination specifying the extent to which performance of the work under this Contract is terminated and the date on which such termination becomes effective. In the event of any such termination, the Contractor shall be entitled to receive just and equitable compensation for all accepted deliverables and satisfactory authorized work performed as of the termination date, subject to the terms of this Section 3 of this Rider A. In no event, however, shall the Contractor be paid for loss of anticipated profit. Upon delivery to the Contractor of a Notice of Termination, pursuant to section 1.24, Notices, of this Rider A specifying the nature of the termination, the extent to which performance of work under this Contract is terminated, and the date upon which such termination becomes effective, the Contractor shall: (i) stop work under this Contract on the date and to the extent specified in the Notice of Termination; (ii) take such action as may be necessary, or as the State's Project Manager may direct, for the protection and preservation of the property related to this Contract which is in the possession of the Contractor and in which the State has or may acquire an interest; (iii) terminate all orders to the extent that they relate to the performance of work terminated by the Notice of Termination; (iv) assign to the State in the manner and to the extent directed by the State's Project Manager all of the rights, title, and interest of the Contractor under the orders so terminated, in which case the State shall have the right, at its discretion, to settle or pay any or all claims arising out of the terminations of such orders, however, notwithstanding this provision, the Contractor will not be obligated to assign any such rights, title or interest in the absence of payment therefor by the State; (v) with the approval or ratification of the State's Project Manager, settle all outstanding liabilities and all claims, arising out of such termination of orders, the cost of which would be reimbursable in whole or in part, in accordance with the provision of this Contract; (vi) transfer title to the State (to the extent that title has not already been transferred) and deliver in the manner, at the times, and to the extent directed by the State's Project Manager all files, processing systems, data manuals, or other documentation, in any form, that relate to all the work completed or in progress prior to the Notice of Termination; and (vii) complete the performance of such part of the work as shall not have been terminated by the Notice of Termination. The Contractor shall proceed immediately with the performance of the above obligations notwithstanding any delay in determining or adjusting the amount of any item of reimbursable price under this clause. In any event, this Contract shall terminate at the time specified in Section 2.1 of this Rider A. 3.1 TERMINATION CLAIMS Pursuant to Section 3, Termination of Contract, the State shall determine, on the basis of information available, including information provided by the Contractor, the amount, if any, due to the Contractor by reason of the termination and shall thereupon pay to the Contractor the amount so determined. Acceptance of said payment shall not constitute a waiver by the Contractor of the right to dispute the State's determination of the amount due, pursuant to the dispute resolution mechanism contained in Section 9 of this Rider A. 3.2 DEFAULT BY CONTRACTOR If the Contractor fails to fulfill in a timely and proper manner its obligations under this Contract, or if the Contractor shall violate any of the material terms of this Contract, the State shall have the right, after the expiration of any applicable notice and cure period(s), to terminate this Contract, said termination to be effective upon the date notice of termination is given, and the State may thereafter withhold payment of any amount in excess of fair compensation for the work actually completed by the Contractor prior to termination of this Contract and will be entitled to pursue all of its other available legal remedies against the Contractor. Notwithstanding the above, the Contractor shall not be relieved of liability to the State for damages sustained by virtue of any breach of this Contract by the Contractor. In addition to any other liabilities provided for in this Contract, such Contractor liability may include, but is not limited to, all incidental and consequential damages arising or resulting from any breach of this Contract. The State may, by written notice of default to the Contractor, provide that the Contractor may cure a failure or breach of this Contract within a period of thirty (30) days (or such longer period as the State's Contract Administrator or Project Manager may authorize in writing), said period to commence upon receipt of the notice of default specifying such failure or breach. The State's exercise of this provision allowing the Contractor time to cure a failure or breach of this Contract does not constitute a waiver of the State's right to terminate this Contract, without providing a cure period, for any other failure or breach of this Contract. 3.3 ASSURANCES BEFORE BREACH If documentation or any other deliverables due under this Contract are not to the satisfaction of the Project Manager, the Contractor is to be prepared to deliver additional Contractor resources to the project in order to complete the deliverable to the satisfaction of DHS and to demonstrate that other project schedules will not be affected. Upon written notice by the State's Project Manager of the State's concerns regarding the quality or timeliness of an upcoming deliverable, the Contractor shall, within five (5) business days of receipt of said notice, submit a corrective action plan documenting the Contractor's approach to completing the deliverable to the satisfaction of the State's Project Manager without affecting other project schedules. At his or her sole discretion, the State's Project Manager, within five (5) business days of receipt of the corrective action plan, shall either approve the plan, reject the plan, or return the plan to the Contractor with specific instructions as to how the plan can be modified to merit approval and a specific time period in which the revised plan must be resubmitted. Said determination, approving, rejecting or returning the plan, shall not be subject to the dispute resolution mechanism set forth in Section 9 of this Rider A. Failure to submit, within the time period set forth herein, a corrective action plan that is approved by the State's Project Manager, or failure to comply with such an approved plan, shall constitute a material breach of this Contract, and is subject to the provisions of termination as specified in section 3.2, Default by Contractor. 3.4 STATE OPTIONS AT TERMINATION In the event the State terminates this Contract pursuant to section 3, Termination of Contract, the State may at its option: (i) retain all or a portion of such hardware, equipment, software, and documentation as has been provided, obtaining clear title to the same, and procure upon such terms and in such manner as the State's Project Manager may deem appropriate, hardware, equipment, software, and documentation, or services as are necessary to complete the project; or (ii) to the extent that the termination is pursuant to Section 3.2 of this Rider A, return, as is, all or a portion of hardware, equipment, software, and documentation to Contractor at Contractor's expense in which instance the Contractor must remit all moneys previously paid by the State within five (5) business days of receipt of such hardware, equipment, software, and documentation. Notwithstanding the above, nothing herein shall limit the right of the State to pursue any other legal remedies against the Contractor. 4.0 CONTRACTOR FREEDOM FROM LIABILITY (FORCE MAJEURE) The Contractor shall not be liable for any damages if the failure to perform this Contract arises out of causes beyond the control and without the fault or negligence of the Contractor. Such causes may include, but are not restricted to, acts of God, acts of the State of Maine solely in its sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather; but in every case the failure to perform must be beyond the control and without the fault or negligence of either the Contractor or is subcontractor(s). When such a cause arises, the Contractor shall notify the State of Maine immediately in writing of its failure to perform, describing the cause of failure and how it affects performance, and the anticipated duration of the inability to perform. The State of Maine shall review the information provided and may, at its option, terminate this Contract. 5.0 LIQUIDATED DAMAGES FAILURE TO MEET PERFORMANCE STANDARDS The Contractor agrees that time is of the essence in the performance of this Contract. The State and the Contractor agree that in the event of a failure to meet the milestones and project deliverable dates or any standard of performance within the time set forth in the Contractor's Project Workplan contained within the Contractor's proposal included in this Contract, damage shall be sustained by the State and that it may be impractical and extremely difficult to ascertain and determine the actual damages which the State will sustain by reason of such failure. It is therefore agreed that the State, at its sole option, and subject to the provisions of Section 3.2 of this Rider A, may require the Contractor to pay liquidated damages for such failures according to the following Sections 5.1 through 5.5 and with the following provisions: (i) Where the failure is the sole and exclusive fault of the State, no liquidated damages shall be imposed. (ii) Where responsibility for the failure is shared by the State and the Contractor, one-half of the liquidated damages stated in the appropriate subsection below shall be imposed. (iii) Where the failure is the sole and exclusive fault of the Contractor, the full amount of the liquidated damages stated in the appropriate subsection below shall be imposed. The imposition of liquidated damages shall not limit the State's right to pursue any other remedies available to it, including but not limited to the right to seek damages pursuant to Section 3.2 of this Rider A. For any failure by the Contractor to meet any performance standard, milestone or project deliverable date that is not specifically outlined below, the State of Maine may require the Contractor to pay liquidated damages in the amount of five hundred dollars ($500) (subject to the provisions of shared responsibility stated above) per business day per deliverable, milestone, or performance standard for each and every business day thereafter (not to exceed 180 business days) until such deliverable, milestone, or performance standard is completed and accepted by the State of Maine. The State at its option may begin default proceedings at any point during this period. Written notification of failure to meet a performance requirement shall be given by the State's Project Manager to the Contractor. The Contractor shall have five (5) business days or other mutually agreed period from the date of receipt of written notification of a failure to perform the specifications to cure the failure set forth in the written notification. If the failure is not resolved within this period, liquidated damages may be imposed retroactively to the date of expected delivery. In the event that liquidated damages have been imposed and retained by the State, any such damages shall be refunded, provided that the entire system turnover to the State has been accomplished and approved by the State according to the original schedule in the Project Workplan contained within the Contractor's Proposal included in this Contract, as modified by mutually agreed upon change orders. 5.1 DOCUMENTATION Requirement: The Contractor is responsible for providing to DHS complete, accurate, and timely documentation for MACWIS. Such documentation shall be according to the specifications described in Section 3 of the RFP. The Contractor shall also be responsible for providing any copies of documentation required by applicable Federal authorities. Any changes which occur to the system shall be documented according to the standards described in Section 3 of the RFP and documentation of those changes shall be provided to DHS within thirty (30) days of State approval of implementation of the change. LIQUIDATED DAMAGES: The Contractor shall pay five hundred dollars ($500) for each business day (or any part thereof) from the date documentation was due until the date following its acceptance as to format and completeness of contents based on State reviews conducted in accordance with RFP requirements or the latest mutually agreed upon version of the Updated Project Workplan. 5.2 TIMELINESS OF THE PROJECT REQUIREMENT: The State intends to accomplish this project within the time frames outlined in Section 3 of the RFP. The Contractor shall finalize and submit the updated project workplan to DHS for approval within thirty (30) days of contract signing. The Contractor shall also be required to update and submit an updated project workplan to DHS on a monthly basis. If, for any reason, the Contractor is delayed in meeting the approved schedule by neglect of the State or by any cause beyond the Contractor's control, then the contract schedule may be extended by change order for such reasonable time as the State may determine. Any claim for extension of time shall be made in writing to the Project Manager not more than ten (10) business days after the Contractor reasonably would have become aware of the delay; otherwise, it shall be waived. If the State determines that delays in meeting the approved schedule were caused by Contractor error or neglect, then the State may assess damages as prescribed below. LIQUIDATED DAMAGES: Five hundred dollars ($500) shall be paid by the Contractor for each business day or any part thereof from the date the approved project workplan or its monthly update was due until the date it is provided to DHS in an acceptable form. For delay in meeting key dates identified in the approved project workplan, five hundred dollars ($500) shall be paid by the Contractor for each business day, or part thereof, until the Contractor returns to the approved schedule. Damages shall be deferred if a change order is approved by the Department. The Contractor shall pay the full amount of any fiscal penalties imposed by federal agencies for failure to meet the approved schedule if the Department determines that Contractor errors or performance are the cause of delay. 5.3 DELIVERABLES AND REPORT PRODUCTION REQUIREMENT: Unless the number of copies is otherwise specified, five (5) copies of each deliverable described in Section 3 of the RFP shall be delivered to the Project Manager in final form on the date specified in the approved project workplan. All deliverables described in Section 3 of the RFP shall be delivered in a format approved by DHS and shall meet the minimum requirements. All MACWIS reports shall be produced in a format approved by DHS during design and development or as later required because of changes in federal and/or state reporting requirements specified in Section 3 of the RFP. All MACWIS reports shall be delivered to locations according to a schedule to be agreed upon by DHS and the Contractor. LIQUIDATED DAMAGES: Five hundred dollars ($500) shall be paid by the Contractor for each business day, per report or per deliverable, that the report or deliverable is late, includes less than the required copies, or is found unacceptable by state review teams in meeting the requirements of this Contract. 5.4 PERFORMANCE STANDARD MEASUREMENTS REQUIREMENT: The Contractor shall provide the necessary equipment and/or methodology for measuring performance as described in Section 3 of the RFP and shall certify its accuracy in performing those measurements. Such equipment and/or methodology is subject to approval by DHS. Measurements shall be taken on a schedule to be provided by DHS. Additional measurement periods shall be required, at the option of DHS, on demand and unannounced. LIQUIDATED DAMAGES: The Contractor shall be assessed one thousand dollars ($1,000) for each business day or any part thereof for which scheduled or unannounced measurements are not taken. 5.5 SYSTEMS USER DOCUMENTATION REQUIREMENT: The Contractor is responsible for providing to DHS complete, accurate and timely systems user documentation. Such documentation shall be according to the specification described in Section 3 of the RFP. Five (5) copies of such documentation shall be provided to DHS in draft form during the Pilot Test Task. Additional copies of the user documentation (training materials, trainer guides and user guides) shall be provided by the Contractor according to the schedule identified in the approved project workplan. Any changes which occur to the system shall be documented according to the standards described in Section 3 of the RFP. Documentation of those changes shall be provided to DHS within thirty (30) days of State approval of implementation of the change. LIQUIDATED DAMAGES: The Contractor shall be assessed one thousand dollars ($1,000) for each business day, or any part thereof, from the date documentation was due following state approval of implementation of the change until the date it is provided and found to be acceptable as to format and completeness of contents based an RFP requirements and State reviews. 