<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-28268
USCS INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-1727009
------------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
2969 PROSPECT PARK DRIVE,
RANCHO CORDOVA, CALIFORNIA 95670-6148
--------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 636-4500
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
----------------------------- ---------------------------------
Common Stock, $.05 par value 23,264,825 shares
<PAGE>
USCS INTERNATIONAL, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED June 30, 1997
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements 3
Consolidated Condensed Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996 4
Consolidated Condensed Statements of Operations (Unaudited)
Three months and six months ended June 30, 1997 and 1996 5
Consolidated Condensed Statements of Cash Flows (Unaudited)
Six months ended June 30, 1997 and 1996 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations, and Certain Factors
that May Affect Future Results. 8-15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
2
<PAGE>
USCS INTERNATIONAL, INC.
PART I- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The following consolidated condensed financial statements, except for the
balance sheet as of December 31, 1996, have been prepared by USCS International,
Inc. (the Company) without audit by independent public accountants, but in
accordance with the rules and regulations of the Securities and Exchange
Commission (SEC) and, in the opinion of the Company, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair statement
of results for each period shown. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
SEC rules and regulations. The Company believes that the disclosures made are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Registration Statement on Form S-1
(Registration No. 333-3842) declared effective by the SEC on June 20, 1996 and
the Company's Annual Report to Stockholders and the Company's Annual Report on
Form 10-K for the year ended December 31, 1996. The results of operations for
the quarter and six months ended June 30, 1997 are not necessarily indicative of
the results to be expected for the entire year ending December 31, 1997.
3
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share and per share amounts)
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 8,641 $ 8,452
Accounts receivable 71,445 73,458
Current portion of net investment in leases 4,863 4,922
Paper products and other inventory 4,083 4,418
Other 5,957 8,972
---------- ----------
Total current assets 94,989 100,222
Property and equipment, net 94,880 94,350
Net investment in leases, net of current portion 4,476 6,252
Other 8,352 4,735
---------- ----------
Total assets $ 202,697 $ 205,559
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 41,057 $ 48,975
Current portion of long-term debt 3,977 4,772
Deferred revenue 1,657 9,434
---------- ----------
Total current liabilities 46,691 63,181
Long-term debt, net of current portion 3,048 5,647
Customer deposits 17,185 12,752
Other liabilities 8,185 8,646
---------- ----------
Total liabilities 75,109 90,226
---------- ----------
---------- ----------
Stockholders' Equity:
Preferred Stock, $.05 par value,
10,000,000 shares authorized;
no shares issued and outstanding - -
Common Stock, $.05 par value,
Authorized 40,000,000 shares; Issued
and outstanding:
23,249,305 shares at June 30, 1997
(unaudited) and 23,068,826 shares
at December 31, 1996 1,162 1,153
Additional paid-in capital 55,512 53,902
Retained earnings 71,092 60,437
Foreign currency translation adjustment (178) (159)
---------- ----------
Total stockholders' equity 127,588 115,333
---------- ----------
Total liabilities and stockholders' equity $ 202,697 $ 205,559
---------- ----------
---------- ----------
4
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ -----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Software and services:
Customer management $ 37,655 $ 33,807 $ 75,434 $ 66,284
Bill processing 29,521 23,982 57,919 46,926
--------- --------- --------- ---------
Total 67,176 57,789 133,353 113,210
Equipment sales and services 5,522 5,783 10,315 10,617
--------- --------- --------- ---------
Total revenue 72,698 63,572 143,668 123,827
--------- --------- --------- ---------
--------- --------- --------- ---------
Cost of revenue:
Software and services:
Customer management 17,383 18,521 35,911 36,751
Bill processing 21,064 17,837 41,924 34,835
--------- --------- --------- ---------
Total 38,447 36,358 77,835 71,586
Equipment sales and services 2,728 3,413 5,526 6,346
--------- --------- --------- ---------
Total cost of revenue 41,175 39,771 83,361 77,932
--------- --------- --------- ---------
Gross profit 31,523 23,801 60,307 45,895
--------- --------- --------- ---------
Operating expenses:
Research and development 7,860 5,890 14,731 11,533
Selling, general and administrative 14,197 12,070 27,462 23,078
--------- --------- --------- ---------
Total operating expenses 22,057 17,960 42,193 34,611
--------- --------- --------- ---------
Operating income 9,466 5,841 18,114 11,284
Interest expense 186 1,143 355 2,349
--------- --------- --------- ---------
Income before income taxes 9,280 4,698 17,759 8,935
Income tax provision 3,678 1,855 7,104 3,529
--------- --------- --------- ---------
Net income $ 5,602 $ 2,843 $ 10,655 $ 5,406
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share $ 0.23 $ 0.13 $ 0.43 $ 0.26
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common
shares and equivalents 24,620 21,304 24,580 20,982
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
5
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six months ended
June 30,
-----------------------
1997 1996
----------- ----------
Cash flows from operating activities:
Net cash provided by operating activities $ 16,974 $ 6,575
--------- --------
Cash flows from investing activities:
Capital expenditures, net (11,990) (13,501)
Purchase of subsidiary (2,046) -
Other (974) (339)
--------- --------
Net cash used in investing activities (15,010) (13,840)
--------- --------
Cash flows from financing activities:
Net paydown under revolving credit agreement - (26,000)
Payments on long-term debt (3,394) (9,436)
Proceeds from issuance of common stock 1,619 42,838
Repurchase of common stock - (39)
--------- --------
Net cash (used) provided by financing activities (1,775) 7,363
--------- --------
Net increase in cash 189 98
Cash at January 1 8,452 6,627
--------- --------
Cash at June 30 $ 8,641 $ 6,725
--------- --------
--------- --------
6
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Long-term Debt
The Company has a five-year unsecured revolving credit line with two
banks in the amount of $50 million. Borrowings under the agreement
bear interest at the Company's choice of LIBOR (plus a margin ranging
from .55% to 1.25%), the bank's base rate or a quoted rate. Under the
borrowing agreement, the Company is required to maintain certain
financial ratios and meet a net worth test. The revolving credit line
expires September, 2001.
2. Stockholders' Equity
In June 1996, the Company completed an initial public offering (IPO) of
its common stock. Upon the close of the IPO, the Company effected
certain stock splits and conversions of its Voting and Non-Voting Common
Stock. All share and per share data have been restated to reflect the
effect of the stock splits.
3. Income Tax
Income tax provisions for interim periods are based on estimated
effective annual income tax rates. The Company recognizes deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between tax bases and financial reporting bases
of assets and liabilities.
4. Earnings per Share
Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents during the respective periods,
including the assumed net shares issuable upon exercise of stock options
when dilutive. Common and common equivalent shares issued during the
twelve-month period prior to the IPO are included in the calculations as
if they were outstanding for all periods presented.
Under the recently issued FAS 128, the pro forma basic earnings per
share, as defined by the statement, would be $0.24 and $0.14 for the
quarters ended June 30, 1997 and 1996, based on weighted average shares
outstanding of 23,152,000 and 19,615,000, respectively. For the
six-month period ended June 30, 1997 and 1996, pro forma basic earnings
per share, as defined by the statement, would be $0.46 and $0.28, based
on weighted average shares outstanding of 23,124,000 and 19,326,000,
respectively. The pro forma diluted earnings per share, as defined by
the statement, would be $0.23 and $0.14 for the quarters ended June 30,
1997 and 1996, based on weighted average shares outstanding of
24,298,000 and 20,272,000, respectively. For the six-month period ended
June 30, 1997 and 1996, the pro forma diluted earnings per share, as
defined by the statement, would be $0.44 and $0.27, based on shares
outstanding of 24,216,000 and 19,950,000, respectively.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition, Results
of Operations, and Certain Factors that May Affect Future Results
This Quarterly Report contains forward-looking statements that involve risks and
uncertainties. The statements that are not historical facts or statements of
current status are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995 and are subject to risks and
uncertainties including, but not limited to, the risks and uncertainties set
forth under the caption "CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS." The
Company's future results may differ significantly from the results and forward-
looking statements discussed in this Report.
Founded in 1969, USCS is a leading global provider of customer care and billing
solutions to the communications industry and other service industries. USCS
operates in one segment with revenue derived primarily from providing software
and bill processing services to cable television and multi-service providers and
bill processing services to telecommunications companies. Software and bill
processing services for cable television and multi-service providers are
generally provided under bundled service arrangements. Most of the Company's
revenue is derived based on the number of subscribers or end-users of the
Company's clients, the number of billing statements mailed and/or the number of
images, generally one-page-side, produced. Most of the Company's revenue is
derived under long-term contracts with terms ranging from three to seven years.
Clients are billed monthly, generally based on the number of end-users they
serve. As a result, a significant portion of the Company's revenue is recurring
and increases as the service provider's customer base grows. In addition, the
Company sells computer hardware and provides associated maintenance. Leasing is
provided as an alternative to equipment purchases for clients.
The Company provides software and services to North American and U.K. cable
television and multi-service providers primarily through a direct sales force.
Outside of North America and the U.K., the Company markets its software services
primarily through strategic alliances with companies specializing in system
integration or computer hardware manufacturing that are capable of providing
local sales and support. Building and maintaining relationships with its
clients is an important part of the Company's strategy because selling cycles
can extend a year or longer. The Company has committed increased resources to
the international, multi-service and telecommunications markets because it
believes these represent opportunities to grow at rates greater than in the U.S.
cable television marketplace alone.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
consolidated condensed statements of operations and the percentage of revenue
represented by each line item:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------------------------ ---------------------------------------------
1997 1996 1997 1996
---------------------- ---------------------- --------------------- --------------------
(Dollars in thousands) (Dollars in thousands)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software and services:
Customer management $ 37,655 51.8% $ 33,807 53.2% $ 75,434 52.5% $ 66,284 53.5%
Bill processing 29,521 40.6 23,982 37.7 57,919 40.3 46,926 37.9
---------- ------- ---------- --------- ----------- -------- ----------- --------
Total 67,176 92.4 57,789 90.9 133,353 92.8 113,210 91.4
Equipment sales and services 5,522 7.6 5,783 9.1 10,315 7.2 10,617 8.6
---------- ------- ---------- --------- ----------- -------- ----------- --------
Total revenue 72,698 100.0 63,572 100.0 143,668 100.0 123,827 100.0
---------- ------- ---------- --------- ----------- -------- ----------- --------
Cost of revenue:
Software and services:
Customer management 17,383 23.9 18,521 29.1 35,911 25.0 36,751 29.7
Bill processing 21,064 29.0 17,837 28.1 41,924 29.2 34,835 28.1
---------- ------- ---------- --------- ----------- -------- ----------- --------
Total 38,447 52.9 36,358 57.2 77,835 54.2 71,586 57.8
Equipment sales and services 2,728 3.7 3,413 5.4 5,526 3.8 6,346 5.1
---------- ------- ---------- --------- ----------- -------- ----------- --------
Total cost of revenue 41,175 56.6 39,771 62.6 83,361 58.0 77,932 62.9
---------- ------- ---------- --------- ----------- -------- ----------- --------
Gross profit 31,523 43.4 23,801 37.4 60,307 42.0 45,895 37.1
---------- ------- ---------- --------- ----------- -------- ----------- --------
Operating expenses:
Research and development 7,860 10.8 5,890 9.2 14,731 10.3 11,533 9.3
Selling, general and
administrative 14,197 19.5 12,070 19.0 27,462 19.1 23,078 18.7
---------- ------- ---------- --------- ----------- -------- ----------- --------
Total operating expenses 22,057 30.3 17,960 28.2 42,193 29.4 34,611 28.0
---------- ------- ---------- --------- ----------- -------- ----------- --------
Operating income 9,466 13.1 5,841 9.2 18,114 12.6 11,284 9.1
Interest expense 186 .3 1,143 1.8 355 .2 2,349 1.9
---------- ------- ---------- --------- ----------- -------- ----------- --------
Income before income taxes 9,280 12.8 4,698 7.4 17,759 12.4 8,935 7.2
Income tax provision 3,678 5.1 1,855 2.9 7,104 5.0 3,529 2.8
---------- ------- ---------- --------- ----------- -------- ----------- --------
Net income $ 5,602 7.7% $ 2,843 4.5% $ 10,655 7.4% $ 5,406 4.4%
---------- ------- ---------- --------- ----------- -------- ----------- --------
---------- ------- ---------- --------- ----------- -------- ----------- --------
</TABLE>
9
<PAGE>
Revenue. Total revenue increased by 14%, to $72.7 million in the second quarter
of 1997 from $63.6 million in the comparable quarter in 1996. Software and
services, which was 92% of total revenue in the second quarter of 1997 versus
91% in the second quarter of 1996, increased in the second quarter of 1997 by
16% over the prior year quarter. Customer management software and services
revenue, of which a significant majority comes from bundling software with bill
processing services, increased by 12% to $37.7 million in the second quarter of
1997 from $33.8 million in the 1996 second quarter. Bill processing services
revenue provided primarily to telecommunications companies as a stand-alone
service increased by 23%, to $29.5 million in the second quarter of 1997 from
$24.0 million in the comparable quarter of the prior year. Equipment sales and
services, as expected, slightly declined at $5.5 million in the second quarter
of 1997 compared to $5.8 million in the same quarter of 1996. As a percentage
of revenue, equipment sales and services declined to 8% in the second quarter of
1997 from 9% in the same quarter of 1996.