6.0 FAILURE TO PERFORM In the event the Contractor has failed to perform any substantial obligation under this agreement, or has otherwise committed a failure or breach of this Contract under Section 3.2, Default by Contractor, DHS may withhold all moneys due and payable to the Contractor, without penalty, until such failure is cured or otherwise adjudicated. 7.0 CONTRACTOR PERSONNEL The State will provide office space in Augusta, Maine, for Contractor and subcontractor staff, the prototype development and testing LAN, and JAD/RAD sessions. The facilities and furnishings provided by the State are detailed in Appendix H of the RFP, Contractor Facilities. BCFS requires that all Contractor staff be located at this site during their participation in the project. To the extent possible, BCFS prefers that the State's MACWIS staff also be housed in this facility. The parties recognize that the primary value of the Contractor to the State derives directly from the Key Personnel assigned to the project. Therefore, the parties agree that Key Personnel shall be assigned to the MACWIS project in accordance with the time frames in the most recent mutually agreed upon project schedule and work plan, and that no re-deployment or replacement of any Key Personnel may be made without prior written consent of the State. Replacement of such personnel, if approved, shall be with personnel of equal or greater ability and qualifications. The State shall retain the right to reject any of the Contractors and/or Subcontractor,s employees whose qualifications, in the State's judgment, do not meet the standards established by the State as necessary for the performance of the services. In considering the Contractor's and the Subcontractor's employee's qualifications, the State will act reasonably and in good faith. Notwithstanding anything herein to the contrary, and without limitation of any other remedies herein contained, in the event that any of the Contractor's or the Subcontractor's Key Personnel as previously defined is/are redeployed or shall cease to be employed on a full-time basis by the Contractor or the Subcontractor, the State shall have the option, at its sole discretion, to declare a default and terminate this Contract pursuant to Section 3.2, unless the State determines, acting reasonably and in good faith, that the Contractor has provided replacement personnel with equal or greater ability and qualifications. The Contractor may not propose individuals for this project that are employees of a State agency. Federal regulations prohibit the federal government from paying twice for any employee. For example, a person who is an employee of one state could not be employed to work on a project in a second state and be paid in any way by that state (including paid leave status) as long as any part of his state compensation is reimbursed by the federal government. During the course of this Contract, the State reserves the right to require the Contractor to reassign or otherwise remove from the project any Contractor or subcontractor employees found unacceptable by the State. In considering the Contractor's and subcontractor's 'employee's acceptability, the State shall act reasonably and in good faith. 8.0 CHANGES IN SCOPE The State may, at any time by written order, make changes within the general scope of this Contract. No changes in scope are to be conducted except at the approval of the State. This section establishes the-only procedures by which the Contractor may obtain any compensation or reimbursement in excess of the amounts specifically provided for elsewhere in this Contract for any services rendered or property delivered or expense incurred in the performance of this Contract. During the Project Planning and Initiation phase, the State and the Contractor agree to jointly develop change control management procedures covering Change Order requests. 8.1 CHANGES IN SCOPE (CIS) From time to time, the DHS may request modifications to MACWIS not required by any provision of this Contract. The DHS shall make any such request in writing signed by the Project Manager and plainly labeled or titled a "Change Order." The Change Order shall specify whether the requested change is to be implemented on a certain date, or placed into effect only after approval of the Contractor's price proposal as described in Section 8.2 below. The Contractor shall not be penalized for any delays or change in the project schedule resulting from a DHS initiated Change Order. 8.2 IMPACT OF CIS The Contractor shall promptly, and in no event more than ten (10) business days after receipt of such Change Order, furnish to the Project Manager a written statement whether the change has a price or schedule impact. If there is a price or schedule impact, the statement shall include a description of the estimated price increase or decrease involved in implementing the change and any impact on the schedule. Any statement of price increase shall be accompanied by substantiation sufficient to show that the estimated increase meets all of the following criteria: (i) The charge for Contractor staff is based solely upon the categories and change order rates identified in the proposal. (ii) Allowance was made for any increase or decrease in the cost of the Contractor's performance of the remainder of the contract, as a result of implementing the Change Order. (iii) Allowance was made for any economies to the Contractor resulting from the duplication or overlapping of similar work which has been or will be performed in any other site. In the event that the State issues a Change Order and subsequently decides not to implement the change, the Contractor shall be entitled to compensation for the time and effort expended by Contractor staff in analysis of the price and schedule impact of the change. Upon written notification by the State's Project Manager that the State does not intend to proceed with the change, the Contractor's Project Manager shall furnish to the State's Project Manager an invoice detailing the number of hours expended on the analysis of price and schedule impact, by category of personnel involved and their associated change order rates as identified in the Contractor's proposal. 8.3 NEGOTIATIONS OF CIS The parties shall then negotiate and attempt in good faith to agree upon a plan and schedule for implementation of the Change Order, and the time, manner, and amount of payment or price increase or decrease or change to schedule consistent with the criteria in Section 8.2 above. 8.4 FAILURE TO NEGOTIATE CIS If the parties are unable to reach an agreement under Section 8.3 above, and the Change Order is intended to implement or address Federal or State law or regulation or Departmental or Bureau policy, the State's Project Manager may make a determination of the revised price or schedule, and, upon written instruction from the Project Manager, the Contractor shall proceed forthwith to implement the Change Order, subject to the Contractor's right to appeal the Project Manager's determination of the price or schedule. In the event the Project Manager fails to make a price or schedule determination and instruct the Contractor in writing, or the Change Order is not intended to implement or address Federal or State law or regulation or Departmental or Bureau policy, the Contractor shall not be obligated to implement the Change Order. 8.5 CHANGE ORDERS WITHIN SCOPE If in the sole judgment of the State's Project Manager any modification described in a Change Order is within the scope of this Contract or is otherwise necessary to achieve compliance with Maine or Federal law or regulation or Departmental or Bureau policy, and the modification is to the functional requirements specification and the Requirements Specification Document has not been approved by the State at the time of the Change Order, or the modification is to the design specification and the State has not approved the Detailed Design Document at the time of the Change Order, the State's Project Manager may so inform the Contractor, in which event the Contractor shall proceed forthwith to implement the Change Order without initial resort or recourse to the provisions of Sections 8.2 and 8.3 above. At its option, the Contractor may also initiate dispute resolution procedures pursuant to Section 9, Disputes. The procedures established in Sections 8.2 and 8.3 or 8.4, as appropriate, shall be followed as soon as practicable after the Contractor has begun implementation of the Change Order. Any Change Orders for functional requirements specification changes issued after the State's approval of the Requirements Specification Document, or any Change Orders for design specification changes issued after the State's approval of the Detailed System Design Document, shall be considered changes in scope and are subject to Sections 8.0, 8. 1, 8.2 and 8.3. 8.6 EVENTS CONSTITUTING CIS If the Contractor considers that an Event constitutes a Change Order, but is not plainly identified, labeled, or titled as such, the Contractor shall so advise the State's Project Manager in writing within five (5) business days of such Event, and shall request the Project Manager's written confirmation thereof. Such notice to the Project Manager shall state the following: (i) the nature and pertinent circumstances of the communication, act, or omission regarded as a Change Order; (ii) the date of the communication, act, or omission, and the identification of each individual involved in such communication, act, or omission, listing his or her name and function; (iii) the identification of any documents involved; (iv) the substance of any oral communications; (v) the particular technical requirements or contract requirements regarded as changed; (vi) the direct and foreseeable consequential effects of the communication, act, or omission regarded as a Change Order upon the contracted price, manner, and sequence of performance, and delivery of supplies or services, identifying which supplies or services are or will be affected; and (vii) the Contractor's best estimate as to the extent to which each such price and performance schedule element of this Contract should be adjusted. The State's Project Manager shall respond within ten (10) business days of receipt of the Contractor's notice as required above: (i) to countermand the action or communication regarded as an Event; (ii) to deny that the Event is a Change Order under this Section 8, or to confirm that the Event is a Change Order by issuance of a written change notice designated a Change Order; or (iii) if the information in the Contractor's notice is inadequate to permit a decision to be made, advise the Contractor as to what additional information is required and establish the date by which said information should be furnished. If the Contractor complies with any order, direction, interpretation or determination, written or oral, from someone other than the Project Manager without providing the notice in the manner and within the time specified in this Section 8.6, then DHS shall not be liable for any increased price, delay in performance or contract non-conformance by the Contractor. 8.7 FINAL DECISIONS REGARDING CIS If the State's Project Manager denies that the Event constitutes a basis for an adjustment in price or performance schedule, the Project Manager shall, within ten (10) business days of receipt of the Contractor's notice, specifically set forth in writing the reasons upon which the Project Manager relied in denying that the Event constituted a basis for an adjustment in the price or performance schedule. Upon receipt of such notice, the Contractor's Project Manager shall, within ten (10) business days of receipt of such notice, send the State's Project Manager written notice of his or her assent to the denial or initiate dispute resolution procedures pursuant to Section 9, Disputes. 8.8 RESTRICTIONS OF CIS Except as provided in this Section 8, no order, statement, or conduct of the Project Manager, the DHS or any agent or representative thereof, shall be treated as a Change Order under this Section 8, or entitle the Contractor to an equitable adjustment hereunder, and the Contractor will not be required to implement the Change Order if the Change Order procedures are not followed by the State. The parties will incorporate in the Project Plan a specific period for review and acceptance of the specifications for each scheduled deliverable. Upon acceptance of said specifications by the State, the specifications will be frozen. Any subsequent change request will be considered after acceptance of the deliverable by the State. 8.9 CLAIMS FOR COMPENSATION FOR CIS Any claim by the Contractor for adjustment under this Section 8 must be asserted within thirty (30) days from the date of receipt by the Contractor of a written Change Order under Section 8.1, a written instruction under Section 8.4 or the Contractor's furnishing of a written notice or the Project Manager's acknowledgment of a Change Order under Section 8.6. 8.10 AUTHORITY TO ISSUE CHANGE ORDERS For the purpose of issuing Change Orders under this Contract, the term "Project Manager" shall not include any representative of the Project Manager whether or not such representative is acting within the scope of his or her authority except only in those instances where the Project Manager is unavailable, immediate action is required and the Project Manager has notified the Contractor in writing, citing the authority of this Section 8.10, that a specified individual has the authority to issue Change Orders, including a description of the exact scope and duration of the individual's authority. 8.11 MODIFICATIONS WHICH DO NOT CONSTITUTE CIS In no event shall the correction of any deliverable to obtain its approval, nor any services required to satisfy conditions on certification, nor performance of any other work required under this Contract be deemed a modification permitting or requiring treatment as a Change Order. 8.12 CHANGE RATES FOR CIS All work for which the Contractor is entitled to any compensation for Contractor staff in accordance with the provisions of this Section 8 shall be compensated solely in accordance with the change order rates set forth in the Contractor's proposal. 9.0 DISPUTES In the event of any dispute arising during the term of this Contract concerning performance of this Contract, either party shall serve written notice of such dispute on the other party, and the dispute shall initially be decided by the State's Project Manager who shall, within five (5) business days, reduce such decision to writing and serve a copy on the Contractor. Should the Contractor be dissatisfied with this decision, the Contractor may, within five (5) business days of receipt of the decision, submit the dispute to the Interim Dispute Review Team (IDRT). The State's Project Manager and the Contractor's Project Manager will forward to the IDRT whatever materials or information are necessary for consideration of the dispute. Within five (5) business days, the IDRT shall either: (i) in the event that the IDRT is in agreement as to how the dispute should be resolved, issue a joint opinion that shall be binding on both parties; or (ii) in the event that the IDRT does not reach agreement as to how the dispute should be resolved, submit the dispute to the State's and Contractor's Dispute Resolution Authorities. In the event that the State's and Contractor's Dispute Resolution Authorities are in agreement as to how the dispute should be resolved, they shall issue a joint opinion, within five (5) business days, that shall be binding on both parties. If the State's and Contractor's Dispute Resolution Authorities fail to issue a joint opinion within the time period specified herein, the parties shall proceed in accordance with the written decision of the State's Dispute Resolution Authority. In the event that the Contractor remains aggrieved, the Contractor may, while implementing the decision, pursue whatever legal or equitable remedies are available. Any legal proceedings against the State regarding this Contractor shall be brought in State of Maine administrative or judicial forums. In the event of any litigation, appeal, or other legal action to enforce any provision of this Contract, the Contractor agrees to pay all expenses of such action, including attorney's fees and costs at all stages of litigation, if the State is the prevailing party. 10.0 CONFIDENTIALITY OF INFORMATION All materials and information provided to the Contractor and/or any subcontractors by the State or acquired by the Contractor and/or any subcontractors on behalf of the State whether verbal, written, magnetic media, cards or otherwise shall be regarded as confidential information in accordance with the provisions of federal and state law and ethical standards, and all necessary steps shall be taken by the Contractor to safeguard the confidentiality of such material or information in conformance with federal and state law and ethical standards. 11.0 PRIME CONTRACTOR RESPONSIBILITIES The Contractor is solely responsible for fulfillment of this Contract with the State. The Contractor assumes responsibility for all services offered and products to be delivered whether or not the Contractor is the manufacturer or producer of said services. The Contractor will be responsible for the entire contract performance whether or not subcontractors are used. The Contractor acknowledges that it was selected by the State due to the determination that the Contractor's and Subcontractor's Key Personnel assigned to the project displayed abilities and a proposed level of personal services not available, to the same degree, from other proponents. Accordingly, no portion of this Contract or the services required under this Contract may be assigned, delegated or subcontracted without prior written consent of the State. 11.1 SUBCONTRACTS Unless provided for in this Contract, no contract shall be made by the Contractor with any other party for furnishing any of the work or services herein contracted for without the consent, guidance, and approval of the State. Any subcontract hereunder entered into, subsequent to the execution of this Contract, must be approved by the State. This provision will not be taken as requiring the approval of contracts of employment between the Contractor and personnel assigned for services thereunder. All references in the Contract to the Contractor should be construed to encompass both the Contractor and any subcontractor(s). All subcontract agreements must contain the following requirements: (i) all subcontractors must contain the Assurances enumerated in Section 1.14 of this Rider A; and (ii) all subcontracting agreements must be signed and delivered to the State's Project Manager within five (5) business days following the subcontract execution date. The Contractor shall be wholly responsible for performance of the entire contract whether or not subcontractors are used. Any subcontract into which the Contractor enters with respect to performance under this Contract shall not relieve the Contractor in any way of responsibility for performance of its duties. Further, the State will consider the Contractor to be the sole point of contact with regard to contractual matters, including payment of any and all charges resulting from this Contract. The State shall bear no liability for paying the claims of any subcontractors, whether or not those claims are valid. The Contractor shall give the State immediate notice in writing of any legal action or suit filed, and prompt notice of any claim made against the Contractor by any subcontractor or vendor which may result in litigation related in any way to this Contract or which may affect the performance of duties under this Contract. The requirement of prior approval of any subcontract under this Contract shall not make the State a party to any subcontract or create any right, claim or interest in the subcontractor or proposed subcontractor against the State. The Contractor agrees to defend (subject to the approval of the Attorney General) and indemnify and hold harmless the State against any claim, loss, damage, or liability against the State based upon the prior approval requirements of this Section 11, Prime Contractor Responsibilities. No subcontract or delegation shall relieve or discharge the Contractor from any obligations or liability under this Contract. 12.0 OWNERSHIP OF INFORMATION Al1 notebooks, plans, working papers, or other work produced in the performance of this Contract are the joint property of the Department and upon request shall be turned over to the Department. The State and the Federal government shall have unlimited rights to use, disclose, duplicate, or publish for any purpose whatsoever all information, and data developed, derived, documented, or furnished by the Contractor under this Contract. The Contractor shall furnish such information and data, upon the request of the State, in accordance with applicable federal and state law. In accordance with the term of this Contract, the Contractor shall furnish to the State two types of software: customized software developed by the Contractor specifically to design, develop, implement, test and administer MACWIS and its predecessor system ("custom software"); and commercial, off-the-shelf commodity software developed by the Contractor or other third parties for generic applications ("COTS software"). 12.1 CUSTOM SOFTWARE For custom software furnished by the Contractor, the following terms and conditions shall apply. The State and all appropriate federal agencies must receive a royalty-free, nonexclusive, and irrevocable license to reproduce, publish or otherwise use and to authorize others to do so, all application software including, but not limited to, all source, object and executable code, instructions, files, and documentation composing the statewide MACWIS, its predecessor system, and all associated custom administrative, maintenance and test software which is installed as a result of this Contract. Specifically, the State will be granted : (i) all of the rights described above in and to the executable code; (ii) all of the rights described above in and to all source and object codes; (iii) the right to compile the source and create new object / executable code; (iv) the right to modify the source code; (v) the right to duplicate the source, object, and executable codes; (vi) the right to distribute the source, object, and executable codes to others; and (vii) the right to transfer these rights to others. The license shall include all components of MACWIS, including but not limited to the following: (i) all MACWIS application programs in the most current version; (ii) all system instructions or scripting language for operating MACWIS in the most current version; (iii) all data files in the most current versions and prior versions kept according to operating instructions; (iv) user and operational manuals and other documentation; (v) system and program documentation describing the most current version of MACWIS; (vi) network configuration and control documentation; (vii) training programs and material in the operation and maintenance of the system for DHS (viii) staff, DHS's agents, or designated representatives; (ix) any and all performance enhancing operational plans and products developed for MACWIS; and (x) all specialized or specially modified operating system software and specially developed programs, including utilities, software, and documentation which are required for or used in the operation of MACWIS, but which may not be considered as being developed or modified under this Contract. A fundamental obligation of the Contractor is the delivery to DHS of a non- exclusive license to all rights to the complete system, including any and all performance-enhancing software and operational plans whether developed under this Contract or before it. This obligation to provide a license to all rights on the part of the Contractor is not subject to limitation in any respect. The State will be granted unlimited non-exclusive rights in and to all application software, documentation and plans associated with this project. These rights reserve the license to reproduce, publish or otherwise use such application software, documentation, and plans and to authorize their use by others. In addition to the license rights described above, the Contractor agrees to furnish the State with any and all additional rights in and to the MACWIS system which may be required by federal law or regulation. The Contractor agrees to furnish to the State a copy of all documentation created at any time during the period of this Contract and for this Contract, brought up-to-date as of the date of delivery. Licenses for any application software and/or documentation will convey upon DHS's approval of deliverables and payment to the Contractor for the deliverables within the task, less retainage. When the State shall come into possession of the application software, documentation, and plans developed for this Contract in accordance with this Contract, the State shall thereafter have the absolute right to modify them for any function which the State deems desirable. In addition, if the Contractor purchases any software products as a part of this agreement, that software will become the property of the State at the completion of the project without further costs being incurred. 12.2 COTS SOFTWARE For COTS software furnished by the Contractor, the following terms and conditions shall apply. The contractor grants to the State a personal, non-exclusive and nontransferable license to use COTS software and related documentation according to the terms and conditions of this Agreement, solely for the State's internal data processing requirements on the CPU in the United States on which COTS software is initially installed. The State's use of COTS software will also be governed by any additional conditions which the Contractor may provide on or prior to delivery of COTS software. The State agrees that the Contractor may, at its own expense, periodically inspect the computer site in order to audit COTS software supplied by the Contractor installed at the State's site at mutually agreed upon times. In the event that a separate license agreement accompanies non- Contractor commodity COTS software, then the separate license agreement terms supercede the above license grant for that COTS software. The State may develop application programs, may modify any Contractor application COTS software and may combine such with other programs or materials to form an updated work, provided that upon discontinuance or termination of the license, the Contractor application COTS software will be removed from the updated work and returned to the Contractor. The State will not decompile or disassemble any COTS software provided under this Agreement or modify COTS software which bears a copyright notice of any third party. The State will make and maintain no more than one archival copy (for backup purpose) of each item of COTS software, and each copy will contain all legends and notices and will be subject to the same conditions and restrictions as the original. If the CPU on which any item of COTS software is licensed becomes temporarily unavailable, use of such COTS software may be temporarily transferred to an alternative CPU until the original CPU becomes available. No license is granted to the State to use any Contractor proprietary operating system COTS software to assess, test or develop any hardware products or COTS software programs that will be marketed by the State or others for compensation. This license does not apply to MS/DOS, UNIX and CTOS/BTOS operating systems or the development of application programs. Application programs mean programs for performing specific automatic data processing tasks such as payroll, inventory control, information retrieval, or repetitive arithmetic operations, but excludes programs such as environmental programs, handlers, operating systems, and data base management programs. If the State desires to: (a) use COTS software in a service bureau mode, (b) use COTS software at another location, (c) use COTS software as restricted in the preceding paragraph, or (d) transfer operational use of the COTS software to a third party; then the State shall request prior permission in writing from the Contractor. The Contractor will then advise the State whether, and under what terms and conditions, the Contractor will license the COTS software as requested. All restrictions applicable to the State will also apply to any permitted service bureau or third party users. This Agreement does not transfer to the State title to any intellectual property contained in any COTS software, documentation or Proprietary Information. No party shall be entitled to use any COTS software unless the party has a valid written license to use such COTS software and all applicable charges for the use of such COTS software have been paid. 13.0 LIABILITY In addition to any other liabilities provided for in this Contract, the Contractor's liability may include, but is not limited to, all incidential and consequential damages arising from or resulting from any breach of this Contract, including breach of any express or implied warranties. In no event shall the State be liable to the Contractor for any incidental or consequential damages arising from or resulting from either the performance of this Contract, or the termination of this Contract. 14.0 WAIVER This contract may be modified only by written amendment executed by all parties hereto, and approved by the appropriate State officials and federal agencies, with the exception of terms outlined in Section 8, Changes in Scope. Waiver of any breach of any term or condition of this Contract shall not be deemed a waiver of any prior or subsequent breach. 15.0 WARRANTY The Contractor shall be required to expressly warrant deliverables as being correct and compliant with the terms of this Contract. The Contractor hereby warrants that all application software shall: (i) operate as described in the Contractor's Proposal and as detailed in the RFP; (ii) operate and conform to the detailed system specifications described in the Contractor's most recent General and Detailed System Design documents, which must be approved by the State in accordance with the criteria set forth in the RFP or the latest mutually agreed version of the project plan; and (iii) conform to standards of this Contract and those generally observed in the industry. This warranty encompasses correction of defective deliverables and revision of the same as necessary, including deficiencies found during testing, implementation, or post-implementation for a period of one year. At the direction of the State, the Contractor must immediately work to correct any deviations from specifications and all software related and performance deficiencies of MACWIS and must completely correct such deficiencies within five (5) days (or longer with written notification from the State's Project Manager). This may require emergency maintenance to correct code problems on a 24-hour, seven days a week basis. The State shall only invoke its right to require emergency maintenance in the event that the defect is material and impairs the operation of the system. The Contractor will also be responsible for correcting and/or updating any documentation affected by any operations support performed under this warranty provision. Contractor shall correct deficiencies in the deliverables on a timely basis as requested by the State and replace incorrect or defective deliverables within one week of notification by the State of such deficiencies, or such longer period as may be necessary using all diligence and dispatch as agreed between the Contractor and the State. If the Contractor fails to repair a deficiency or defect within the warranty period, the State may, at its option, act to repair the deficiency, and the Contractor shall be required to reimburse the State for all costs incurred, provided Contractor was afforded an opportunity to correct such deficiency or defect, pursuant to Section 3.2, Default by Contractor, and failed to do so. Failure of the Contractor to fulfill any written commitment within the scope of this Contract shall render the Contractor liable for services due to the State of Maine under the terms of this Contract. 16.0 INSURANCE On or before beginning performance under this Contract, the Contractor shall obtain from an insurance company duly authorized to do business in Maine, insurance as follows. 16.1 MINIMUM INSURANCE The Contractor shall obtain, pay for, and keep in force the following minimum insurance and shall furnish a certificate or certificates evidencing that such insurance is in effect: (i) disability, workman's compensation, and unemployment compensation in accordance with the statutory requirements of the state where the work is performed; (ii) general liability insurance (including automobile and broad form contractual coverage) against bodily injury or death of any person in the amount of one million dollars ($1,000,000) for any one occurrence; and (iii) insurance against liability for property damages as well as first-party fire insurance, including contents coverage for all records maintained pursuant to this Contract, in the amount of one million dollars ($1,000,000). 