Total revenue increased by 16%, to $143.7 million for the six months ended June
30, 1997 from $123.8 million in the comparable period in 1996. Software and
services, which was 93% of total revenue for the six months ended June 30, 1997
versus 91% for the same period in 1996, increased by 18% in the first six months
of 1997 over the first six months of 1996. Customer management software and
services revenue increased by 14%, to $75.4 million in the six months ended June
30, 1997 from $66.3 million for the same period in 1996. Bill processing
services revenue increased by 23%, to $57.9 million in the first six months of
1997 from $46.9 million in the comparable period of the prior year. Equipment
sales and services slightly declined to $10.3 million in the first six months of
1997 compared to $10.6 million for the same period in 1996 and decreased to 7%
of revenue in 1997 from 9% in the comparable 1996 period.
Growth in revenue in customer management software and services, for the second
quarter and six months ended June 30, 1997 compared to the same periods in 1996,
came primarily from sales of additional services, increases in the number of
subscribers from the growth of existing clients and addition of new clients
primarily in international markets and contractually based price adjustments.
The bill processing services revenue increase for the second quarter and six
month period ending June 30, 1997, compared to the same periods in 1996, was
attributable to increased statement production from the addition of new
customers, the internal growth of existing customers and from the sale of
additional services.
Cost of Revenue and Gross Profit. The Company's gross profit margin increased to
approximately 43% in the second quarter of 1997 from approximately 37% in the
comparable quarter in 1996. For the six-month period ending June 30, 1997, the
gross profit margin was 42% compared to 37% for the same period in 1996.
Customer management software and services gross profit margin increased to
approximately 54% in the second quarter of 1997 from 45% in the comparable
quarter in 1996. For the six-month period ending June 30, 1997, the gross
profit was approximately 52% compared to 45% for the same period in 1996. Bill
processing services gross profit margin approximated 29% in the second quarter
of 1997, compared to 26% for the same period in 1996. For the six-month period
ended June 30, 1997, the gross profit margin approximated 28% compared to 26% in
the same period in 1996. Gross profit margins increased because of economies of
scale associated with overall higher subscriber counts, increased statement
processing volumes, operational efficiencies and increased revenue from selling
additional services. The gross profit margin on equipment-related revenue
increased to approximately 51% in the second quarter of 1997 from 41% in the
comparable quarter in 1996. For the six-month period ending June 30, 1997, the
gross profit margin was 46% compared to 40% in the same period in 1996. The
increase in margins is primarily attributed to less discounting and concessions
on equipment sales.
10
<PAGE>
Research and Development. Research and development expense in the second
quarter of 1997 was $7.9 million, an increase of $2.0 million, or 33%, over the
comparable quarter in the prior year. For the six-month period ended June 30,
1997, research and development expense was $14.7 million in 1997 compared to
$11.5 million in 1996, an increase of 28%. Research and development was 11% of
total revenue in the second quarter of 1997 compared to 9% in the second quarter
of 1996, and 10% of total revenue in the first six months of 1997 compared to 9%
in the first six months of 1996. The added expense was incurred for expanding
features and functionality, primarily in customer management software and
services.
Selling, General and Administrative. Selling, general and administrative
expenses approximated 20% and 19% of total revenue for the quarter ended June
30, 1997 and 1996, respectively, and approximated 19% for the six-month period
ended June 30, 1997 and 1996. Selling, general and administrative expenses in
the second quarter of 1997 increased by approximately 18% over the comparable
quarter in the prior year, and for the six-month period ending June 30, 1997
increased by 19% over the same period in 1996. Sales and marketing increased by
23% in the second quarter of 1997 compared to the first quarter of 1996, and by
23% in the first six months of 1997 compared to 1996. This increase is
attributable to increased sales and marketing efforts in the domestic and
international markets. General and administrative expenses increased 14% in the
second quarter of 1997 compared to the first quarter of 1996, and increased by
16% in the first six months of 1997 compared to the same period in 1996, but
remained constant as a percentage of revenue. This increase is attributed to
greater support for the increased sales and marketing activity, as well as
customer and investor relations activity and support required for company
growth.
Net Income. Net income in the second quarter of 1997 increased by 97%, to $5.6
million from $2.8 million in the comparable 1996 quarter, and in the six-month
period ended June 30, 1997, net income increased by 97% to $10.7 million from
$5.4 million in the comparable 1996 period. This increase is primarily because
of the factors cited above and a net reduction of interest expense of
approximately $1.0 million in the second quarter and $2.0 million in the first
six months of 1997 due to the retirement of debt primarily through IPO proceeds.
Net income per share increased 77% and 65% in the second quarter and first six
months of 1997, respectively, versus the comparable periods in 1996. The
increase in net income per share in the second quarter and first six months of
1997 resulted from the Company's higher earnings, partially offset by an
increase of 16% and 17%, respectively, in the number of shares used in the
calculation of earnings per share.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of financing the Company's growth have been cash provided by
operations, borrowing from banks and financial institutions and the IPO
proceeds. The Company utilized the net proceeds from the IPO to reduce debt
under certain revolving credit agreements and, in combination with positive cash
flow from operations, to prepay insurance company loans in 1996. The retirement
of a majority of the Company's debt allowed the redirection of cash used for
debt service to operations and growth.
The Company collects from its clients and remits to the U.S. Postal Service a
substantial amount of postage. The majority of contracts allow the Company to
pre-bill and/or require deposits from its clients to mitigate the effect on cash
flow. As of June 30, 1997, 31% of the Company's accounts receivable represented
amounts due from clients for postage. Postage collections and remittances are
not included in the Company's statements of operations.
At June 30, 1997, the Company had $8.6 million of cash, $71.4 million of
accounts receivable (including postage receivable of $ 21.9 million), $4.9
million of current net investment in leases, and $48.3 million of working
capital. At June 30, 1997, the Company had no borrowings under unsecured bank
credit arrangements with a total borrowing availability of $50 million. Of the
$7 million of total debt outstanding at June 30, 1997, $4 million is due over
the following 12-month period. Of the total debt outstanding, $6.1 million
pertains to the Company's leasing subsidiary and is collateralized, without
recourse, by rents receivable, and $.9 million is for bonds collateralized by
real estate.
The Company continues to make significant investments in capital equipment and
research and development, as well as to expand into new domestic and
international markets. The Company believes that net cash from operations and
the Company's borrowing availability will be sufficient to support operations
through the next twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, changes in the cable television market,
the Company's ability to retain existing customers and attract new customers,
the Company's continuing ability to develop products that are responsive to the
evolving needs of its customers, increased competition, changes in operating
expenses, changes in government regulation of the Company's clients and general
economic factors.
Dependence on the Cable Television Market
The Company is highly dependent on the cable television market. Approximately
60% of the Company's revenue was derived from sales to U.S. and international
cable television service providers in the second quarter and first six months of
1997 and 1996. The number of providers of cable television service in the U.S.
has been declining, resulting in a reduction of the number of potential cable
television clients in the U.S. As the number of companies serving the available
subscriber base decreases, the loss of a single client could have a greater
adverse impact on the Company than in the past. Even if the number of clients
remains the same, a decrease in the number of subscribers served by the
Company's cable television clients would result in lower revenue for the
Company. Furthermore, a decrease in the number of cable subscribers or any
adverse development in the cable television market could have a material adverse
effect on the financial condition and results of operations of the Company.
Also see "International Business Activities."
12
<PAGE>
Changing Communications Market
The communications market is characterized by rapid technological developments,
changes in client requirements, evolving industry standards and frequent new
product introductions. The Company's future success will depend, in part, upon
its ability to enhance its existing applications, develop and introduce new
products that take advantage of technological advances and respond promptly to
new client requirements and evolving industry standards. The Company has
expended considerable funds to develop products to serve the changing
communications market. If the communications market grows or converges more
slowly than anticipated or the Company's products and services fail to achieve
market acceptance, there could be a material adverse effect on the financial
condition and results of operations of the Company. Further, the Company's
development projects are subject to all of the risks associated with the
development of new software and other products based on innovative technologies.
The failure of such development projects could have a material adverse effect on
the financial condition and results of operations of the Company.
Variability of Quarterly Operating Results
The Company's quarterly operating results may fluctuate from quarter to quarter
depending on various factors, including the impact of significant start-up costs
associated with initiating the delivery of contracted services to new clients,
the hiring of additional staff, new product development and other expenses,
introduction of new products by competitors, pricing pressures, the evolving and
unpredictable nature of the markets in which the Company's products and services
are sold and general economic conditions.
New Products, Rapid Technological Changes and Competition
The market for the Company's products and services is highly competitive, and
competition is increasing as additional market opportunities arise. The
Company believes its most significant competitors for customer management
software and services are independent providers of such software and services
and in-house systems. Tele-Communications, Inc. ('TCI"), after giving effect
to the purchase of the cable operations of Viacom in 1996, which was a client
of the Company, represented approximately 18% and 19% of the Company's
revenue in the second quarter and six-month period ended June 30, 1997 and
1996, respectively. In June 1996, the Company entered into a new
three-and-one-half year contract to continue to provide customer management
software and bill processing services to TCI. Under the contract, TCI may
remove subscribers from the agreement during its term, subject to price
increases based on the number of subscribers remaining under contract. TCI
previously announced that it is developing and testing an in-house system and
that such in-house system will replace the Company's customer management
software system. TCI informed the Company on August 11, 1997, that it had
agreed to sell its in-house system and to enter into a long term exclusive
customer management software and services contract with one of the Company's
competitors. Management estimates that the migration of TCI subscribers will
take place over an extended period; however, the Company cannot predict the
migration schedule TCI will adopt nor the resultant impact on the Company's
revenue and results of operations. Another client, which accounted for
approximately 4% of total revenue in the second quarter and first six months
of 1997 and 1996, has orally advised the Company that it may move to an
alternative solution for its customer management software requirements.