16.2 CERTIFICATES The Contractor shall furnish to the State a certificate(s) evidencing that required insurance is in effect, for the policy amounts, and applicable policy numbers and expiration dates, within ten (10) business days of contract signing. In the event of cancellation of any insurance coverage, the Contractor shall immediately notify the State of such cancellation. The Contractor will be required to obtain suitable replacement coverage within fourteen (14) days of the cancellation. The State, at its option, may impose a stop work order on the Contract until such replacement coverage is secured and approved by the State. If a stop work order is imposed, the State shall not be liable for any costs or lost profits incurred by the Contractor. 16.3 NOTICE OF CHANGE The Contractor shall provide the State with written notice at least ten (IO) business days prior to any change in the insurance coverage obtained to comply with this section. 16.4 LIABILITY NOT LIMITED The provisions of this clause shall not be deemed to limit the liability or responsibility of the Contractor or any of its subcontractors hereunder. 16.5 INSURANCE OF ASSUMED CONTRACTUAL RISK The Contractor may insure any portion of the risk assumed under the provisions of this Contract based upon the Contractor's ability (size and financial reserves included) to survive a series of adverse experiences, including withholding of payment by the State, or imposition of penalties by DHS. Express prior written approval of the Contract Administrator is required for any proposed program of self-insurance. 17.0 PAYMENT The State and Contractor have identified certain deliverables on which payment will be based. Payment deliverables are those that represent the completion of major phases of the project. The MACWIS project payment deliverables are detailed in Cost Table 7 of the Contractor's Cost Proposal submitted in response to the RFP. Payment deliverables are predicated upon successful completion and written approval by the State of the described tasks and deliverables. Payments will be made to the Contractor after written approval of the payment deliverable. The State will make payments to the Contractor within fortyfive (45) business days after approval of the invoice by the Contract Administrator. The amount of the payment will be determined in the following manner. (i) The allowable payment amount from each payment deliverable will be multiplied by ten (10) percent, giving the amount that will be withheld from the payment. The remaining ninety (90) percent of the deliverable payment will be made after written acceptance of the deliverable by the State. (ii) The retained amount from each of the payment deliverables that consist entirely of COTSsoftware and/or non-custom hardware will be held by the State until the successful turnover and acceptance of MACWIS by the State. (iii) The retained amount from each of the payment deliverables that do not consist entirely of COTS software and/or non-custom hardware will be held by the State until the successful conclusion of the warranty phase; provided, however, that the State shall release the following amounts to the Contractor prior to the successful conclusion of the warranty phase: Three months after acceptance of MACWIS: $114,000 Six months after acceptance of MACWIS: $114,000 End of warranty period: Remaining balance. 17.1 INVOICES Invoices for payment, submitted on approved State invoice forms, shall be submitted to the State's Contract Administrator at the address given in Section 1.11 of this Rider A. No invoices will be processed for payment until approved by the State's Contract Administrator. 17.2 METHOD OF CHARGING The charges described in this Contract are the only charges now or hereafter to be levied by the Contractor for the services to be performed by it. There are no other charges to be made by the Contractor to the State, unless they are approved in accordance with the provisions of Section 1.2, Contract Defined; Order of Priority, Section 1.3, Modification, or Section 8, Changes in Scope. The Contractor shall maintain documentation for all charges against the State under this Contract. The books, records and documents of the Contractor, insofar as they relate to work performed or money received under this Contract, shall be maintained for a period of five full years from the date of the final payment, and shall be subject to audit at any reasonable time and upon reasonable notice, by the State, or any appropriate federal agency, or their duty appointed representatives. The records shall be maintained in accordance with Generally Accepted Accounting Principles (GAAP). 18.0 INSPECTION AND APPROVAL Final inspection and approval of all work required under this Contract shall be performed by the State's Contract Administrator and other officials that the State of Maine may so designate. The State of Maine or its authorized representatives shall at all reasonable times have the right to enter the premises or such other places where duties under this Contract are being performed, to inspect, monitor or otherwise evaluate the work being performed. All inspections and evaluations shall be performed in such a manner that will not unreasonably delay work. 19.0 CONFLICT OF INTEREST No official or employee of the State and no other public official of the State of Maine or the federal government who exercises any functions or responsibilities in the review or approval of the undertaking or carrying out of the project shall, prior to the completion of the project, voluntarily acquire any personal interest, direct or indirect, in this Contract. The Contractor covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of its services hereunder. The Contractor further covenants that in the performance of this Contract, no person having any such known interests shall be employed. 20.0 STATE PROPERTY The Contractor shall be responsible for the proper custody and care of any State owned property furnished for Contractor's use in connection with the performance of this Contract, and the Contractor will reimburse the State for its loss or damage, normal wear and tear excepted. 21.0 FEDERAL INSPECTIONS During and after this project, the U.S. Administration for Children and Families or their authorized representatives shall be allowed access to inspect all Contractor materials, documents, work papers, deliverables, or any such other items which pertain to this project. The Contractor shall cooperate with any federal reviews and shall supply copies of any requested materials. This requirement also applies to any subcontractor(s) who may be engaged in the project. Any subcontract permitted by the State must contain a provision which sets forth the subcontractor's agreement with the terms set forth in this paragraph. 22.0 COPIES OF REPORTS Upon completion of the project, the Contractor shall convey to the State copies of all interim reports, cost records, data collection forms, and any other working papers that support final system approval. These items shall also be made available, upon request, to officials from the U.S. Administration for Children and Families and other authorized officials from the federal government 23.0 COPYRIGHT OF DATA The Contractor may not publish or copyright any data without prior approval, unless otherwise stated herein; provided, however, that the Contractor may publish source and object code without obtaining such prior approval. Unless otherwise stated herein, the State and the federal government shall have the right to publish, duplicate, use and disclose all such data in any manner, and for any purpose whatsoever, and may authorize others to do so. "Data" shall mean all results, technical information and materials developed and/or obtained in the performance of the services hereunder, including but not limited to, all reports, surveys, plans, charts, recordings (video and/or sound), pictures, drawings, analyses, source and object code, graphic representations, computer programs and printouts, notes and memoranda, and documents whether finished or unfinished, which result from or are prepared in connection with the services performed hereunder. 24.0 TRAINING The Contractor shall provide, in accordance with the specified in this Contract, quality instruction on all technical and user aspects of the system. The Contractor shall also develop a post-training proficiency examination. This examination is to be given to the students immediately upon completion of the training, and additional training must be provided to the students not demonstrating competency in the required skills. The Project Manager and Training Coordinator must provide in advance all training materials including proficiency examinations that are provided by the Contractor. 25.0 PATENT, COPYRIGHT AND OTHER PROPRIETARY INDEMNIFICATION The Contractor warrants that all equipment, software, supplies, and other products provided hereunder and all services do not and will not infringe upon or violate any patent, copyright, trade secret, or any other proprietary right of any third party. In the event of any claim by a third party against the State, the State shall promptly notify the Contractor and the Contractor shall cooperate in the defense of such claim at the Contractor's expense and shall indemnify the State against any loss, cost, expense, or liability arising out of such claim, including reasonable attorney's fees. 26.0 APPLICATION PROGRAM SOURCE CODEConcurrent with the delivery of the software pursuant to this Contract, the Contractor shall provide the Project Manager with one copy of the source code for each custom software application program provided. The Contractor shall update, improve, add to, and otherwise modify the source code consistent with any modifications or enhancements made pursuant to this Contract. One hard copy and one copy on magnetic medium must be provided at no cost to the state within five (5) business days of the State's request. Up to twenty (20) requests must be accommodated at no cost to the State. The hard copy requirement for any request may be waived by written notification by the State's Project Manager. 27.0 ACCOUNTING REQUIREMENTS The Contractor shall establish and maintain an accounting system in accordance with Generally Accepted Accounting Principles (GAAP). The accounting system shall maintain records pertaining to the tasks defined in this Contract and all other costs and expenditures made under this Contract Specific accounting records and procedures are subject to State and federal approval. Accounting procedures, policies, and records shall be completely open to state and federal audit at any time during the contract period and for five yews thereafter. 28.0 AUDIT REQUIREMENTS The Contractor shall maintain books, records, documents, and other evidence pertaining to the administrative costs and expenses of this Contract to the extent and in such detail as shall properly reflect all revenues, all net costs, direct and apportioned, and other costs and expenses of whatever nature as relating to performance of contractual duties under the provisions of this Contract. The Contractor's accounting procedures and practices shall conform to Generally Accepted Accounting Principles (GAAP) and the costs properly applicable to this Contract shall be readily ascertainable therefrom. For work to be performed on an hourly reimbursement rate or cost reimbursement basis, the allowability of direct and indirect costs shall be governed by 41 C.F.R., Subpart 1-15. 29.0 RECORDS RETENTION REQUIREMENTS The Contractor hereby to the conditions of 45 C.F.R., Part 74.24 (a), (b), and (d) regarding retention and access requirements relating to all financial and programmatic records, supporting documents, statistical records, and other records of this Contract. In addition, the Contractor shall agree to the following terms regarding retention of contract records and access for government officials.Unless the State specifies in writing a shorter period of time, the Contractor agrees to preserve and make available all other pertinent books, documents, papers, and records of the Contractor involving transactions related to this Contract for a period of five years from the date of expiration or termination of this Contract.Records involving matters in litigation shall be kept for one year following the termination of litigation, including all appeals if the litigation has not terminated within five years. The Contractor hereby agrees that authorized federal and State representatives shall have access to and the right to examine the items listed above during the contract period and during the five year post-contract period or until resolution. During the contract period, the access to these items will be provided at the Contractor's office in Augusta, Maine at all reasonable times. During the five year post-contract period, delivery of and access to the listed items will be at no cost to the State. The provision of this section shall be incorporated in any subcontract of $10,000 or more. 30.0 AUDIT LIABILITIES In addition to, and not in any way in limitation of the obligation of this Contract, it is understood and agreed by the Contractor that the Contractor shall be held liable for any State or federal audit exceptions that are the fault of the Contractor or that arise out of any action, inaction or negligence by the Contractor. In the event of an audit exception for which the Contractor is liable as defined in this section, the Contractor shall have thirty (30) days to remedy the exception. If the Contractor fails to remedy the exception within this time period, the Contractor shall immediately return to the State all payments made under this Contract which have been disallowed because of such an exception.31.0 TAXES The State is not required to pay taxes of any nature; however, if Contractor is required to pay sales, use, value-added, or other federal, state, or local taxes based on the licenses or services provided in this Contract, except taxes based on Contractor's income or property tax for software, then such taxes shall be billed to and paid by the State upon evidence of payment by Contractor. 31.0 TAXES The State is not required to pay taxes of any nature; however, if Contractor is required to pay sales, use, value-added, or other federal, state, or local taxes based on the licenses or services provided in this Contract, except taxes based on Contractor's income or property tax for software, then such taxes shall be billed to and paid by the State upon evidence of payment by Contractor. 32.0 PRICE PROTECTION The Contractor hereby warrants and represents that all the prices, terms, warranties, and benefits granted by the Contractor are comparable to or better than the equivalent terms being offered by the Contractor to any present customer meeting the same qualifications or requirements as DHS. Except as otherwise provided herein, if the Contractor shall, during the term of this Contract, enter into arrangements with any other said customer providing greater benefits or more favorable terms for like services, the Contractor shall be obligated to provide the same to DHS. 33.0 LOBBYING CERTIFICATION Section 1352 of Title 31 of the U.S. Code requires that funds appropriated to a Federal agency be subject to a requirement that any Federal Contractor or grantee (such as the State) certify that no Federal funds will be used to lobby or influence a federal officer or member of Congress. The certification the State has been required to sign provides that the language of this certification shall be included in the award documents for all sub-awards at all tiers (including subcontracts, subgrants, and contracts under grants, loans, and cooperative agreements) and that all sub-recipients shall verify and disclose accordingly, The certification also requires the completion of Federal lobbying reports and the imposition of a civil penalty of $10,000 to $100,000 for failing to make a required report. As a sub-recipient, the Contractor understands and agrees to the Federal requirements for certification and disclosure. 34.0 PRICING AND DISCOUNT The Contractor warrants that any element of recurring or nonrecurring cost which must be borne by the State has been identified by Contractor in its Proposal. This includes, but is not limited to hardware, maintenance, cabling, system engineering, manuals and documentation, training, demonstration, consultation, shipping charges, installation costs, testing, and manufactured supplied programs, and that all items of cost to achieve compliance with the State's requirements have been shown in the Contractor's Cost Proposal, which is attached by reference to this Contract. Federal funding is being used for acquisition of products and/or services, under this Contract.Consequently, interest cannot be paid under any installment purchase or lease/purchase agreement entered into as a part of this Contract. Contractor agrees to convey to the State good title to purchased items free and clear of all liens, pledges, mortgages, encumbrances or other security interest. 35.0 COVER If, in the reasonable judgment of the State, a default by the Contractor is not so substantial as to require termination reasonable efforts to induce the Contractor to cure the default are unavailing, and the default is capable of being cured by the State or by another contractor without unduly interfering with continued performance by the Contractor, the State may provide or procure the services reasonably necessary to cure the default, in which event the Contractor shall reimburse the State for the reasonable cost of those services. 36.0 ADDITIONAL DEFAULTS In the event Contractor shall be the subject of an order for relief purusant to Title 11, United States Code and/or entered by any United States Bankruptcy Court; or shall make an assignment for the benefit of creditors; or shall apply for or consent to the appointment of a receiver, trustee, custodian, or similar officer for him or it or for all or any substantial part of his or its property; or such receiver, trustee, custodial or similar officer shall be appointed without the application or consent of the Contractor; or if the Contractor shall institute (by petition, application, answer, consent, or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment or debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against the Contractor, or where the petition is filed against the Contractor by creditors and is not dismissed within thirty (30) days, then, in any such event, the State may terminate this Contract pursuant to Section 3.2. The Contractor agrees that this Contract is a contract for personal services pursuant to 11 U.S.C. && 365(c)(1) and (e)(2)(A). 37.0 PERFORMANCE ASSURANCE A Performance Bond in the amount of twenty-five percent (25%) of the total amount of this Contract is required by the State to ensure the vendor's faithful performance to the specifications and conditions of this Contract. The amount of the bond required by the State shall be reduced over the course of the project as certain deliverables are accepted and approved by the State according to the following schedule. Each such reduction shall only be made upon written confirmation by the State that all associated deliverables, as enumerated below, have been accepted and approved by the State. Such confirmation shall not be unreasonably withheld by the State. The bond reduction schedule is as follows: Upon the State's acceptance and approval of the following deliverables, the required performance bond may be reduced from 25% to 20% of the total project cost: . all deliverables associated with Task 3, Project Planning and Initiation, as detailed in Cost Table 7 of the Vendor's Proposal; . the Training Needs Analysis Questionnaire; . the Draft Comprehensive Training Plan and Schedule; . the Prototype Detailed System Design Document; . the Prototype Design Analysis Report; . the Prototype User and Technical Manuals; . the Prototype Development Analysis Report; . the Prototype Detailed Implementation Plan; . the Prototype Implementation Analysis Report; . the Prototype Acceptance Test Plan; . the MACWIS Central Server Hardware, Peripherals, and Software; . the Prototype, Draft and Final versions of the Requirements Specification Document; . the Draft and Final versions of the Detailed Conversion Test Plan; . the Prototype and Draft versions of the Data Model; and . the Prototype and Draft versions of the General System Design Document Upon the State's acceptance and approval of the following deliverables, the required performancebond may be reduced from 20% to 15% of the total project cost: . the Final Data Model; . the Final General System Design Document; . the Draft and Final versions of the Detailed System Design Document; . the Draft and Final versions of the Comparative Analysis Report; . the Draft and Final versions of the System Development Test Plan; . the Draft and Final versions of the Conversion Specification Document; and . the physical implementation of the MACWIS Central Server Hardware, Peripherals and Software. Upon the State's acceptance and approval of the following deliverables, the required performance bond may be reduced from 15% to 10% of the total project cost: . MACWIS operational on the Development/Prototype LAN; . the Draft versions of all System and User Documentation; . the Draft and Final versions of the Development Test Analysis Report; . the Draft and Final versions of the Detailed Implementation Plan; . all deliverables associated with Task 5, System Development, as detailed in cost Table 7 of the Vendor's Proposal contained in this Contract; . all deliverables associated with Task 6, System Implementation, as detailed in Cost Table 7 of the Vendor's Proposal contained in this Contract; . the Draft and Final versions of the Data Conversion Test Results Report; and . all Data Conversion Documentation for Users and Software Maintenance. Should the amount of the required performance bond be reduced according to the above schedule, then the vendor shall be required to maintain a performance bond in the amount of ten percent (10%) of the total amount of this Contract. This bond will only be released upon satisfactory completion of the entire project plan as set forth in this Contract and the written acceptance by the State of all deliverables related to this Contract. The vendor will be required to furnish the bond to the Department of Human Services. No contract will be executed until the bond is received. The bond will be procured at the expense of the vendor, naming the Department of Human Services as the obligee. The bond shall be forfeited in whole or in part, as appropriate, under the following circumstances: . if this Contract is terminated during the Contract life for cause; . if this Contract is terminated during the contract life for breach of contract; or . the vendor becomes insolvent during the term of this Contract. The Purchasing Division of the Department of Administration and the State Attorney General reserve the right to require the vendor to substitute an acceptable performance assurance mechanism in such form as they may require. RIDER B SPECIFICATIONS OF THE WORK TO BE PERFORMED The specifications of the work to be performed pursuant to this Contract are set forth in the following: 1. The State's Request for Proposal, as amended and supplemented by the MACWIS Bidders' Conference Questions and Answers dated January 4, 1996, and the MACWIS Bidders' Conference Additional Questions and Answers dated February 1, 1996, all of which together constitute the RFP and all of which are attached hereto as Exhibit A and expressly incorporated by reference herein; and 2. The Contractor's Proposal submitted in response to the RFP, which Proposal is attached hereto as Exhibit B and expressly incorporated by reference herein; subject, however, to the provisions of Rider A, Section 1.2.1, Deviations from the RFP. CONFIDENTIAL Cost Table 7 - MACWIS PAYMENT SCHEDULE BY DELIVERABLE
- ---------------------------------------------------------------------------------------------------------------------------------- Deliver- Deliverable Deliver- GROSS PAYMENT able able Number Due Date - ------------------------------------------------------------------------------------------------------------------------------------ TASK 1 - PROJECT MANAGEMENT 4/7/97 - 3/31/98 Regular Updates to the Project Plan (Updated Monthly at a Minimum) Weekly Status Reports TOTAL PAYMENT TASK 1 - ---------------------------------------------------------------------------------------------------------------------------- TASK 2 - QUALITY ASSURANCE 4/14/97 - 2/27/98 -------------------------------------------- Quality Review Meetings -------------------------------------------- TOTAL PAYMENT TASK 2 - ---------------------------------------------------------------------------------------------------------------------------- 3.. TASK 3 - PROJECT PLANNING & INITIATION 4/7/97 - 5/7/98 - ---------------------------------------------------------------------------------------------------------------------------- 3.1. Establish Augusta Project Office 35,527 267,893 - ---------------------------------------------------------------------------------------------------------------------------- 3.2. Install Develop. Server, Workstations, Develop Prototype LAN 35,530 194,153 - ---------------------------------------------------------------------------------------------------------------------------- 3.3. Install Donor System 35,535 89,745 - ---------------------------------------------------------------------------------------------------------------------------- 3.4. Install Project Management HW/SW 35,535 38,195 - ---------------------------------------------------------------------------------------------------------------------------- 3.5. Project Kick-Off Meeting 35,537 97,076 - --------------------------------------------------------------------------------------------------------------------------- 3.6.1 First Update to Project Workplan DRAFT 35,548 68,398 - ---------------------------------------------------------------------------------------------------------------------------- 3.6.2 First Update to Project Workplan FINAL 35,557 138,871 - ---------------------------------------------------------------------------------------------------------------------------- 3.7. Project Management Manual 35,548 38,700 - ---------------------------------------------------------------------------------------------------------------------------- 3.8. MACWIS Standards and Procedures Manual 35,550 27,390 - ---------------------------------------------------------------------------------------------------------------------------- 3.9. MACWIS Communications Plan 35,550 48,538 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 3 1,008,959 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 4.. TASK 4 - SYSTEM DESIGN 4/7/97 - 7/28/97 - ---------------------------------------------------------------------------------------------------------------------------- 4.1. Develop Training Needs Analysis Questionnaire 35,541 2,930 - ---------------------------------------------------------------------------------------------------------------------------- 4.2.1 Comprehensive Training Plan and Schedule DRAFT (Final in Task 6) 35,548 11,720 - ---------------------------------------------------------------------------------------------------------------------------- 4.3. Prototype Deliverables Format and Content - ---------------------------------------------------------------------------------------------------------------------------- 4.3.1 Requirements Specifications Document RSD) 35,541 44,118 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.2 Data Model 35,541 27,731 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.3 General System Design (GSD) 35,548 25,210 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.4 Detailed System Design (DSD) 35,548 6,303 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.5 Design Analysis Report (DesAR) 35,548 12,605 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.6 User and Technical Manuals 35,555 99,273 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.7 Development Analysis Report (DevAR) 35,555 26,473 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.8 Detailed Implementation Plan (DIP) 35,561 18,200 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.9 Implementation Analysis Report (ImpAR) 35,569 1,382 - ---------------------------------------------------------------------------------------------------------------------------- 4.3.10 Acceptance Test Plan (ATP) 35,569 2,763 - ---------------------------------------------------------------------------------------------------------------------------- 4.4. Deliver Central Server, Peripherals, Software 35,576 860,601 - ---------------------------------------------------------------------------------------------------------------------------- 4.5.1 Requirements Specifications Document (RSD) DRAFT 35,576 131,031 - ---------------------------------------------------------------------------------------------------------------------------- 4.5.1 Requirements Specifications Document (RSD) FINAL 35,597 262,062 - ---------------------------------------------------------------------------------------------------------------------------- 4.6.1 Data Model DRAFT 35,569 83,111 - ---------------------------------------------------------------------------------------------------------------------------- 4.6.2 Data Model FINAL 35,590 168,471 - ---------------------------------------------------------------------------------------------------------------------------- 4.7.1 General System Design Document DRAFT 35,569 75,555 - ---------------------------------------------------------------------------------------------------------------------------- 4.7.2 General System Design Document FINAL 35,590 151,338 - ---------------------------------------------------------------------------------------------------------------------------- 4.8.1 Detailed System Design Document DRAFT 35,618 99,880 - ---------------------------------------------------------------------------------------------------------------------------- 4.8.2 Detailed System Design Document FINAL 35,639 199,760 - ---------------------------------------------------------------------------------------------------------------------------- 4.9.1 Comparative Analysis Report DRAFT 35,583 37,778 - ---------------------------------------------------------------------------------------------------------------------------- 4.9.2 Comparative Analysis Report FINAL 35,604 75,669 - ---------------------------------------------------------------------------------------------------------------------------- 4.10.1 System Development Test Plan DRAFT 35,576 18,889 - ---------------------------------------------------------------------------------------------------------------------------- 4.10.2 System Development Test Plan FINAL 35,597 37,834 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 4 2,480,687 - ---------------------------------------------------------------------------------------------------------------------------- 5.. TASK 5 - SYSTEM DEVELOPMENT 6/2/97 - 10/10/97 - ---------------------------------------------------------------------------------------------------------------------------- 5.1. Physical Implementation of MACWIS Central Server HW & DB SW 35,597 89,753 - ---------------------------------------------------------------------------------------------------------------------------- 5.2. Operational MACWIS Developed on Dev./Prototype LAN 35,713 695,641 - ---------------------------------------------------------------------------------------------------------------------------- 5.3.1 System and System User Documentation DRAFT (Final in Task 11) 35,713 37,743 - ---------------------------------------------------------------------------------------------------------------------------- 5.4.1 Development Test Analysis Report DRAFT 35,692 79,339 - ---------------------------------------------------------------------------------------------------------------------------- 5.4.2 Development Test Analysis Report FINAL 35,713 158,917 - ---------------------------------------------------------------------------------------------------------------------------- 5.5.1 Detailed Implementation Plan DRAFT 35,681 54,545 - ---------------------------------------------------------------------------------------------------------------------------- 5.5.2 Detailed Implementation Plan FINAL 35,702 109,255 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENTS TASK 5 1,225,193 - ---------------------------------------------------------------------------------------------------------------------------- 6.. TASK 6 - SYSTEM IMPLEMENTATION 10/13/97 - 11/28/97 - ---------------------------------------------------------------------------------------------------------------------------- 6.1. Initial Load of the MACWIS Database 35,720 82,904 - ---------------------------------------------------------------------------------------------------------------------------- 6.2. Implementation of all MACWIS functionality on Central Server 35,737 113,639 - ---------------------------------------------------------------------------------------------------------------------------- 6.3. Completion of Training for BCFS Trainers 35,737 61,538 - --------------------------------------------------------------------------------------------------------------------------------- Deliver- Deliverable able Number 10% HOLDBACK NET PAYMENT - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- TASK 1 - PROJECT MANAGEMENT 4/7/97 - 3/31/98 No Payment for these deliverables Regular Updates to the Project Plan (Updated Monthly at a Minimum) Weekly Status Reports TOTAL PAYMENT TASK 1 - -------------------------------------------------------------------------------------------------------------------------------- TASK 