In addition, competitive factors could influence or alter the Company's overall
revenue mix between customer management software, services, including bill
processing services, and equipment sales and leasing. Any of these events could
have a material adverse effect on the financial condition and results of
operations, including gross profit margins, of the Company.
13
<PAGE>
Concentration of Client Base
Aggregate revenue from the Company's ten largest clients accounted for
approximately two-thirds of total revenue in the second quarter and six-month
period ending June 30, 1997 and 1996. Loss of all or a significant part of the
business of any of these clients, or a decrease in their respective customer
bases, would have a material adverse effect on the financial condition and
results of operations of the Company. Three of the Company's clients
represented approximately 41% and 43% of total revenue in the second quarter of
1997 and 1996, respectively, and approximately 41% and 44% in the six-month
period ending June 30, 1997 and 1996, respectively.
Management of Growth
Management of the Company's growth may place a considerable strain on the
Company's management, operations and systems. The Company's ability to execute
its business strategy will depend in part upon its ability to manage the demands
of a growing business. Any failure of the Company's management team to
effectively manage growth could have a material adverse effect on the Company's
business, financial condition or results of operations.
Client Failure to Renew or Utilize Contracts
A substantial portion of the Company's revenue is derived from the sale of
services or products under long-term contracts with its clients. The Company
typically does not have the unilateral option to extend the terms of such
contracts upon their expiration. In addition, certain of the Company's contracts
do not require clients to make any minimum purchase. Others require minimum
purchases that are substantially below the current level of business under such
contracts and all such contracts are cancelable by clients under certain
conditions. The failure of clients to renew contracts, a reduction in usage by
clients under any contracts or the cancellation of contracts could have a
material adverse effect on the Company's financial condition and results of
operations.
International Business Activities
The Company markets its products in a variety of international markets. To date,
the Company's customer management software has been installed in 20 countries.
More than 5% of the Company's customer management software and services revenue
came from international sources in the second quarter and first six months of
1997 compared to less than 5% for the same periods in the prior year. The
Company is expanding its international presence, primarily through third party
marketing and distribution alliances. The Company's current and proposed
international business activities are subject to certain inherent risks. There
can be no assurance that such risks will not have a material adverse effect on
the Company's future international sales and, consequently, the Company's
business, operating results and financial condition.
Attraction and Retention of Key Personnel
The Company's future success depends in large part on the continued service of
its key management, sales, product development and operational personnel. The
Company believes that its future success also depends on its ability to attract
and retain skilled technical, managerial and marketing personnel, including, in
particular, additional personnel in the areas of research and development and
technical support. Competition for qualified personnel is intense. The Company
has from time to time experienced difficulties in recruiting qualified skilled
technical personnel. Failure by the Company to attract and retain the personnel
it requires could have a material adverse effect on the financial condition and
results of operations of the Company.
14
<PAGE>
Dependence on Proprietary Technology
The Company relies on a combination of patent, trade secret and copyright laws,
nondisclosure agreements, and other contractual and technical measures to
protect its proprietary technology. There can be no assurance that these
provisions will be adequate to protect its proprietary rights. Although the
Company believes that its products and services do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company or the Company's
clients.
Government Regulation
The Company's existing and potential clients are subject to extensive
regulation, and certain of the Company's revenue opportunities may depend on
continued deregulation in the worldwide communications industry. In addition,
the Company's clients are subject to certain regulations governing the privacy
and use of the customer information that is collected and managed by the
Company's products and services. Regulatory changes that adversely affect the
Company's existing and potential clients could have a material adverse effect on
the financial condition and results of operations of the Company.
Possible Volatility of Stock Price
Although the Company believes that it has the product offerings and resources
needed for continuing success, future revenue and margin trends cannot be
reliably predicted and may cause the Company to adjust its operations. The
Company's stock price, like that of other technology companies, is subject to
significant volatility. The announcement of new products, services or
technologies by the Company or its competitors, quarterly variations in the
Company's results of operations, changes in revenue or earnings estimates by the
investment community and speculation in the press or investment community are
among the factors affecting the Company's stock price. In addition, the stock
price may be affected by general market conditions and domestic and
international macroeconomic factors unrelated to the Company's performance.
Because of the foregoing reasons, recent trends should not be considered
reliable indicators of future stock prices or financial results.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other information.
On April 14, 1997, the Company's CableData subsidiary
acquired Lynn-Arthur Associates, Inc. (LAA). LAA specializes
in software and professional services used in the
implementation of telecommunications companies' billing
systems. LAA is a leader in the provision of real-time call
rating. Its software and expertise also includes data
collection, debit calling services and operator services
support. LAA provides software and services to
telecommunications providers in North and South America. LAA
is headquartered in Ann Arbor, Michigan.
In order to give the participants in the Company's Employee
Stock Ownership Plan (ESOP) access to Company stock in their
ESOP account in an orderly phased manner for purposes of
self-direction, in July, 1997, the Board of Directors
terminated the Company's ESOP effective January 1, 1997,
with distribution of the ESOP assets to take place in phased
quarterly increments. The initial distribution of ESOP
assets to ESOP participants will begin in August, 1997,
with a distribution of the greater of 400 shares or 10% of
the shares in each ESOP participant's account, plus all cash
in the account. The number of shares involved in the
initial distribution is 508,040. Subsequent quarterly
distribution increments will be not less than 5%
(approximately 178,000 shares) of the total August 31, 1996
ESOP balance. Effective November 12, 1996, the Company
registered the shares in the ESOP pursuant to a Form S-8.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
Exhibit 99 Statement Production Services Agreement (redacted)
dated June 25, 1997 between Federal Express
Corporation and International Billing Services,
Inc., a subsidiary of the Registrant
Exhibit 99.1 Registrant's press release dated August 11, 1997
re: USCS International Comments on TCI
Announcement.
(b) Reports on Form 8-K.
The Registrant filed the following report on Form 8K:
Registrant's Press Release, dated as of July 14, 1997, announcing
a statement production services agreement with Federal Express
Corporation as exhibit 99.1 and 99.2 to Form 8K, and contract
(redacted) filed as exhibit 99 to the Registrant's June 30, 1997
Form 10Q.
17
<PAGE>
USCS INTERNATIONAL, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USCS INTERNATIONAL, INC.
(Registrant)
Dated: August 11, 1997 By: /s/ DOUGLAS L. SHURTLEFF
------------------------
Douglas L. Shurtleff
Senior Vice President, Finance
(Chief Financial Officer)
18
<PAGE>
Exhibit 11
USCS INTERNATIONAL, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------- -----------------
1997 1996 1997 1996
-------- -------- -------- -------
Weighted average number of
common shares outstanding
during the period 23,152 19,615 23,124 19,326
Common stock equivalents
considered to be outstanding
for the periods presented 1,468 1,689 1,456 1,656
-------- -------- -------- -------
24,620 21,304 24,580 20,982
Net income $ 5,602 $ 2,843 $ 10,655 $ 5,406
Earnings per share $ 0.23 $ 0.13 $ 0.43 $ 0.26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF USCS INTERNATIONAL, INC. AS OF
JUNE 30, 1997 FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,641
<SECURITIES> 0
<RECEIVABLES> 71,445
<ALLOWANCES> 0
<INVENTORY> 4,083
<CURRENT-ASSETS> 94,989
<PP&E> 181,757
<DEPRECIATION> 86,877
<TOTAL-ASSETS> 202,697
<CURRENT-LIABILITIES> 46,691
<BONDS> 3,048<F1>
0
0
<COMMON> 1,162
<OTHER-SE> 126,426<F2>
<TOTAL-LIABILITY-AND-EQUITY> 202,697
<SALES> 0
<TOTAL-REVENUES> 143,668
<CGS> 0
<TOTAL-COSTS> 83,361
<OTHER-EXPENSES> 42,193<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355
<INCOME-PRETAX> 17,759
<INCOME-TAX> 7,104
<INCOME-CONTINUING> 10,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,655
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<FN>
<F1>Consists of Notes Payable and Bonds Payable
<F2>Consists of Additional Paid-in Capital, Retained Earnings and Foreign Currency
Translation Adjustments
<F3>Consists of Research and Development and Selling, General and Administrative
Expenses
</FN>
</TABLE>
<PAGE>
Contract No. [***]
STATEMENT PRODUCTION SERVICES AGREEMENT
THIS STATEMENT PRODUCTION SERVICES AGREEMENT (the "Agreement") is made
and entered into as of this 25th day of June, 1997, by and between FEDERAL
EXPRESS CORPORATION ("Federal"), and INTERNATIONAL BILLING SERVICES, INC.
("IBS").
RECITALS
1. Federal desires to engage IBS to perform the services described in
this Agreement.
2. IBS is willing and able to perform the services for Federal in
accordance with the terms of this Agreement.
FOR AND IN CONSIDERATION of the mutual covenants contained in this
Agreement, Federal and IBS (the "Parties") agree as follows:
ARTICLE 1
SCOPE OF WORK
SECTION 1.01. SCOPE OF WORK. In consideration of Federal's payments
under this Agreement, IBS shall perform in accordance with the terms of this
Agreement, the services as more particularly described below and in Exhibit "A"
attached hereto and made a part hereof by reference (the "Services").
SECTION 1.02. FEDERAL'S DATA, SYSTEM INTERFACES, THE CONVERSION
PROCESS, CUSTOM PROCESSING, AND SOFTWARE CHANGES. (a) Federal shall deliver
the data to be included on a statement either VIA tape, electronic data line
transmission, or any other mutually agreed upon medium for electronic
transmission as set forth on Exhibit "B" hereto to IBS at its statement
production facility in El Dorado Hills, California. Data shall be
transmitted on a daily basis and transmission shall be completed by six
o'clock a.m. pacific standard time. The data shall include the appropriate
zip codes, account identification information, insert information, if any, a
corporate identification, if applicable, the data cycle, and any other
general information necessary both to perform the conversion process and the
statement production services. The delivery of the data shall be
accomplished at Federal's expense, including the provision of the necessary
T1 lines, the routers, and hub. Notwithstanding this statement regarding the
allocation of expenses, IBS must provide, at its expense, the
"infrastructure" necessary to provide back-up at a second statement
production facility, as more fully described in Section 15.06, "Disaster
Recovery."
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
(b) Federal shall use its best efforts to insure that all transfers of
data are accurate and complete. Such data shall be considered "released" for
production at the point at which the transfer of data is completed. If
erroneous or incomplete data is transmitted by Federal and IBS performs
statement production services based upon such erroneous or incomplete data,
Federal shall be responsible for payment for any Services performed prior to
the detection of the erroneous or incomplete data and for any re-performance
of the conversion or statement production services that may be necessary.
Should Federal's statements already have been delivered to the U.S. Postal
Service when a recession of the release is issued or such other appropriate
notification of an error is received by IBS, Federal shall also pay any
postage incurred and IBS shall incur no liability for the incorrect
statements. IBS shall notify Federal's authorized representative that data
has been received in an unintelligible or garbled form by telephone, followed
by a facsimile transmission, within four (4) hours of the receipt of the data.
(c) Initially, if Federal provides the data in a format other than the
standard format used by IBS, IBS agrees to convert such data (as such data
has been presented to IBS on or before the date hereof in the Statement of
Work) to its standard format within the time-frame and for the cost set forth
in Exhibit "B" and Exhibit "C". IBS shall convert Federal to its processes
and provide reliable and accurate system interfaces by no later than [***].
After Federal has been converted to the IBS process and format, the price
for any additional changes requested by Federal shall be as set forth in
Exhibit "B".
SECTION 1.03. STATEMENT PRODUCTION SERVICES. (a) IBS agrees to
provide statement production services hereunder. Federal estimates that the
monthly volume of statements to be processed on its behalf by IBS shall be
approximately [***]. The Parties hereto agree that the number of statements
to be produced on a monthly basis pursuant to this Agreement shall be [***]
statements, but may fluctuate by plus-or-minus [***] percent ([***]%), in
other words, from [***] to [***].
(b) IBS shall be eligible to receive additional volume of statements if
it exceeds the performance goals set forth in Section 1.04 hereof "Processing
and Normal Time for Production; Tray Turnaround Time" and Article 15 hereof
"Other Performance Standards and Measures". Conversely, the monthly volume
of statements may be reduced if IBS fails to meet the performance goals set
forth in Section 1.04 and Article 15. In addition, the Parties agree that
changes in the business of Federal may result in the volume of statements
required. Should Federal's total volume of statements (excluding any
Powership statements or statements rendered through the use of EDI) decrease
on a monthly basis to at or below [***] then Federal shall have the unlimited
right to decrease the total volume of statements required of IBS. Should
Federal's total volume of statements increase on a monthly basis, then
Federal shall have the unlimited right to increase the total volume of
statements required of IBS.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
(c) The cost of statement production services shall be as set forth on
Exhibit "C" attached hereto and made a part hereof by reference.
SECTION 1.04. PROCESSING AND NORMAL TIME FOR PRODUCTION; TRAY
TURNAROUND TIME. (a) A "cutoff" shall be defined for purposes of this
Agreement as IBS's complete receipt of useable data described in Section 1.02
above.
(b) The term "mailing" shall be defined for purposes of this Agreement
as the entry of the completed statements into the United States Postal
Service or the IBS log-out procedure for items handled by Federal Express
service and/or for special handling.
(c) The time elapsed between cutoff and mailing shall be defined as the
"Tray Turnaround Time".
(d) IBS agrees that it shall maintain an average Tray Turnaround Time
of [***] hours. Such average shall be maintained and shall be measured on a
monthly, quarterly, and year-to-date basis and shall be reported to Federal
as required by Section 1.05(b). Such measurement and performance standard
shall apply at all times that the daily statement volume is within the range
of plus-or-minus [***] percent ([***]%) of [***] monthly statements. Under
such circumstances the maximum allowable Tray Turnaround Time shall be equal
to [***] hours. Any statements which have been designated as requiring
"special handling" shall be excluded from the calculations required under
this Section 1.04(d) and shall be governed by the provisions on Section 1.04(k).
(e) In the event that the daily statement volume is outside the range
of plus [***] monthly statements then the following maximum allowable Tray
Turnaround Times shall apply:
1. If the daily statement volume is between [***]([***]%) and [***]
([***]%) percent over [***] monthly statements, then the maximum allowable
Tray Turnaround Times shall be [***] ([***]) hours.
2. If the daily statement volume is between [***]([***]%) and [***]
([***]%) percent over [***] monthly statements, then the maximum allowable
Tray Turnaround Times shall be [***] ([***]) hours.
3. If the daily statement volume is greater than [***] percent ([***]%)
over [***] monthly statements, then the maximum allowable Tray Turnaround
Times shall not apply.
(f) The maximum allowable Tray Turnaround Times, and the daily
statement volumes to which they apply, shall be subject to an annual review
on the anniversary date of the Execution Date. Such maximum allowable Tray
Turnaround Times and the
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
daily statement volumes may be adjusted at such annual review through the
execution of a Change Order.
(g) In addition, IBS agrees that the average allowable Tray Turnaround
Time shall be evaluated on a monthly, quarterly, and year-to-date basis and
that it shall achieve a [***] hour Tray Turnaround Time on [***] ([***]%)
percent of the statements produced during the first twelve (12) months of
this Agreement and thereafter, a [***] hour Tray Turnaround Time on [***]
([***]%) percent of the statements produced.
(h) If IBS fails to meet the maximum allowable Tray Turnaround Time
applicable,
1. then IBS shall credit Federal for the processing fees associated
with those statements that fail to meet the maximum allowable Tray Turnaround
Time and the following remedial actions shall be taken
Upon the first occurrence of a failure to meet either the average
allowable Tray Turnaround Time or the maximum allowable Tray Turnaround Time,
Federal shall, in addition to enforcing the provisions of Section 1.04(i)(1),
expect the issues causing the problem to be resolved prior to the next notice
cycle. IBS agrees to provide Federal with a detailed action plan within
twenty-four (24) hours outlining the steps to be taken or that have been
taken to correct the problem and to keep the situation from occurring again.
Upon the second occurrence within a [***] day period, Federal
shall, in addition to enforcing the provisions of Section 1.04(i)(1), expect
the issues causing the problem to be resolved prior to the next notice cycle.
IBS agrees to provide Federal with another detailed action plan within
twenty-four (24) hours outlining the steps to be taken or that have been
taken to correct the problem and to keep the situation from occurring again
and IBS's Vice President of Account Management agrees to call Federal Manager
of Customer Account Services to discuss the problems. Failure on the part of
IBS to comply with this Section could result in Federal's reducing the volume
of statements with no corresponding adjustment of the price per statement.
Upon the third occurrence within a [***] day period, Federal shall,
in addition to enforcing the provisions of Section 1.04(i)(1), expect the
issues causing the problem to be resolved prior to the next notice cycle. IBS
agrees to provide Federal with another detailed action plan within
twenty-four (24) hours outlining the steps to be taken or that have been
taken to correct the problem and to keep the situation from occurring again
and IBS's Vice President of Account Management and Senior Vice President of
Customer Operations agree to call Federal's Senior Manager of Customer
Account Services to discuss the problems and the plans put forth to resolve
the problems. Failure on the part of IBS to comply with this Section could
result in
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
Federal's reducing the volume of statements with no corresponding adjustment
of the price per statement.
Finally, upon the fourth occurrence within a [***] day period, Federal
shall, in addition to enforcing the provisions of Section 1.04(i)(1), expect
the issues causing the problem to be resolved prior to the next notice cycle.
IBS shall provide Federal with another detailed action plan, within
twenty-four (24) hours, outlining the steps to be taken or that have been
taken to correct the problem and to keep the situation from occurring again.
IBS's Vice President of Account Management and Senior Vice President of
Customer Operations shall visit Federal's Senior Manager of Customer Account
Services to discuss the problems and the plans put forth to resolve the
problems. Failure on the part of IBS to comply with this Section could
result in Federal's reducing the volume of statements with no corresponding
adjustment of the price per statement. If no correction is made, to the
satisfaction of Federal, within [***] days of the fourth occurrence, and/or a
fifth occurrence takes place within a [***] day period, then Federal shall
have the right to terminate this Agreement.
All time periods set forth in the provisions above may be waived or
extended at the sole discretion of Federal. Any specific waiver or extension
shall not imply that a subsequent waiver or extension has or shall be granted.
Federal agrees to reinstate volume to previous level if IBS's
performance meets or exceeds the performance guarantee during the [***] week
monitored period. Should Federal not reinstate the volume and IBS's
performance meets or exceeds the performance guarantee during the [***] week
monitored period, IBS has the right to adjust prices according to the volume
pricing as stated in Exhibit "C".
(i) Federal agrees to provide a monthly schedule to IBS, not less than
thirty (30) days in advance of the first day of the calendar month to which
the schedule applies which schedule shall set forth Federal's best estimates
of the dates and volumes for statement production services. Both Parties
acknowledge that such schedule is to assist IBS in planning only and is an
estimate subject to change.
(j) Should Federal, after cutoff has occurred, request IBS to place a
hold on statement production, the Tray Turnaround Time shall be extended by
the time of the hold. Likewise, should a hold on statement production be
necessary because of submission by Federal of changes to a print file format,
tape format, or inserts or Federal's failure to pay the amounts properly
invoiced hereunder or the postage, the Tray Turnaround Time shall be extended
by the time of the hold.
(k) Exceptions for Special Handling. If IBS fails to mail any
statements which have been designated as statements requiring "special
handling" in [***] hours, IBS shall credit Federal for the processing fees
associated with those statements and shall take all remedial steps outlined
herein.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
SECTION 1.05. REPORTS. (a) In order to demonstrate its efforts and
capabilities as set forth in Section 1.03 hereof "Statement Production
Services", IBS shall provide Federal with a report each quarter, due on June
30, September 30, December 31, and March 31 covering the quarters ending May
31, August 31, November 30, and February 28, on its efforts and the results
thereof to expand its capabilities, improve its competitiveness, reduce its
costs, and improve the value provided.
(b) In order to demonstrate its compliance with the performance
standards set forth in Sections 1.04(e), (f), and (h) hereof, IBS shall
prepare and deliver a report to Federal on its Tray Turnaround Time at the
end of each month.
(c) IBS shall generate a "Powership Report" on a daily basis and a
recap of billings and charges on a weekly basis and deliver them to the
Manager of Mail Operations, or his or her successor or assign, VIA facsimile
transmission or Federal Express delivery service.
(d) IBS agrees to make available through the Direct Access application
the following reports to Federal:
1. Billing Statistics Report
2. Corp Container Report
3. Job Status Report
4. Mailed Statement Distribution Report
5. Monthly Summary Report
6. Insert Summary Report
7. Transmission Control Report
8. Transmission Summary Report
9. Sheet Distribution by Data Center/Geo Area/Billing Period Report
10. Postage Expense Report
11. Production Statistics Detail Report
12. Production Statistics Summary Report
13. Sheet Distribution by Geo Area/by Market Report.
With regard to the reports available VIA Direct Access, IBS agrees to
provide Federal with [***] seat licenses for its Direct Access application at
no charge. Any additional seat licenses may be acquired by Federal at the
Prices set forth in Exhibit "C".
(e) IBS shall also furnish any additional reports described in the
Statement of Work attached hereto as Exhibit "A", as the same may from time
to time be supplemented and amended.
SECTION 1.06. FORMS AND ENVELOPE SUPPLY. IBS agrees that it shall
maintain adequate inventories of forms and envelopes to support the
requirements of Federal hereunder. The prices for such forms and envelopes
are set forth on Exhibit "C" attached hereto and made a part hereof by
reference. Federal, at its sole discretion, may change the forms and
envelope requirements by giving IBS the notice specified in Section 1.10(e)
hereof. In the event that Federal gives IBS less than [***] days notice of a
change in forms or envelop stock (other than for flat envelops, which
requires [***] days notice) and the shorter notice results in IBS's having an
unused
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
inventory of stock that cannot be resold, used, or transferred to some other
customer of the IBS, Federal shall be subject to paying for such unused forms
and envelopes as described in Exhibit "C" hereof. In the event that Federal
gives IBS notice of a change in forms or envelope stock that is equal to or
greater than [***] days (or one hundred [***] days for flat envelopes) then
there is no such charge imposed on Federal.
SECTION 1.07. IMPLEMENTATION AND TESTING. (a) The Implementation
schedule for the Services to be provided hereunder shall be set forth on
Exhibit "D" attached hereto and made a part hereof by reference. Any testing
of the systems necessary to provide the Services shall occur at the time,
places, and in accordance with the procedure set forth in Exhibit "E" and
Exhibit "A". Such testing may include, but not be limited to, systems
interfaces, the pre-processor, any pre-production testing, and all other
aspects of the Services provided for in this Agreement. In addition it may
include live statement runs. If the system interfaces, pre-processor,
pre-production testing, or any other testing fails, the procedures for
re-testing and the remedies for a continuing failure are also set forth on
Exhibit "E".