2 - QUALITY ASSURANCE 4/14/97 - 2/27/98 No Payment for these deliverables ---------------------------------------------------------------------------------------------------------------------- Quality Review Meetings ---------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 2 - -------------------------------------------------------------------------------------------------------------------------------- 3.. TASK 3 - PROJECT PLANNING & INITIATION 4/7/97 - 5/7/98 - -------------------------------------------------------------------------------------------------------------------------------- 3.1. Establish Augusta Project Office 26,789 241,104 - -------------------------------------------------------------------------------------------------------------------------------- 3.2. Install Develop. Server, Workstations, Develop Prototype LAN 19,415 174,738 - -------------------------------------------------------------------------------------------------------------------------------- 3.3. Install Donor System 8,975 80,771 - -------------------------------------------------------------------------------------------------------------------------------- 3.4. Install Project Management HW/SW 3,820 34,376 - -------------------------------------------------------------------------------------------------------------------------------- 3.5. Project Kick-Off Meeting 9,708 87,368 - -------------------------------------------------------------------------------------------------------------------------------- 3.6.1 First Update to Project Workplan DRAFT 6,840 61,558 - -------------------------------------------------------------------------------------------------------------------------------- 3.6.2 First Update to Project Workplan FINAL 13,887 124,984 - -------------------------------------------------------------------------------------------------------------------------------- 3.7. Project Management Manual 3,870 34,830 - -------------------------------------------------------------------------------------------------------------------------------- 3.8. MACWIS Standards and Procedures Manual 2,739 24,651 - -------------------------------------------------------------------------------------------------------------------------------- 3.9. MACWIS Communications Plan 4,854 43,684 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 3 100,897 908,064 - -------------------------------------------------------------------------------------------------------------------------------- 4.. TASK 4 - SYSTEM DESIGN 4/7/97 - 7/28/97 - -------------------------------------------------------------------------------------------------------------------------------- 4.1. Develop Training Needs Analysis Questionnaire 293 2,637 - -------------------------------------------------------------------------------------------------------------------------------- 4.2.1 Comprehensive Training Plan and Schedule DRAFT (Final in Task 6) 1,172 10,548 - -------------------------------------------------------------------------------------------------------------------------------- 4.3. Prototype Deliverables Format and Content - -------------------------------------------------------------------------------------------------------------------------------- 4.3.1 Requirements Specifications Document RSD) 4,412 39,706 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.2 Data Model 2,773 24,958 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.3 General System Design (GSD) 2,521 22,689 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.4 Detailed System Design (DSD) 630 5,673 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.5 Design Analysis Report (DesAR) 1,261 11,345 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.6 User and Technical Manuals 9,927 89,346 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.7 Development Analysis Report (DevAR) 2,647 23,826 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.8 Detailed Implementation Plan (DIP) 1,820 16,380 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.9 Implementation Analysis Report (ImpAR) 138 1,244 - -------------------------------------------------------------------------------------------------------------------------------- 4.3.10 Acceptance Test Plan (ATP) 276 2,487 - -------------------------------------------------------------------------------------------------------------------------------- 4.4. Deliver Central Server, Peripherals, Software 86,060 774,541 - -------------------------------------------------------------------------------------------------------------------------------- 4.5.1 Requirements Specifications Document (RSD) DRAFT 13,103 117,928 - -------------------------------------------------------------------------------------------------------------------------------- 4.5.2 Requirements Specifications Document (RSD) FINAL 26,206 235,856 - -------------------------------------------------------------------------------------------------------------------------------- 4.6.1 Data Model DRAFT 8,311 74,800 - -------------------------------------------------------------------------------------------------------------------------------- 4.6.2 Data Model FINAL 16,647 149,824 - -------------------------------------------------------------------------------------------------------------------------------- 4.7.1 General System Design Document DRAFT 7,556 68,000 - -------------------------------------------------------------------------------------------------------------------------------- 4.7.2 General System Design Document FINAL 15,134 136,204 - -------------------------------------------------------------------------------------------------------------------------------- 4.8.1 Detailed System Design Document DRAFT 9,988 89,892 - -------------------------------------------------------------------------------------------------------------------------------- 4.8.2 Detailed System Design Document FINAL 19,976 179,784 - -------------------------------------------------------------------------------------------------------------------------------- 4.9.1 Comparative Analysis Report DRAFT 3,778 34,000 - -------------------------------------------------------------------------------------------------------------------------------- 4.9.2 Comparative Analysis Report FINAL 7,567 68,102 - -------------------------------------------------------------------------------------------------------------------------------- 4.10.1 System Development Test Plan DRAFT 1,889 17,000 - -------------------------------------------------------------------------------------------------------------------------------- 4.10.2 System Development Test Plan FINAL 3,783 34,051 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 4 247,868 2,230,821 - -------------------------------------------------------------------------------------------------------------------------------- 5.. TASK 5 - SYSTEM DEVELOPMENT 6/2/97 - 10/10/97 - -------------------------------------------------------------------------------------------------------------------------------- 5.1. Physical Implementation of MACWIS Central Server HW & DB SW 8,975 80,778 - -------------------------------------------------------------------------------------------------------------------------------- 5.2. Operational MACWIS Developed on Dev./Prototype LAN 69,564 626,077 - -------------------------------------------------------------------------------------------------------------------------------- 5.3.1 System and System User Documentation DRAFT (Final in Task 11) 3,774 33,969 - -------------------------------------------------------------------------------------------------------------------------------- 5.4.1 Development Test Analysis Report DRAFT 7,934 71,405 - -------------------------------------------------------------------------------------------------------------------------------- 5.4.2 Development Test Analysis Report FINAL 15,892 143,025 - -------------------------------------------------------------------------------------------------------------------------------- 5.5.1 Detailed Implementation Plan DRAFT 5,455 49,091 - -------------------------------------------------------------------------------------------------------------------------------- 5.5.2 Detailed Implementation Plan FINAL 10,926 98,330 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENTS TASK 5 122,520 1,102,675 - -------------------------------------------------------------------------------------------------------------------------------- 6.. TASK 6 - SYSTEM IMPLEMENTATION 10/13/97 - 11/28/97 - -------------------------------------------------------------------------------------------------------------------------------- 6.1. Initial Load of the MACWIS Database 8,290 74,614 - -------------------------------------------------------------------------------------------------------------------------------- 6.2. Implementation of all MACWIS functionality on Central Server 11,364 102,275 - -------------------------------------------------------------------------------------------------------------------------------- 6.3. Completion of Training for BCFS Trainers 6,154 55,384 - --------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- Deliver- Deliverable Deliver- able able GROSS Number Due Date PAYMENT - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 4.2.2 Comprehensive Training Plan and Schedule FINAL 35,758 39,714 - ---------------------------------------------------------------------------------------------------------------------------- 6.4.1 Implementation Analysis Report DRAFT 35,744 4,141 - ---------------------------------------------------------------------------------------------------------------------------- 6.4.2 Implementation Analysis Report FINAL 35,762 8,295 - ---------------------------------------------------------------------------------------------------------------------------- 6.5.2 Detailed Acceptance Test Plan, Inc. Benchmark Test Cases FINAL 35,762 16,590 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 6 335,104 - ---------------------------------------------------------------------------------------------------------------------------- 7.. TASK 7 - ACCEPTANCE TESTING 11/10/97 - 2/9/98 - ---------------------------------------------------------------------------------------------------------------------------- 7.1. Acceptance Test Team Trained 35,751 94,923 - ---------------------------------------------------------------------------------------------------------------------------- 7.2. Errors Identified During Testing & Retesting Documented & Resolved 35,793 221,192 - ---------------------------------------------------------------------------------------------------------------------------- 7.3.1 Acceptance Test Result Report DRAFT 35,793 31,918 - ---------------------------------------------------------------------------------------------------------------------------- 7.3.2 Acceptance Test Results Report FINAL 35,811 63,932 - ---------------------------------------------------------------------------------------------------------------------------- 7.4.1 Detailed Pilot Test Plan DRAFT 35,751 41,739 - ---------------------------------------------------------------------------------------------------------------------------- 7.4.2 Detailed Pilot Test Plan FINAL 35,772 83,603 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 7 537,307 - ---------------------------------------------------------------------------------------------------------------------------- 8.. TASK 8 - PILOT SITE IMPLEMENTATION 1/5/98 - 2/20/98 - ---------------------------------------------------------------------------------------------------------------------------- 8.1. Full Installation of Operational MACWIS in Selected Pilot Office 35,807 71,500 - ---------------------------------------------------------------------------------------------------------------------------- 8.2. MACWIS Help Desk Procedures Documented 35,807 50,315 - ---------------------------------------------------------------------------------------------------------------------------- 8.3. Errors Identified During Testing & Retesting Documented & Resolved 35,804 55,611 - ---------------------------------------------------------------------------------------------------------------------------- 8.4.1 Pilot Test Analysis Report DRAFT 35,804 13,108 - ---------------------------------------------------------------------------------------------------------------------------- 8.4.2 Pilot Test Analysis Report FINAL 35,825 26,614 - ---------------------------------------------------------------------------------------------------------------------------- 8.4.1 Detailed Statewide Implementation Test Plan DRAFT 35,825 15,873 - ---------------------------------------------------------------------------------------------------------------------------- 8.4.2 Detailed Statewide Implementation Test Plan FINAL 35,846 31,793 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENTS TASK 8 264,814 - ---------------------------------------------------------------------------------------------------------------------------- 9.. TASK 9 - STATEWIDE IMPLEMENTATION 2/9/98 - 3/6/98 - ---------------------------------------------------------------------------------------------------------------------------- 9.1. Full Statewide Implementation of MACWIS Satisfying RFP Requirements 35,853 67,168 - ---------------------------------------------------------------------------------------------------------------------------- 9.2. Benchmark Test Performance Report 35,853 9,872 - ---------------------------------------------------------------------------------------------------------------------------- 9.3.1 Statewide Implementation Analysis Report DRAFT 35,846 2,430 - ---------------------------------------------------------------------------------------------------------------------------- 9.3.2 Statewide Implementation Analysis Report FINAL 35,860 4,867 - ---------------------------------------------------------------------------------------------------------------------------- 9.4.1 System Turnover Plan DRAFT 35,832 27,953 - ---------------------------------------------------------------------------------------------------------------------------- 9.4.2 System Turnover Plan FINAL 35,853 55,906 - ---------------------------------------------------------------------------------------------------------------------------- 10.. TASK 10 - LEGACY DATA CONVERSION 4/7/97 - 2/6/98 - ---------------------------------------------------------------------------------------------------------------------------- 10.1.1 Detailed Conversion Test Plan DRAFT 35,548 2,858 - ---------------------------------------------------------------------------------------------------------------------------- 10.1.2 Detailed Conversion Test Plan FINAL 35,566 5,725 - ---------------------------------------------------------------------------------------------------------------------------- 10.2.1 Conversion Specification Document DRAFT 35,569 8,767 - ---------------------------------------------------------------------------------------------------------------------------- 10.2.2 Conversion Specification Document FINAL 35,587 19,555 - ---------------------------------------------------------------------------------------------------------------------------- 10.3. Conversion Programs 35,701 28,548 - ---------------------------------------------------------------------------------------------------------------------------- 10.4.1 Conversion Test Results Report DRAFT 35,688 3,834 - ---------------------------------------------------------------------------------------------------------------------------- 10.4.2 Conversion Test Results Report FINAL 35,709 7,681 - ---------------------------------------------------------------------------------------------------------------------------- 10.5. Data Conversion - Pilot Office 35,800 19,397 - ---------------------------------------------------------------------------------------------------------------------------- 10.6. Conversion Documentation for Users and Software Maintenance 35,713 3,730 - ---------------------------------------------------------------------------------------------------------------------------- 10.7. Data Conversion - Central and Regional Offices 35,832 30,540 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 10 130,635 - ---------------------------------------------------------------------------------------------------------------------------- 11.. TASK 11 - OPERATIONS SUPPORT/WARRANTY 3/1/98 - 2/26/99 - ---------------------------------------------------------------------------------------------------------------------------- 11.1. Completion of Training or State MIS Operations Staff 35,881 27,535 - ---------------------------------------------------------------------------------------------------------------------------- 5.3.2 System and System User Documentation FINAL 