SECTION 1.08. TECHNICAL SUPPORT. IBS agrees to make its Customer
Service Department available to Federal on a seven (7) day a week,
twenty-four (24) hour a day basis. The Customer Service Department shall be
available to answer questions and resolve problems. The Customer Service
Department shall establish and follow an escalation process for any support
question or problem with the Services encountered by Federal. The Customer
Service Department escalation process shall be as follows:
LEVEL 1-Customer Services representative
Staffed twenty-four (24) hours a day
Phone number: 1 (800) 939-4660
LEVEL 2-Customer Service Supervisor
Staffed twenty-four (24) hours a day
Phone number: 1 (800) 939-4660
LEVEL 3-Customer Service Manager
M-F 8:00 a.m. to 5:00 p.m. PST
Pager backup for after hours: 1 (800) 360-9631
LEVEL 4-Customer Services Director
M-F 8:00 a.m. to 5:00 p.m. PST
Pager Backup for after hours: 1 (800) 360-9631
For all cases, if resolution has not been achieved within [***] hours,
the problem will be escalated to the next level. The Customer Services
representative will contact the Technical Support Group or other applicable
group to evaluate and resolve the problem.
The Technical Support Group shall be responsible for factory system
support. The Technical Support Group shall work closely with the
Operations/Production Monitor & Control line management to provide quick
response trouble shooting of
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
technical issues. This group will provide problem solving, coordination,
tracking, and escalation of system exception issues that prevent IBS
operational groups from completing Federal's job runs.
EXAMPLES OF WHEN TO CALL IBS CUSTOMER SERVICE DEPARTMENT:
- Delays in sending or receiving data.
- Requests to "hold" one or more statements, and providing
instructions where the held items are to be sent.
- Requests to hold production for any known or suspected data
problems within the date sent by Federal before or during production.
- Quality control issues impacting printing and mailing of Federal
statements.
SECTION 1.09. POSTAGE. Federal agrees to prepay Federal's postage.
The method for establishing this pre-payment shall be as follows:
(a) DURING THE RAMP-UP PERIOD- During the Ramp-up period, as that
term is defined in the Statement of Work, no later than five (5) days prior
to the first cutoff in the month, Federal shall prepay its estimated postage
for the month by making a wire transfer of the appropriate amount into IBS's
designated account. As of the Execution Date hereof, the estimated amounts
for postage during the Ramp-up period are:
October, 1997 postage $ [***] ( [***] statements)
November, 1997 postage $ [***] ( [***] statements)
December, 1997 postage $ [***] ( [***] statements)
January, 1998 postage $ [***] ( [***] statements)
February, 1998 postage $ [***] ( [***] statements)
March, 1998 postage $ [***] ( [***] statements)
April, 1998 postage $ [***] ( [***] statements)
If volume estimates change, then the monthly postage estimate may also
change. If the actual amount of postage incurred exceeds the estimated
amount, Federal shall promptly pay to IBS any amount necessary to make up the
difference. If the actual amount of postage incurred is less than the amount
pre-paid by Federal, IBS shall reconcile the two amounts and notify Federal
of the difference in writing.
(b) AFTER THE RAMP-UP PERIOD-Federal agrees to maintain its postage
deposit with IBS equivalent to the amount of one (1) month's postage charges,
payable in advance on a rolling basis. Payment of the first month's postage
invoice for actual charges (less any amount remaining in Federal's postage
deposit) after the Ramp-up
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
period must be received no later than five (5) days prior to the first cutoff
of the applicable calendar month. Payment of subsequent month's postage
invoices must be made by wire transfer and received no later than five (5)
days prior to the first cutoff of the subsequent calendar months. The
postage deposit shall be reviewed quarterly by IBS and Federal, and Federal
shall promptly adjust the postage deposit amount to cover actual postage
charges. In the event Federal does not prepay postage, as set forth herein,
IBS reserves the right to hold statements until sufficient funds are
received. In the event of an increase in U.S. Postal Service postage rates,
postage prepayment shall be increased by the amount of such postage rate
increase. Federal's postage payments may be subject to audit by the U.S.
Postal Service. In the event that such an audit reveals a discrepancy
between amounts paid and amounts actually due for postage, Federal will
reimburse IBS for any payment deficiencies for which it is liable and IBS
will refund any excess payments due to Federal. In no event shall Federal be
liable to IBS or the U.S. Postal Service for any penalties associated with
any deficiency caused by IBS and IBS agrees to pay any such penalty that may
be imposed.
(c) The Parties acknowledge that, in order to accommodate the
requirements of IBS and the U.S. Postal Service, it is necessary for Federal
to make the postage deposit in advance of the payment of any actual postage
by IBS. The results of such requirement is that IBS shall have, in a
non-interest bearing, general account, a substantial amount of postage moneys
belonging to Federal. In order to protect Federal in the event that IBS
declares bankruptcy, voluntarily or involuntarily, or otherwise
misappropriates or becomes unable to utilize such postage moneys for the
purposes intended in this Agreement or to return such postage moneys in full
to Federal, IBS shall provide Federal with its stand-by Letter of Credit in
the amount of [***] ($[***]) dollars prior to any postage deposit's being
made by Federal. Such Letter of Credit shall be drawn on NationsBank and
shall have no condition precedents on Federal's being to draw on it , except
those listed herein, to wit, that IBS cannot use Federal's postage moneys for
their intended purposes nor can they return them in full to Federal. The
amount of the Letter of Credit shall be reviewed annually by the Parties.
SECTION 1.10. CHANGES IN SCOPE OF WORK. (a) IBS and Federal have
initially agreed upon statement, envelope, print file, and tape formats,
electronic data transmission protocol, cutoff volumes, statement cutoff
dates, and other matters relating to the Services as set forth in this
Agreement. Federal may order extra Services or make changes in any of the
above or the Services by altering, adding to, or deducting from the Services
by signing a change order in the form of Exhibit "F" ("Change Order").
Services pursuant to a valid Change Order shall be performed subject to the
conditions of this Agreement.
(b) Federal also by written instruction to IBS may make changes in the
Services not involving extra cost and not inconsistent with the purposes of
the Services without execution of a Change Order, but otherwise, no extra
Services shall be done or changes
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
made unless pursuant to a Change Order, and no claim for an addition to the
cost of Services shall be valid unless so ordered in a signed Change Order.
(c) Upon receipt of a written request from Federal for changes in the
Services or for extra Services which would affect the cost, IBS shall submit
a statement detailing IBS's proposal for accomplishing the changes proposed
by Federal and the effect, if any, on the costs. If Federal accepts IBS's
proposal, a Change Order shall be executed by the Parties to effect the
changes.
(d) In the event that IBS proposes a substantial change to any of its
systems, equipment, facilities or the location thereof in any way which has
an effect on the provision of Services hereunder, IBS shall provide Federal
with ninety (90) days notice of such proposed change.
(e) In addition to the foregoing, any changes to statement, envelope,
print file, or tape formats, electronic data transmission protocol, cutoff
volumes, and statement cutoff dates thereafter shall be by agreement among
the Parties after written notification of a requested change by Federal.
Such changes must be made on the following schedule:
Form Printing Artwork approval-[***] days prior to live use
Envelope Printing Artwork approval-[***] days prior to live use
Insert Printing Artwork approval-[***] days prior to live use
Electronic Forms Format approval-[***] days prior to live use
Data or Print File Format [***] days written notice
Tape Format [***] days written notice
Inserting Plan Setup [***] days written notice
Form and Envelope (except flat envelopes) Changes [***] days written notice
Flat Envelopes [***] days written notice
With regard to any proposed change in the Data Transmission Protocol,
the Parties must mutually agree both 1) to make the change and 2) to the
time-frame on which the change shall be made.
Certain changes may involve custom programming which will require
additional charges by IBS. The Price for such shall be quoted by IBS to
Federal in advance and shall be agreed to by Federal prior to any such custom
programming having taken place.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
If Federal asks for changes and IBS agrees to such changes, but Federal has
not provided the notice set forth in this Section, then IBS may charge
Federal a "Rush Charge". Such Rush Charge shall be quoted to Federal on a
case-by-case basis, in writing, and must be agreed to by Federal, in writing.
ARTICLE 2
TERM
SECTION 2.01. TERM. The term of this Agreement (the "Term") shall
commence on the date first above written (the "Execution Date")and shall
expire, unless sooner terminated in accordance with the terms and conditions
set forth herein, five (5) years from the date of the first bill run. The
termination date is expected to be October 19, 2002.
SECTION 2.02. TERMINATION. Except as specifically set forth herein,
either Party shall have the right to terminate this Agreement if the other
materially breaches a material warranty, representation, covenant, duty, or
obligation hereunder. The terminating Party must provide the failing Party
with written notice of its breach and the failing Party may have thirty (30)
days to attempt to cure the breach.
ARTICLE 3
PRICE AND PAYMENT TERMS
SECTION 3.01. PRICES. The prices for each of the Services are set
forth in Exhibit "C" (the "Prices"). Except as set forth herein, the Prices
shall be in effect from the Execution Date hereof and shall remain in effect
until-
(a) PRICES FOR SERVICES OTHER THAN THE PROVISION OF PAPER PRODUCTS. On
the second anniversary of the full "ramp-up", April 1, 2000, and each
anniversary thereafter, IBS may increase or decrease the Prices for Services
other than the provision of paper, by giving Federal forty-five (45) days
written notice of any increase or decrease, expressed as a percentage that
the Financial and Legal Printing, Commodity Code 0937-04, contained in Table
6 of the Producer Price Index published by the U.S. Department of Labor,
Bureau of Labor Statistics, or any
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
successor department or agency of the government of the Untied States of
America (the "PPI"). The percentage increase or decrease will be limited to
equal to or less than [***] ([***]%) percent of the change in the PPI and
shall not exceed [***] ([***]%) percent annually.
IBS shall use the following formula to calculate Price increase or
decrease.
[PRICE INDEX (FOR ENDING MONTH/YEAR) - PREVIOUS INDEX (FOR BEGINNING
MONTH/YEAR)]DIVIDED BY
PREVIOUS INDEX x [***] = PERCENTAGE CHANGE (NOT TO EXCEED [***]%)
EXAMPLE:
Price Index (for ending month/year)= [***] Previous Index (for beginning
month/year)= [***]
[***]
Under this example, IBS would be permitted a Price increase of [***]%.
IBS reserves the right to engage, at its expense, an independent
accounting firm, mutually acceptable to both Parties, in order to verify
IBS's costs and to prove to Federal that such costs have increased by more
than [***]([***]%) percent. Notwithstanding the provision of such further
proof of the costs involved, any adjustment to Price which exceeds the [***]
([***]%) percent cap must be mutually agreed upon by both Parties and if no
such agreement can be reached, IBS may terminate this Agreement upon giving
Federal [***] days written notice or IBS may elect to take the price increase
that would have been accorded to it under the formula.
(b) PRICES FOR PAPER PRODUCTS. Except as further set forth in this
Section, IBS may, once each calendar quarter during the term of the
Agreement, commencing on the first day of the calendar quarter beginning
after October 18, 1997 (the initial statement run), increase or decrease the
Prices for Paper Products set forth in Exhibit "C" by the same percentage as
the weighted average percentage increases or decrease of the relevant
subweight as specified in Attachment A. The base date for paper prices shall
be June 1, 1997. IBS agrees the percentage increase will not exceed the
percentage change for Paper Mills, Form Bond, In Rolls, Commodity Code
2621-4215, contained in Table 5 of the Producer Price Index published by the
U.S. Department of Labor, Bureau of Labor Statistics for the preceding
calendar quarter.
IBS shall use the following formula to calculate Price increase or
decrease.
[PRICE INDEX (FOR ENDING MONTH/YEAR) - PREVIOUS INDEX (FOR BEGINNING
MONTH/YEAR)]DIVIDED BY
PREVIOUS INDEX x [***] = PERCENTAGE CHANGE.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXAMPLE:
Not to exceed the Producer Price Index for the same period.
Price Index (for ending month/year): [***]
Previous Index (for beginning month/year): [***]
[***]
If base price was $12 it would be increased by [***]
SECTION 3.02. PAYMENT TERMS. The Prices payable hereunder as fees (the
"Fees") shall be paid within thirty (30) days of Federal's receipt of IBS's
invoice rendered by IBS for Services performed during the preceding invoice
period. If Federal has not rendered full payment of any undisputed amount to
IBS within [***] days of the date of the invoice, IBS shall notify Federal
and discuss such delinquency. In the event that Federal does not render full
payment within [***] days of the date payable, IBS shall make every effort to
notify Federal again, but may, after notifying Federal, cease all Services
until such account is brought current or may, at its election, terminate this
Agreement with [***] days additional written notice to Federal. Federal
shall pay a [***] percent ([***]%) late payment fee for any amount which is
not paid in a timely fashion, unless such invoice or any part thereof is
being contested by Federal, in which case such fee shall be due only on the
uncontested portion of the invoice. Each invoice shall be accompanied by
full documentation in support of the Fee invoiced, prepared by IBS. Each
invoice shall include the Federal Contract Number, the billing address as set
forth in Section 17.17, "Notices" hereof, the appropriate contact person, all
production and performance data, the invoice number, and such other
information as Federal may from time to time request. The invoice shall be
in substantially the form attached hereto as Exhibit "G" and shall be
submitted to Federal on a monthly basis. Federal shall pay the invoiced
amount, provided; however, treat the maximum amount payable under this
Agreement, without a Change Order, over the course of the Term shall not
exceed [***] dollars [***] in the aggregate, which number includes postage.
No payment by Federal shall be deemed an acceptance of the Services, and
Federal shall have the right to recover any amounts previously paid in error
or to withhold moneys from future payments, if any, as Federal deems
necessary to protect itself against charges associated with Services not
performed in accordance with this Agreement.
SECTION 3.03. TAXES. Federal shall pay, or reimburse, IBS for any tax
or assessment designated as a sales, use, or excise tax, duty, or charge
imposed by any government body or agency or subdivision thereof, having
jurisdiction over the Services provided hereunder (collectively "governmental
body") by virtue of IBS' interest in or sale, provision, or use of any
Services or tangible personal or intangible property pursuant to the terms of
this Agreement. Federal shall not be liable for any
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
fines, penalties, or interest in connection with the payment of the taxes
described herein, unless Federal has instructed IBS, in writing, not to remit
such taxes to the governmental body. Notwithstanding the foregoing, Federal
shall not be responsible for paying or reimbursing IBS for corporate
franchise tax, capital tax, net worth tax, or taxes measured by reference to
IBS' net income. Federal reserves the right to contest the imposition of
such taxes, duties, or charges and IBS shall cooperate with Federal in its
efforts.
ARTICLE 4
STANDARDS OF PERFORMANCE
SECTION 4.01. QUALITY STANDARDS. IBS shall develop or cause to be
developed, as applicable, with Federal and quality program (the "Program")
that assures that the Services conform and continue to conform to the
warranties under this Agreement and any specifications required in connection
with or resulting from the Services. The Services included for purposes of
this Section include, but shall not be limited to, functional parameters,
surveys, audits, in-progress monitoring, correction procedures, written work
station procedures, test plans, communication paths, information exchange,
proposals for changes, and remedies for non-compliance. The Program will be
instituted as soon as practicable after Federal's notice to IBS exercising
its option to institute the Program. Within thirty (30) days of such notice,
IBS and Federal will each designate a Program Representative. The Program
Representatives shall have as one of their responsibilities monitoring any
savings. Any savings resulting from the implementation of this Program will
be shared by Federal and IBS, as appropriate. Federal may, given proper
identification at any time during IBS's normal working hours, at its
discretion, visit IBSs manufacturing facilities for the purpose of performing
a Quality Program review. IBS will allow any Quality Assurance
representative of Federal, given proper identification, to perform this
inspection which shall include, but not be limited to, a plant tour, review
of Federal's statistics, processes and procedures, access to any Federal
quality records, and access to workers.
IBS' "Quality Program" consists of the following quality control
measures. The Parties understand that these "quality goals" are the goals
which IBS is using its best efforts to achieve:
a. Every document is mailed within the agreed upon Tray Turnaround Time.
b. Print alignment bar codes and lock-box scanline are positioned on the
form within specified tolerances.
c. Electronic forms/overlays are correct and positioned properly in
relation to data on form.
d. Print toner is fusing properly, no smudging, no spotting. Print
quality is good, toner density good.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
e. Print skewing is within specified tolerances.
f. Remit portion lock box scanline is positioned within specified
tolerances.
g. Remit portion alignment correct through remit envelope window.
h. Document folded to specification. Folds are straight.
I. Correct form stock number is verified to requirements.
j. Correct sending and remit envelopes stock numbers verified to
requirements.
k. No water damage to sending envelope from sealer. No envelopes
sticking together.
l. Envelope flap is smooth and sealed. No wrinkles in flap.
m. Every mailed item contains all pages and inserts.
n. There is no double billing (addressee receives 2 identical bills in
the same bill cycle.).
o. Customers receive only their own documents (e.g. two different
addressees' bills are not stuffed in the same envelope).
p. Any bar codes, gate marks or other marks introduced onto any part of
the mailings by IBS with the exception of form bar codes and Head of
Form (HOF) bar codes for the purpose of enabling proper handling of
the documents are removed.
q. Pre-printed materials are clean and flat with the proper colors and
orientation.
During the term of this Agreement, IBS agrees to maintain [***] Defects
on invoices mailed. Should a quality defect be discovered and solely
attributed to IBS, IBS will at Federal's discretion and within [***] hours:
[***]
ARTICLE 5
CONFIDENTIALITY OF INFORMATION
SECTION 5.01. CONFIDENTIALITY OF INFORMATION. The Parties agree that
the Mutual Non-Disclosure Agreement dated October 11, 1996, between them,
which is attached hereto as Exhibit "H" and incorporated by reference and
made a part of this Agreement governs the confidentiality requirements under
this Agreement and is hereby amended so that its "Expiration Date", as that
term is defined in the Mutual Non-Disclosure Agreement, is five years from
the date of the first bill run.
SECTION 5.02.COVENANT NOT TO COMPETE. IBS recognizes and agrees that in
order to protect Federal's Information (as defined in the Mutual
Non-Disclosure Agreement dated October 11, 1996 referenced above) adequately
from disclosure (whether deliberate or inadvertent) to competitors, a
covenant not to compete of limited
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
duration and scope is necessary and desirable, and that the nature of
Federal's business is such that use of Federal's Confidential Information
anywhere in the world will harm Federal's business. IBS therefore agrees
that, until [***], IBS will not provide statement production services for the
following Federal competitors: [***]
ARTICLE 6
OWNERSHIP OF MATERIALS
SECTION 6.01. OWNERSHIP OF MATERIALS. (a) Federal shall be the sole
and exclusive owner of the invoice/statement design and format free and clear
from any claim or retention of rights thereto on the part of IBS (subject to
any payment obligation of Federal) and IBS hereby assigns to Federal any
right now held or hereafter acquired by IBS in the invoice/statement design
and format.
(b) IBS shall be the sole and exclusive owner of the preprocessor free
and clear from any claim or retention of rights thereto on the part of
Federal and Federal hereby assigns to IBS any right now held or hereafter
acquired by Federal in the pre-processor.
(c) IBS grants to Federal a non-exclusive, irrevocable, paid-up license
to use or practice the software or programming documentation (except the
licenses relating to Direct Access are covered under the provisions of
Section 1.05(d) hereof) for the Term of the Agreement.
(d) IBS agrees that the obligations stated under this Article 6 shall
survive the expiration or earlier termination of this Agreement.
ARTICLE 7
INDEMNIFICATION
SECTION 7.01.IBS'S INDEMNIFICATION REGARDING THIRD PARTIES. IBS hereby
releases and agrees to indemnify and hold harmless Federal, its officers,
agents, and employees from any and all liabilities, damages, losses,
expenses, demands, claims, suits, or judgments, including all attorneys'
fees, costs and expenses incidental thereto, for death of or injuries to any
person and for the loss of, damage to or destruction of any property in any
manner arising out of the negligent or intentional acts or omissions of IBS,
its agents, employees or sub-contractors. IBS shall also indemnify Federal
against any liability or payment in connection with federal, state, and local
taxes or contributions imposed upon or required of Federal under unemployment
insurance, social security, income tax, and workers' compensation statutes
with respect to IBS's Services.
SECTION 7.02. PATENT INDEMNIFICATION. IBS, at its own expense, shall
indemnify, defend and hold harmless Federal, its directors, officers,
employees, and agents (including their respective successors and assigns),
against any claims based on an allegation that the use of any software,
source codes, programming documentation, or other materials furnished to
Federal in the performance of the Services, or the use,
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
lease, or sale of any materials delivered or to be delivered under this
Agreement, infringes any United States or foreign patent or other proprietary
right (including process patents), and IBS shall pay any royalties and other
costs related to the settlement of such claim, and the cost and damages,
including attorneys' fees, finally awarded as a result of any suit based on
such claim, provided Federal promptly notifies IBS in writing of any such
claim and gives IBS authority and such assistance and information as is
available to Federal for the defense of such claim. Any such assistance or
information which is furnished by Federal at the written request of IBS shall
be at IBS's expense. Notwithstanding, IBS shall not consent to any injunction
decree, judgment or settlement which would have the effect of preventing
Federal's use of any software, programming documentation, or other materials
without Federal's prior written consent, such consent not to be unreasonably
withheld.
SECTION 7.03. REMOVAL OF RESTRICTIONS. If the use of any software,
source codes, programming documentation, or other materials furnished by IBS
in the performance of this Agreement, or the use, lease or sale of any
software, source codes, programming documentation, or other materials
delivered under this Agreement is enjoined as a result of a suit based on any
claim of infringement of a United States or foreign patent or other
proprietary right, IBS shall, at its option, but in no event later than
ninety (90) days after Federal's use of any materials is so enjoined (i)
negotiate a license or other agreement with the claimant so that the
software, source codes, programming documentation, or other materials are no
longer subject to such injunction; (ii) modify such materials so that they
become non-infringing, provided such modification can be accomplished without
materially affecting the performance of the materials (which modification
shall further be subject to the prior approval of Federal); (iii) replace the
infringing material with an equivalent non-infringing material of equal
performance, characteristic and quality, subject to the prior approval of
Federal; or (iv) refund the Fee paid by Federal for the materials so enjoined.
SECTION 7.04. COPYRIGHT INDEMNIFICATION. Federal, at its own expense,
shall indemnify, defend and hold harmless IBS, its directors, officers,
employees, and agents (including their respective successors and assigns),
against any claims based on an allegation that any insert or materials
furnished by Federal to IBS in the performance of the Services, or the use,
lease, or sale of any materials delivered or to be delivered under this
Agreement, infringes any United States or foreign patent, copyright, or other
proprietary right (including process patents), and Federal shall pay any
royalties and other costs related to the settlement of such claim, and the
cost and damages, including attorneys' fees, finally awarded as a result of
any suit based on such claim, provided IBS promptly notifies Federal in
writing of any such claim and gives Federal authority and such assistance and
information as is available to IBS for the defense of such claim. Any such
assistance or information which is furnished by IBS at the written request of
Federal shall be at Federal's expense.