35,881 11,563 - ---------------------------------------------------------------------------------------------------------------------------- 11.2. Successful Turnover of MACWIS to State Technical Personnel 35,881 23,951 - ---------------------------------------------------------------------------------------------------------------------------- Release of Equipment Holdback to Unisys 35,886 - ---------------------------------------------------------------------------------------------------------------------------- 11.3.1 System Turnover Results Report DRAFT 35,895 1,495 - ---------------------------------------------------------------------------------------------------------------------------- 11.3.2 System Turnover Results Report FINAL 35,909 2,995 - ---------------------------------------------------------------------------------------------------------------------------- 11.4. Warranty - Month 1 35,885 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.5. Warranty - Month 2 35,915 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.6. Warranty - Month 3 35,946 4,192 - ---------------------------------------------------------------------------------------------------------------------------- Release of Holdback to Unisys 35,947 - ---------------------------------------------------------------------------------------------------------------------------- 11.7. Warranty - Month 4 35,976 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.8. Warranty - Month 5 36,007 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.9. Warranty - Month 6 36,038 4,192 - ---------------------------------------------------------------------------------------------------------------------------- Release of Holdback to Unisys 36,039 - ---------------------------------------------------------------------------------------------------------------------------- 11.1. Warranty - Month 7 36,068 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.11. Warranty - Month 8 36,099 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.12. Warranty - Month 9 36,129 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.13. Warranty - Month 10 36,160 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.14. Warranty - Month 11 36,191 4,192 - ---------------------------------------------------------------------------------------------------------------------------- 11.15. Warranty - Month 12 36,217 4,192 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 11 117,843 - ---------------------------------------------------------------------------------------------------------------------------- Release of Unisys Holdback to Network Six for $100,00 in Task 3 36,220 - ---------------------------------------------------------------------------------------------------------------------------- Release of Holdback to Network Six 36,220 - ---------------------------------------------------------------------------------------------------------------------------- Totals 6,268,738 - ---------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Deliver- Deliverable able Number 10% HOLDBACK NET PAYMENT - -------------------------------------------------------------------------------------------------------------------------------- 4.2.2 Comprehensive Training Plan and Schedule FINAL 3,971 35,743 - -------------------------------------------------------------------------------------------------------------------------------- 6.4.1 Implementation Analysis Report DRAFT 414 3,727 - -------------------------------------------------------------------------------------------------------------------------------- 6.4.2 Implementation Analysis Report FINAL 830 7,466 - -------------------------------------------------------------------------------------------------------------------------------- 6.5.1 Detailed Acceptance Test Plan, Inc. Benchmark Test Cases DRAFT 828 7,455 - -------------------------------------------------------------------------------------------------------------------------------- 6.5.2 Detailed Acceptance Test Plan, Inc. Benchmark Test Cases FINAL 1,659 14,931 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 6 33,510 301,595 - -------------------------------------------------------------------------------------------------------------------------------- 7.. TASK 7 - ACCEPTANCE TESTING 11/10/97 - 2/9/98 - -------------------------------------------------------------------------------------------------------------------------------- 7.1. Acceptance Test Team Trained 9,492 85,431 - -------------------------------------------------------------------------------------------------------------------------------- 7.2. Errors Identified During Testing & Retesting Documented & Resolved 22,119 199,073 - -------------------------------------------------------------------------------------------------------------------------------- 7.3.1 Acceptance Test Result Report DRAFT 3,192 28,726 - -------------------------------------------------------------------------------------------------------------------------------- 7.3.2 Acceptance Test Results Report FINAL 6,393 57,539 - -------------------------------------------------------------------------------------------------------------------------------- 7.4.1 Detailed Pilot Test Plan DRAFT 4,174 37,565 - -------------------------------------------------------------------------------------------------------------------------------- 7.4.2 Detailed Pilot Test Plan FINAL 8,360 75,243 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 7 53,730 483,577 - -------------------------------------------------------------------------------------------------------------------------------- 8.. TASK 8 - PILOT SITE IMPLEMENTATION 1/5/98 - 2/20/98 - -------------------------------------------------------------------------------------------------------------------------------- 8.1. Full Installation of Operational MACWIS in Selected Pilot Office 7,150 64,350 - -------------------------------------------------------------------------------------------------------------------------------- 8.2. MACWIS Help Desk Procedures Documented 5,032 45,284 - -------------------------------------------------------------------------------------------------------------------------------- 8.3. Errors Identified During Testing & Retesting Documented & Resolved 5,561 50,050 - -------------------------------------------------------------------------------------------------------------------------------- 8.4.1 Pilot Test Analysis Report DRAFT 1,311 11,797 - -------------------------------------------------------------------------------------------------------------------------------- 8.4.2 Pilot Test Analysis Report FINAL 2,661 23,953 - -------------------------------------------------------------------------------------------------------------------------------- 8.4.1 Detailed Statewide Implementation Test Plan DRAFT 1,587 14,286 - -------------------------------------------------------------------------------------------------------------------------------- 8.4.2 Detailed Statewide Implementation Test Plan FINAL 3,179 28,614 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENTS TASK 8 26,481 238,334 - -------------------------------------------------------------------------------------------------------------------------------- 9.. TASK 9 - STATEWIDE IMPLEMENTATION 2/9/98 - 3/6/98 - -------------------------------------------------------------------------------------------------------------------------------- 9.1. Full Statewide Implementation of MACWIS Satisfying RFP Requirements 6,717 60,451 - -------------------------------------------------------------------------------------------------------------------------------- 9.2. Benchmark Test Performance Report 987 8,885 - -------------------------------------------------------------------------------------------------------------------------------- 9.3.1 Statewide Implementation Analysis Report DRAFT 243 2,187 - -------------------------------------------------------------------------------------------------------------------------------- 9.3.2 Statewide Implementation Analysis Report FINAL 487 4,380 - -------------------------------------------------------------------------------------------------------------------------------- 9.4.1 System Turnover Plan DRAFT 2,795 25,158 - -------------------------------------------------------------------------------------------------------------------------------- 9.4.2 System Turnover Plan FINAL 5,591 50,315 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENTS TASK 9 16,820 151,376 - -------------------------------------------------------------------------------------------------------------------------------- 10.. TASK 10 - LEGACY DATA CONVERSION 4/7/97 - 2/6/98 - -------------------------------------------------------------------------------------------------------------------------------- 10.1.1 Detailed Conversion Test Plan DRAFT 286 2,572 - -------------------------------------------------------------------------------------------------------------------------------- 10.1.2 Detailed Conversion Test Plan FINAL 573 5,153 - -------------------------------------------------------------------------------------------------------------------------------- 10.2.1 Conversion Specification Document DRAFT 877 7,890 - -------------------------------------------------------------------------------------------------------------------------------- 10.2.2 Conversion Specification Document FINAL 1,958 17,600 - -------------------------------------------------------------------------------------------------------------------------------- 10.3. Conversion Programs 2,855 25,693 - -------------------------------------------------------------------------------------------------------------------------------- 10.4.1 Conversion Test Results Report DRAFT 383 3,451 - -------------------------------------------------------------------------------------------------------------------------------- 10.4.2 Conversion Test Results Report FINAL 768 6,913 - -------------------------------------------------------------------------------------------------------------------------------- 10.5. Data Conversion - Pilot Office 1,940 17,457 - -------------------------------------------------------------------------------------------------------------------------------- 10.6. Conversion Documentation for Users and Software Maintenance 273 2,457 - -------------------------------------------------------------------------------------------------------------------------------- 10.7. Data Conversion - Central and Regional Offices 3,054 27,486 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 10 12,967 116,672 - -------------------------------------------------------------------------------------------------------------------------------- 11.. TASK 11 - OPERATIONS SUPPORT/WARRANTY 3/1/98 - 2/26/99 - -------------------------------------------------------------------------------------------------------------------------------- 11.1. Completion of Training or State MIS Operations Staff 2,754 24,782 - -------------------------------------------------------------------------------------------------------------------------------- 5.3.2 System and System User Documentation FINAL 1,156 10,407 - -------------------------------------------------------------------------------------------------------------------------------- 11.2. Successful Turnover of MACWIS to State Technical Personnel 2,395 21,556 - -------------------------------------------------------------------------------------------------------------------------------- Release of Equipment Holdback to Unisys 97,776 - -------------------------------------------------------------------------------------------------------------------------------- 11.3.1 System Turnover Results Report DRAFT 150 1,346 - -------------------------------------------------------------------------------------------------------------------------------- 11.3.2 System Turnover Results Report FINAL 300 2,696 - -------------------------------------------------------------------------------------------------------------------------------- 11.4. Warranty - Month 1 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.5. Warranty - Month 2 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.6. Warranty - Month 3 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- Release of Holdback to Unisys 114,058 - -------------------------------------------------------------------------------------------------------------------------------- 11.7. Warranty - Month 4 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.8. Warranty - Month 5 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.9. Warranty - Month 6 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- Release of Holdback to Unisys 114,058 - -------------------------------------------------------------------------------------------------------------------------------- 11.1. Warranty - Month 7 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.11. Warranty - Month 8 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.12. Warranty - Month 9 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.13. Warranty - Month 10 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.14. Warranty - Month 11 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- 11.15. Warranty - Month 12 419 3,773 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL PAYMENT TASK 11 11,783 431,955 - -------------------------------------------------------------------------------------------------------------------------------- Release of Unisys Holdback to Network Six for $100,00 in Task 3 100,000 - -------------------------------------------------------------------------------------------------------------------------------- Release of Holdback to Network Six 200,000 - -------------------------------------------------------------------------------------------------------------------------------- 626,576 6,265,751 - --------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Bond No. 6996 ACSTAR INSURANCE COMPANY 233 MAIN STREET *P.O. BOX 2350 PERFORMANCE NEW BRITAIN, CT 06050-22350 BOND (203) 224-2000 KNOW ALL MEN BY THESE PRESENTS, that We Network Six, Inc. 475 Kilvert ----------------------------- Street, Warwick, RI 02886, as Principal, and ACSTAR INSURANCE COMPANY, 233 Main - -------------------------- Street, P.O. Box 2350, New Britain, CT 06050-2350, as Surety, are held and firmly bound unto State of Maine, Dept. of Human Services, Augusta, ME 04333 As Obligee, hereinafter called the Obligee, in the penal sum of One million five ---------------- hundred sixty six thousand four hundred thirty five and 00/100------------------ - ------------------------------------------------------------------------------- Dollars ($1,566,435.00) for which payment well and truly to be made we do bind - ----------------------- ourselves, our heirs, executors, administrators and assigns, firmly by these presents. THE CONDITION OF THIS OBLIGATION IS SUCH, that: WHEREAS, the Principal entered into a certain contract with the Obligee, dated 2/5/97 for to build an automated child welfare information system for the ------ --------------------------------------------------------------- State of Maine. - --------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- which contract and the specifications therefore shall be deemed a part hereof as fully as if set out herein. NOW, THEREFORE, if the said Princial shall well and truly perform all the work specified in said contract, then this obligation to be void; otherwise to remain in full force and effect. The foregoing obligation is subject to the condition that no suit or action shall be commenced hereunder after the expiration date of one year following the date on which Principal ceased work on said contract or the date on which final payment under the contract falls due, or the date on which goods or services were received by principal, whichever occurs first. The Surety shall have no obligation to claimants who do not have a direct contract with the Principal. IN WITNESS WHEREOF, the above bounden parties have executed this instrument under their several seals this 3rd day of February, 1997 the name and corporate ------------------------- seal of each corporate party being affixed hereto and these presents duly signed by its undersigned representatives, pursuant to authority of its governing body. ATTEST: NETWORK SIX, INC. ------------------------------------ Principal (Seal) /s/ Dorothy M. Cipolla By: /s/ Kenneth C. Kirsch - ----------------------------------- ------------------------------------ Kenneth C. Kirsch President & CEO ATTEST: ACSTAR INSURANCE COMPANY /s/ By: /s/ Henry W. Nozko, Jr. - ----------------------------------- ------------------------------------ Name Henry W. Nozko, Jr. Title President - -------------------------------------------------------------------------------- EX-10.19 5 SETTLEMENT AGREEMENT DATED 12-29-1997 SETTLEMENT AGREEMENT AND ASSIGNMENT ----------------------------------- This Agreement made the 29th day of December 1997, between The Aetna Casualty ---- and Surety Company and the Federal Insurance Company, hereinafter referred to as "Surety", Network Six Inc., hereinafter referred to as "NSI", and Lockheed Martin IMS Corporation, hereinafter referred to as "Lockheed". WHEREAS, Surety issued a payment and performance bond on behalf of NSI for Hawaii's Development and implementation of a Statewide Comprehensive Automated Child Support System. WHEREAS, the State of Hawaii has terminated NSI's contract for the Development and Implementation of a Statewide Comprehensive Automated Child Support System, hereinafter referred to as "Project" and NSI has commenced litigation against the State of Hawaii for breech of contract and improper termination. WHEREAS, Surety received a payment bond claim from Unisys Corporation for unpaid equipment in the amount of $889,248.59. WHEREAS, Surety investigated, verified, settled and paid such claim in an amount of $842,238.78. WHEREAS, in consideration of paying Unisys Corporation $842,238.78, Surety was given a full and final release of claim of Surety and NSI. WHEREAS, in consideration of paying Unisys Corporation $842,238.78, Surety was given an assignment of any and all rights of Unisys against NSI. WHEREAS, NSI has an obligation to immediately reimburse Surety for all loss, cost, and expense realized as a result of Surety issuing said payment and performance bond both by contract and by common law. WHEREAS, Lockheed, as third party Indemnitor agreed to indemnify Surety for any loss, cost, and expense realized as a result of Surety issuing said payment and performance bond if and when NSI was unable to reimburse Surety. WHEREAS, the obligation to reimburse Surety primarily belongs to NSI and secondarily belongs to Lockheed. WHEREAS, Lockheed has or will reimburse the Surety $842,238.78 as full and final settlement of said indemnity obligation. WHEREAS, the Surety, NSI and Lockheed wish to assign all of the Surety's rights of reimbursement against NSI however derived to Lockheed and enter into an arrangement in which NSI reimburses Lockheed $842,238.78 with interest over time. NOW THEREFORE, in consideration of the promises and mutual covenants, benefits and detriments contained herein, intending to be legally bound, the parties do hereby agree as follows: 1 1. Surety assigns all of its rights against NSI relating to the payment of the Unisys claim toLockheed. 