ARTICLE 8
EMPLOYEES
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
SECTION 8.01. IBS'S EMPLOYEES. The employees of IBS performing the
Services shall throughout the Term of this Agreement be deemed employees of
IBS for all purposes, and shall not be deemed to be employees, servants, or
agents of Federal for any purpose.
SECTION 8.02. ASSIGNMENT OF EMPLOYEES. IBS shall assign the
individuals (if any)requested by Federal to perform the Services. Federal
reserves the right to request a change in Account Manager from time to time.
SECTION 8.03. AGREEMENT NOT TO EMPLOY. For the Term of this Agreement
each Party agrees not to solicit any employee of the other Party where the
employee was employed by IBS or Federal during the Term of the Agreement and
performed work in connection with or related to this Agreement.
ARTICLE 9
WARRANTIES
SECTION 9.01. IBS'S WARRANTY. (a) With respect to the Services, IBS
warrants to Federal that:
(i) it shall perform the Services according to the terms and conditions
of this Agreement and in conformity with accepted standards of
IBS's profession;
(ii) all software, source codes, programming documentation, and other
materials furnished to Federal under this Agreement do not infringe
upon or violate any patent, copyright, trade secret, or any other
proprietary right of any third-party;
(iii) all materials furnished and Services performed by IBS pursuant to
this Agreement shall conform to and perform substantially in
accordance with Federal's requirements and the Statement of Work
attached hereto as a part of Exhibit "A";
(iv) IBS has legal title to transfer all materials sold to Federal
pursuant to this Agreement, free and clear of any and all security
interest, liens, claims, charges or encumbrances of any nature
whatsoever, together with full power and lawful authority to deliver
such materials to Federal.
(b) IBS warrants further that software related to the preprocessor
provided hereunder (the "Pre-processor Software") shall be "Millennium
Compliant", as that term is defined below. This warranty shall survive any
other expiration of a warranty
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
period and shall not be subject to the provisions of Section 2.02 or any
other limitation contained in this Agreement.
For purposes of this Agreement, "Millennium Compliant" means:
(i) the functions, calculations, and other computing process of
the Pre-processor Software (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes are
actually performed and regardless of the date input to the Pre-processor
Software, whether before, on, or after January 1, 2000 and whether or not the
dates are affected by leap years;
(ii) the Pre-processor Software accepts, calculates, compares,
sorts, extracts, sequences, and otherwise processes date inputs and date
values, and returns and displays date values, in a consistent manner
regardless of the dates used, whether before, on, or after January 1, 2000;
(iii) the Pre-processor Software will function without
interruptions caused by the date in time on which the Processes are actually
performed or by the date input to the Pre-processor Software, whether before,
on, or after January 1, 2000;
(iv) the Pre-processor Software responds to two-digit year-date
input in a manner that resolves any ambiguities as to century in a defined
and predetermined matter; and
(v) the Pre-processor Software stores and displays date
information in ways that are unambiguous as to the determination of the
century.
1. IBS represents and warrants that the Pre-processor Software shall
be tested by IBS's to determine whether the Pre-processor Software is
Millennium Compliant on or before [***]. IBS shall deliver the test plans
and results of such tests upon written request from Federal. Upon Federal's
written request, IBS agrees to participate in additional tests of the
Pre-processor Software at no charge to Federal to determine Millennium
Compliance. IBS shall notify Federal immediately of the results of any tests
or any claim or other information that indicates the Pre-processor Software
is not Millennium Compliant.
2. IBS agrees to indemnify and hold Federal and its shareholders,
officers, directors, employees, agents, successors, and assigns harmless from
and against any and all claims, suits, actions, liabilities, losses, costs,
reasonable attorneys' fees, expenses, judgments or damages, whether ordinary,
special or consequential, resulting from any third- party claim made or suit
brought against Federal or such persons, to the extent such results from
IBS's breach of the warranties contained in the Section.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
3. To the extent that it is determined by Federal in its reasonable
discretion that the Pre-processor Software is not Millennium Compliant, IBS
agrees to immediately formulate and implement written plan of action to
modify the Pre-processor Software such that it is Millennium Compliant. A
copy of such plan to action shall be delivered to Federal within [***]
business days after completion of same.
REMEDY - Should the Pre-processor Software not be Millennium Compliant, then
IBS will have [***] days to develop and present a corrective action plan to
Federal for review and approval. After Federal's approval, IBS will have
[***] days to implement, test, and demonstrate Millennium Compliance. IBS
will be responsible for all costs incurred to make the Pre-processor Software
Millennium Compliant. In the event IBS is unable to demonstrate millennium
compliance within [***] days of Federal's approval, IBS will be given a [***]
day cure period. If at the end of the cure period, the Pre-processor
Software is not Millennium Compliant, Federal will have the right to
terminate this Agreement immediately, without penalty and is entitled to a
refund of all funds paid to IBS for the preprocessor development.
IBS warrants further that any hardware or equipment provided in
connection with the Services described herein shall be "Millennium Compliant"
on or before [***]. This warranty shall survive any other expiration of a
warranty period and shall not be subject to the provisions of Section 2.02(b)
or any other limitation contained in this Agreement.
IBS warrants that the hardware or equipment shall be tested by IBS's no
later than [***] to determine whether it is Millennium Compliant. IBS shall
deliver the test plans and results of such tests to Federal. Upon Federal's
written request, IBS agrees to participate in additional tests of the
hardware at no charge to Federal to determine Millennium Compliance. IBS
shall notify Federal immediately of the results of any tests or any claim or
other information that indicates the hardware or equipment is not Millennium
compliant.
IBS agrees to indemnify and hold Federal and its shareholders, officers,
directors, employees, agents, successors, and assigns harmless from and
against any and all claims, suits, actions, liabilities, losses, costs,
reasonable attorneys' fees, expenses, judgments, or damages, whether
ordinary, special, or consequential, resulting from any third-party claim
made or suit brought against Federal or such persons, to the extent such
results from IBS's breach of the warranties contained in the Section.
To the extent that it is determined by Federal in its reasonable
discretion that the hardware or equipment is not Millennium Compliant, IBS
agrees to immediately formulate and implement written plan of action to
modify the hardware or equipment such that it is Millennium Compliant. A
copy of such plan to action shall be delivered to Federal within [***]
business days after completion of same.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
REMEDY - Should the hardware or equipment not be Millennium Compliant,
Federal will have the right to terminate the Agreement immediately, without
penalty and is entitled to a refund of all funds paid to IBS for the
preprocessor development.
ARTICLE 10
LIMITATION OF LIABILITY
IBS' LIABILITY TO FEDERAL FOR ANY LOSSES OR DAMAGES, DIRECT OR INDIRECT,
SHALL NOT EXCEED THE TOTAL AMOUNT BILLED OR BILLABLE TO FEDERAL, PLUS
APPLICABLE POSTAGE, FOR THE PERFORMANCE WHICH GAVE RISE TO THE LOSS OR
DAMAGE. IBS SHALL NOT BE LIABLE FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES IN
ANY EVENT. [***]
ARTICLE 11
INSURANCE
SECTION 11.01. IBS'S INSURANCE. IBS will, at its own expense, during
the Term of this Agreement, maintain adequate coverage to insure its
liabilities under this Agreement, including but not limited to, comprehensive
general liability, automobile, errors and omissions, and fire and theft with
extended coverage.
ARTICLE 12
RIGHT OF AUDIT
SECTION 12.01. FEDERAL'S RIGHT OF AUDIT. IBS shall keep full and
accurate records of all items billed in connection with this Agreement, which
records shall be open to audit by Federal, or any authorized representative
of Federal, during the course of this Agreement and until [***] years after
expiration or earlier termination of this Agreement.
ARTICLE 13
ARBITRATION
SECTION 13.01. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof, after pursuing the Dispute Resolution
process set forth herein, shall be settled by arbitration in accordance with
the rules of the American Arbitration Association and judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. The locale where the arbitration is to be held shall be Memphis,
Tennessee. Attorney's fees and costs of arbitration shall be allocated as
part of any award as determined by the arbitrator(s).
ARTICLE 14
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
INDEPENDENT CONTRACTOR RELATIONSHIP
SECTION 14.01. INDEPENDENT CONTRACTOR RELATIONSHIP. The Parties intend
that an independent contractor relationship will be created under this
Agreement. Federal is interested only in the final performance of IBS
hereunder and the results achieved thereby, and shall not exercise any
control over the conduct of the Services or the means of performance thereof.
Accordingly, IBS shall have full responsibility for the payment of all
federal, state, and local taxes or contributions imposed that are required
pursuant to unemployment insurance, social security, income taxes, and
workers' compensation statutes, and shall be solely responsible for any
liability resulting from the acts, omissions or negligence of IBS or its
agents, employees or sub-contractors arising out of or occurring in the
course of the Services.
ARTICLE 15
OTHER PERFORMANCE STANDARDS AND MEASURES
SECTION 15.01. SCAN LINE REJECTS.
Federal expects scan line accuracy and/or quality of [***] percent
([***]%) and IBS agrees to provide scan line accuracy and/or quality of [***]
([***]%) percent. Because Federal's bank or banks charge Federal a fee for
manual processing of Remittance Advices where the Scan Line is defective or
inaccurate, Federal will pass a charge of $ [***] per item on to IBS as a
credit against amounts otherwise due IBS by Federal on days where the reject
rate is greater than [***]% and the problem can be directly related to an IBS
process or error. The bank provides a daily report of its charges to
Federal, which report shall be used to verify the charges imposed pursuant to
this Section. Scan line reject volumes will be evaluated monthly, quarterly,
and year-to-date. Should IBS' scan line accuracy/quality fall below the
acceptable rate of [***] percent ([***]%) during the first [***] months of
this Agreement and [***] percent ([***]%) of all statements in a particular
day's volume thereafter, the following procedure will be implemented. IBS
will be given the daily report and actual documents to review when necessary.
a) [***]
b) [***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
c) [***]
d) [***]
IBS Caused Scan Line Rejects include, but are not limited to, the following:
- Scan line alignment is not within specified tolerance caused by
IBS's failure to align print properly on the notice. (Alignment
Specifications are outlined in the Statement of Work)
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
- Scan line print reflectance ration is not within tolerance caused
by IBS process. (Reflectance Specifications outlined in the Statement
of Work)
[***]
SECTION 15.02. CUSTOMER COMPLAINTS. Federal Customer Account Services
receives complaints from customers relating to the print/inserting quality of
their notice. Federal's practice is to reprint the notice and mail it to the
customer when information is not readable. IBS agrees to provide a reprint
of the notice and mail it to the customer. Federal will not pay for
processing, paper, envelopes, or postage associated with any reprint solely
attributed to IBS, its suppliers, or subcontractors. This information will
be provided to IBS daily by Federal's Customer Account Services personnel.
Customer complaints will be evaluated monthly, quarterly, and year to date.
Should the average fall below the acceptable rate of [***] ([***]%) percent
during the first [***] months or below [***] ([***]%) percent thereafter of
all statements in a particular day's volume, the following procedure will be
implemented. IBS will be given the daily report and actual documents to
review upon request. Additionally, IBS' Quality Exception Report will be
utilized by Federal to evaluate IBS' performance. During the Term of this
Agreement, the Customer Complaints standards may be revised as mutually
agreed.
a) [***]
b) [***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
c) [***]
d) [***]
[***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
SECTION 15.03. DIRECT ACCESS AVAILABILITY. Federal personnel will
monitor settlement notice processing continuously during each day's
production run. Direct Access is the key monitoring tool and must be
available [***] ([***]%) percent of the time Monday through Friday 7:30 a.m.