2. Surety retains all of its right of indemnity against NSI and Lockheed for any and all loss, cost, and expense stemming from any further liability not yet known, but otherwise releases NSI and Lockheed for liability borne out of the Project except for the obligations under this agreement. 3. NSI agrees to execute a promissory note in favor of Lockheed (attached hereto and incorporated herein (exhibit 1)), in which NSI agrees to pay Lockheed $842,238.78 plus interest. 4. Said Promissory Note shall be paid in accordance with the payment amounts and interest rates found in the payment schedule attached hereto and incorporated herein (exhibit 2). 5. NSI shall be obligated to reimburse Lockheed the remaining principal balance within 15 days of receipt of funds if NSI settles or wins its litigation against the State of Hawaii. This provision is only effective if the amount received by NSI as a result of the dispute with the State of Hawaii is more than $350,000.00. If the amount of the settlement or award is greater than $350,000.00, but less than the balance of money owed to Lockheed, NSI is only obligated to immediately pay the amount of money received over and above the $350,000.00. The balance shall be paid according to the payment schedule. 6. NSI is precluded from further assigning its rights against the State of Hawaii to anyone in a manner that would impair Lockheed's right to be paid therefrom without first obtaining written consent from Lockheed. NSI is permitted to substitute one creditor for another on any preexisting collateral assignment of its rights against Hawaii, so long as such substitution does not increase the value of the assignment. 7. NSI shall provide Lockheed with a report at least every three months updating Lockheed on the status of the litigation until its conclusion. Such report shall be limited to public information that is material to the status of the litigation. 8. Lockheed and NSI release the Surety from any and all known liability and obligations except for the obligations under this agreement. 9. If NSI has not favorably settled the litigation for an amount greater than $350,000.00, NSI shall have the option but not the obligation to pay the principal balance owed to Lockheed early. If NSI pays the entire principal balance off in full in the first 12 months of the repayment schedule, NSI shall be entitled to a 7% discount of the principal amount. If NSI pays the entire principal balance off during months 13 through 24 of the repayment schedule, NSI shall be entitled to a 5% discount of the principal amount. If NSI pays the entire principal balance off during months 25 through 36 of the repayment schedule, NSI shall be entitled to a 2.5% discount of the principal amount. If NSI pays the entire principal balance off during months 37 through 42 of the repayment schedule, NSI shall be entitled to a 1.5% discount of the principal amount. If the entire principal balance is paid early, no future interest shall accrue or be paid. 10. The rights and obligations contained in this agreement shall be binding upon the successors and assigns of the parties. IN WITNESS WHEREOF THE PARTIES HERETO have hereby executed this Settlement Agreement the date shown beside their signature. 2 Aetna Casualty and Surety Company Federal Insurance Company BY: /s/ Nicholas Seminara Date: 12/23/97 /s/ Sherri L. Monteira ----------------------- ---------- ------------------------ Nicholas Seminara Notary Claim Counsel Network Six Inc. BY: /s/ Kenneth Kirsch Date: 12/24/97 /s/ Janet S. Cherms -------------------- ---------- --------------------- Kenneth Kirsch Notary President and Chief Executive Officer Lockheed Martin IMS Corporation BY: /s/ Robert F. Downing Date: 12/29/97 /s/ Judith A. Puentes ----------------------- ---------- ----------------------- Name: Robert F. Downing Notary Title: General Counsel 3 NOTE ---- For value received Network Six Inc., its successors and assigns unconditionally promise to pay to the order of Lockheed Martin IMS, Eight Hundred, Forty Two Thousand, Two Hundred, Thirty-eight dollars and no cents, ($842,238.00) plus interest at the rates set forth in the payment schedule attached hereto and incorporated herein. Interest and principal payments are set forth in the attached schedule and shall commence one month from the date hereof. Should Network Six Inc. fail to make any payment within 10 days of when due for any reason whatsoever (including without limitation the filing of voluntary or involuntary bankruptcy proceedings): (a) the unpaid principal balance and unpaid interest as set forth in the attached payment schedule at the time of such failure to pay, together with an acceleration fee of 5% of such unpaid principal balance, shall be immediately due and payable; and (b) the holder of this Note shall have the unconditional right to confess judgment against Network Six Inc. for the principal unpaid balance and the acceleration fee referenced above, together with all costs, expenses and attorney's fees incurred by the holder in perfecting or enforcing such judgment. This Note arises out of a certain Settlement Agreement and Assignment amongst Aetna Casualty and Surety Company and the Federal Insurance Company, Network Six Inc. and Lockheed Martin IMS Corporation and is subject to the terms of said agreement, including but not limited to terms providing for acceleration of payment and discount for prepayment. This Note suspends but does not extinguish the underlying obligation for which it is given. The "underlying obligation" is set forth in paragraphs three and four of the aforementioned agreement. The giving, taking, negotiation, acceptance, payment, or dishonor of this Note shall in no way alter the form, character or quality of this Note or such underlying obligation, including the dischargeability status of the Note or such underlying obligation under 11 U.S. C. & 523. Further, Network Six Inc. hereby waives the right to assert any statute of limitation defense or statute of repose defense to this Note or to the underlying obligation. MAKER: Network Six Inc. Attest:__________________ By: /s/ Kenneth C. Kirsch ---------------------------- Print name Print name Kenneth C. Kirsch and title and title President & CEO Sworn to before me this day of 24th day of December ,1997. ------ -------- ---- /s/ Janet S. Cherms - --------------------- Notary Public My Commission Expires: 7-24-01 Exhibit 1 4
- ---------------------------------------------------------------------------------------------------------- Payment Number Interest Rate (%) Principal Interest Amount Due - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- 1 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 2 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 3 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 4 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 5 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 6 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 7 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 8 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 9 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 10 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 11 5% $ 3,509.33 $ 3,509.33 - ---------------------------------------------------------------------------------------------------------- 12 5% $100,000.00 $ 3,509.33 $ 103,509.33 - ---------------------------------------------------------------------------------------------------------- 13 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 14 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 15 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 16 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 17 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 18 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 19 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 20 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 21 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 22 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 23 6% $ 3,711.20 $ 3,711.20 - ---------------------------------------------------------------------------------------------------------- 24 6% $200,000.00 $ 3,711.20 $ 203,711.20 - ---------------------------------------------------------------------------------------------------------- 25 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 26 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 27 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 28 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 29 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 30 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 31 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 32 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 33 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 34 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 35 7.50% $ 3,388.99 $ 3,388.99 - ---------------------------------------------------------------------------------------------------------- 36 7.50% $200,000.00 $ 3,388.99 $ 203,388.99 - ---------------------------------------------------------------------------------------------------------- 37 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 38 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 39 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 40 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 41 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 42 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 43 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 44 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 45 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 46 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 47 9% $ 2,566.79 $ 2,566.79 - ---------------------------------------------------------------------------------------------------------- 48 9% $342,239.00 $ 2,566.79 $ 344,805.79 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- TOTAL $842,239.00 $158,115.73 $1,000,354.73 - ----------------------------------------------------------------------------------------------------------
5 EX-23.1 6 CONSENT OF SANSIVERI, KIMBALL & MCNAMEE INDEPENDENT AUDITORS CONSENT To the Board of Directors and Shareholders of Network Six, Inc.: We consent to the incorporation by references in the registration statement (No. 33-87208) on Form S-8 of Network Six, Inc. of our report dated March 3, 1998 relating to the balance sheet of Network Six, Inc. as of December 31, 1997 and the related statements of operations, stockholders' equity and cash flows for the year ended December 31, 1997 which report appears in the December 31, 1997 annual report on Form 10-K of Network Six, Inc. Sansiveri, Kimball & McNamee, L.L.P. /s/ Sansiveri, Kimball & McNamee, L.L.P Providence, Rhode Island March 3, 1998 EX-23.2 7 INDEPENDENT AUDITORS CONSENT [LETTERHEAD OF KPMG PEAT MARWICK APPEARS HERE] Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors of Network Six, Inc.: We consent to the incorporation by reference in the registration statement (No. 33-87208) on Form S-8 of Network Six, Inc. of our report dated March 28, 1997 relating to the balance sheet of Network Six, Inc. as of December 31, 1996, and the related statements of operations, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 1996, which report appears in the December 31, 1997 annual report on Form 10-K of Network Six, Inc. Our report, dated March 28, 1997, contains an explanatory paragraph that states the Company became a defendant in significant litigation with the State of Hawaii ("the State") related to its system implementation contract with the State, has become a party to other litigation related to the Hawaii contract, has suffered recurring losses, and has a bank financing agreement which has expired. These circumstances raise substantial doubt about the entity's ability to continue as a going concern. The 1996 and 1995 financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ KPMG Peat Marwick LLP Providence, Rhode Island March 26, 1998 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1997 DEC-31-1997 1,291,924 0 2,061,379 50,000 0 4,936,075 694,233 627,146 9,292,103 4,913,958 0 0 2,235,674 73,429 646,317 9,292,103 11,460,437 11,460,437 8,620,097 10,691,391 (31,934) 0 266,030 534,950 128,000 406,950 0 0 0 406,950 0.25 0.25
EX-27.2 9 RESTATED FDS FOR 1996 QUARTERS
5 12-MOS 12-MOS 3-MOS 3-MOS 3-MOS DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 1,205,652 127,581 938,266 631,822 438,110 0 0 0 0 0 3,128,267 1,626,613 2,320,469 2,082,190 2,330,914 50,000 97,856 50,000 50,000 93,124 0 0 0 0 0 13,606,768 4,215,637 12,421,928 12,051,330 10,026,379 1,740,245 835,111 1,742,555 1,215,467 1,185,094 1,181,249 696,596 1,261,253 830,259 872,020 14,945,274 8,273,564 13,633,903 12,990,804 10,797,190 10,046,386 5,289,308 8,562,250 7,838,799 6,047,662 0 0 0 0 0 0 0 0 0 0 2,235,674 2,235,674 2,235,674 2,235,674 2,235,674 286,070 72,119 286,537 288,494 288,497 2,122,751 440,984 2,320,901 2,422,833 2,037,997 14,945,274 8,273,564 13,633,903 12,990,804 10,797,190 20,985,012 7,344,380 3,686,829 2,579,934 1,657,465 20,985,012 7,344,380 3,686,829 3,579,934 1,657,465 18,313,570 7,359,649 2,520,413 1,826,237 1,607,719 24,391,660 9,480,286 3,229,893 2,288,310 2,093,223 (10,413) (38,463) (40,678) (19,655) (2,503) 0 0 0 0 0 396,286 435,925 101,000 120,328 127,530 (3,792,521) (2,533,368) 396,614 190,951 (565,792) (1,365,081) (775,023) 164,043 78,290 (228,347) (2,427,440) (1,758,345) 232,571 112,661 (337,445) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (2,427,440) (1,758,345) 232,571 112,661 (337,445) (3.42) (2.71) 0.33 0.16 (0.47) (3.42) (2.71) 0.33 0.16 (0.47)
EX-27.3 10 RESTATED FDS FOR 1997 QUARTERS
5 3-MOS 3-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 601,116 386,887 1,996,047 0 0 0 730,767 3,109,929 1,705,814 50,000 50,000 50,000 0 0 0 3,321,492 4,365,945 4,903,989 814,560 828,895 652,281 706,111 726,351 610,822 7,889,196 8,862,074 9,322,452 5,137,588 5,930,774 5,930,774 0 0 0 0 0 0 2,235,674 2,235,674 2,235,674 72,119 73,429 73,429 262,563 482,306 551,735 7,889,196 8,862,074 9,322,452 1,414,186 3,431,835 3,572,313 1,414,186 3,431,835 3,572,313 973,140 2,593,348 2,765,551 1,499,471 3,066,335 3,324,106 (3,575) (4,797) (2,130) 0 0 0 50,658 61,979 76,775 (132,187) 308,318 173,562 0 65,521 56,872 (132,187) 242,797 116,690 0 0 0 0 0 0 0 0 0 (132,187) 242,797 116,690 (0.25) 0.20 0.09 (0.25) 0.20 0.09
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