- - 7:30 p.m. Central Time. IBS agrees to make Direct Access available for all
purposes, including monitoring of each day's statement production run, during
the hours specified, except where the Parties have mutually agreed to a
maintenance schedule. Availability of Direct Access and compliance with this
Section by IBS will be evaluated monthly, quarterly, and year-to-date.
Should the average fall below the acceptable rate of [***] ([***]%) percent
during the first [***] months of this Agreement, or below [***] ([***]%)
percent thereafter, or upon the second occurrence of system downtime, Federal
will implement the following escalation procedure. During the Term of this
Agreement, the Direct Access Availability standards may be revised as
mutually agreed.
a) [***]
b) [***]
c) [***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
d) [***]
[***]
SECTION 15.04. DATA ACCEPTANCE (IBS'S SYSTEM). Federal expects that IBS
systems will be available [***]([***]%) percent of the time during the
primary transmit times. IBS agrees to make its systems available [***]
([***]%) percent of the time during the primary transmit times. Should IBS
system down time delay transmissions from Federal, IBS will be expected to
maintain the Tray Turnaround Times set forth in Section 1.04 hereof or the
charges outlined in Section 1.04 will be enforced. Data Acceptance will be
evaluated monthly, quarterly, and year-to-date. Should the average fall
below the acceptable rate of [***] ([***]%) percent for the first [***]
months of the Agreement, or below [***] ([***]%) percent thereafter, the
following procedure will be implemented. During the Term of this Agreement,
the Data Acceptance standards may be revised as mutually agreed.
a) [***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
b) [***]
c) [***]
[***]
SECTION 15.05. PROCESS AUDIT STANDARDS. Federal, in conjunction with
IBS, will document process audit and quality assurance standards and
procedures to be utilized during scheduled, unscheduled, and daily
quality/accuracy process audits. IBS
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
will be given [***] hours to correct any process, procedures, material or
service found to be out of compliance. Federal will not pay for
non-conforming materials or services. During the Term of this Agreement, the
process audit and quality assurance standards and procedures may be revised
as mutually agreed.
a) [***]
b) [***]
c) [***]
[***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
SECTION 15.06. DISASTER RECOVERY.
Disaster Recovery is an integral part of IBS's ability to perform
Services for Federal, Federal and IBS will jointly develop and implement a
mutually acceptable Disaster Recovery Plan before the Statement Production
Services begin. If no Disaster Recovery Plan is agreed upon between Federal
and IBS prior to [***], Federal shall have the right to terminate this
Agreement by providing IBS notice of its intention to so terminate by no
later than [***]. In addition, within [***] days of Federal's giving such
notice, IBS shall reimburse or write-off any and all moneys paid to IBS under
that certain Professional Services Agreement by and between IBS and Federal
dated as of April 25, 1997 and any moneys paid or owing for custom software
development and design services Federal agrees to cooperate with IBS in
developing the Disaster Recovery Plan, including meeting with IBS's
designated Vice President on or before [***] and agreeing to meet with said
Vice President on more than one consecutive days, if necessary, and to
schedule any subsequent meetings.
Federal expects IBS to maintain a satisfactory and acceptable disaster
recovery process and IBS agrees to maintain a satisfactory and acceptable
disaster recovery process. Federal will test this process at least one time
each year and report the results of such testing to Federal Should any
inadequacies be identified, IBS will be given [***] weeks to rectify any
inadequacies. Should a satisfactory resolution not be identified and
implemented within this timeframe, Federal will have the right to reduce
volumes, with no adjustment to current pricing, until such time that a
resolution has been agreed upon by both parties and implemented. During the
Term of this Agreement, the Disaster Recovery Plan may be revised as mutually
agreed.
a) [***]
b) [***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
c) [***]
[***]
IBS agrees to provide, at its expense, any equipment or software
necessary to provide back-up for the Statement Production Services at a
second production facility, except for the T-1 lines, router, and hubs.
SECTION 15.07. DISPUTE RESOLUTION.
When any problems occurs hereunder or there is a disagreement between
Federal and IBS about the proper steps to take, there shall be a process for
dispute resolution as follows:
STEP 1: Federal Manager Customer Account Services /IBS Account Manager
Immediate
Discuss/investigate issue
Outline solution
STEP 2. Federal Customer Account Services (CAS) Senior Manager/VP
Account Management 48 Hours
Discuss/investigate issue
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
Outline solution
If acceptable, implement solution
If not acceptable, proceed to next step.
STEP 3. Federal -Managing Director CAS or VP Customer Automation &
Invoicing (CA&I)/SVP Customer Operations 1 Week
Discuss/investigate issue
Outline solution
If acceptable, implement solution
If not acceptable, proceed to next step.
STEP 4. Federal VP CA&I or SVP ITD/IBS President 2 Weeks
Discuss/investigate issue
Outline solution
If acceptable, implement solution
If not acceptable, either Party may seek any remedy/recourse
available under this Agreement.
The timeframes set forth above for required actions may be extended with
approval of both Parties. During the Term of this Agreement, the Dispute
Resolution procedure outlined herein may be revised from time to time as
mutually agreed upon between the Parties.
ARTICLE 16
COMPLIANCE WITH LAWS
SECTION 16.01. COMPLIANCE WITH LAWS. (a) IBS agrees that it will comply
with all applicable federal, state, and local laws, regulations, and codes in
the performance of this Agreement. To the extent applicable to IBS, it
agrees to comply with the affirmative action requirements applicable to
contracts with government contractors, as set forth in Title 41 of the Code
of Federal Regulations and incorporated into this Agreement by reference.
(b) IBS agrees to indemnify, defend and hold harmless Federal, its
officers, directors and employees from and against any and all claims,
losses, demands, actions, administrative proceedings, liabilities, and
judgments, including reasonable attorneys' fees and expenses, arising from
its failure to comply with the provisions of this Article 16.
ARTICLE 17
MISCELLANEOUS
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
SECTION 17.01. OTHER VENDORS. Federal reserves the right to engage the
services of such other contractors and third-party vendors as Federal deems
necessary, and IBS agrees to cooperate with any such third-parties and to
comply with all reasonable requests by Federal to coordinate its activities
with those of such other vendors.
SECTION 17.02. INSPECTION. IBS agrees that, at all times during the
Term of this Agreement, Federal shall have the right to make inspections of
the Services performed by IBS under this Agreement. Any inspection by
Federal shall be performed so as not to unduly delay IBS's performance of the
Services.
SECTION 17.03. TIME IS OF THE ESSENCE. Time is of the essence for all
purposes under this Agreement.
SECTION 17.04. REFERENCES. IBS shall not in any manner advertise or
publish the fact that it has furnished or contracted to furnish Services to
Federal without the prior written consent of Federal, except that Federal has
agreed to the form of press release attached hereto as Exhibit "I". IBS
shall not disclose any details of this Agreement to any Party except as may
be authorized in writing by an authorized officer of Federal or except as may
be required by any federal statute, rule, or regulation in order for either
Party to comply with the applicable securities laws.
SECTION 17.05. SECTION HEADINGS. All section headings and captions
used in this Agreement are purely for convenience or reference only, and
shall not affect the interpretation of this Agreement.
SECTION 17.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee, and the
Parties submit to the jurisdiction of any appropriate court within Tennessee
for adjudication of disputes arising from this Agreement.
SECTION 17.07. EXCUSED NON-PERFORMANCE. Neither Party shall be
responsible for delays or failures in performance resulting from acts beyond
the control of such Party. Such acts shall include but not be limited to
acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental
regulations superimposed after the fact, fire, communication line failures,
power failures, earthquakes or other disasters.
SECTION 17.08. ASSIGNMENT. Neither this Agreement nor any other
obligations of IBS under this Agreement shall be assignable or delegable by
IBS without the prior written consent of Federal, such consent not to be
unreasonably withheld. Neither this Agreement nor any other obligations of
Federal under this Agreement shall be assignable or delegable by Federal
without the prior written consent of IBS, such consent not to be unreasonably
withheld. Notwithstanding the foregoing two sentences, either Party may
assign this Agreement to a wholly-owned subsidiary or other affiliated
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
entity without the other Parties consent. This Agreement shall be binding
upon and inure to the benefit of the Parties, their respective successors,
assigns, and legal representatives.
SECTION 17.09. CHANGE OF CONTROL. In addition to such other rights as
Federal may have, Federal shall have the right to terminate this Agreement
within thirty (30) days of the consummation of the transaction which results
in a change of control upon any change in the majority ownership or voting
control of the capital stock, business, or assets of IBS. IBS shall promptly
notify Federal in writing of any such change in control of the IBS.
SECTION 17.10. FURTHER ASSURANCES. Each Party agrees that it will take
such actions, provide such documents, do such things and provide such further
assurances as may reasonably be requested by the other party during the Term
of this Agreement. IBS agrees to provide to Federal, from time to time, any
other financial information as Federal may reasonably request to determine
IBS's ability to perform its obligations under this Agreement. IBS agrees to
provide Federal with two (2) copies of the Annual Report of its parent
corporation, USCS International, Inc. within one hundred twenty (120) days of
the end of its fiscal year. Federal agrees to provide to IBS, from time to
time, any other financial information as IBS may reasonably request to
determine Federal's ability to perform its obligations under this Agreement.
Federal agrees to provide IBS with two (2) copies of its Annual Report within
one hundred twenty (120) days of the end of its fiscal year.
SECTION 17.11. EXHIBITS. All exhibits described in this Agreement
shall be deemed to be incorporated in and made a part of this Agreement,
except that if there is any inconsistency between this Agreement and the
provisions of any exhibit the provisions of this Agreement shall control.
Terms used in an exhibit and also used in this Agreement shall have the same
meaning in the exhibit as in this Agreement.
SECTION 17.12. MODIFICATION. Except as otherwise provided, this
Agreement shall not be modified except by written agreement signed on behalf
of Federal and the IBS by their respective authorized officers.
SECTION 17.13. ENTIRE AGREEMENT. This Agreement supersedes all prior
understandings, representations, negotiations, and correspondence between the
Parties, constitutes the entire agreement between them with respect to the
matters described, and shall not be modified or affected by any course of
dealing, course of performance, or usage of trade except that certain
Professional Services Agreement by and between the Parties dated as of April
25, 1997.
SECTION 17.14. SEVERABILITY. If any provision of this Agreement is
held to be invalid, illegal or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall in no way be affected or
impaired.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
SECTION 17.15. WAIVER. The failure of either Party at any time to
require performance by the other of any provision of this Agreement shall in
no way affect that Party's right to enforce such provision, nor shall the
waiver by either Party of any breach of any provision of this Agreement be
taken or held to be a waiver of any further breach of the same provision or
any other provision.
SECTION 17.16. SURVIVAL. The provisions of this Agreement which by
their nature extend beyond the expiration or earlier termination of the
Agreement will survive and remain in effect until all obligations are
satisfied. Specifically, the IBS's obligations to indemnify Federal in
Sections 7.01, 7.02, 9.01, 15.01, and 16.01 shall survive this Agreement and
Federal's obligation to indemnify IBS in Section 7.04 shall survive this
Agreement.
SECTION 17.17. NOTICES. Notices given under this Agreement shall be in
writing and shall be deemed to have been given and delivered when received,
if sent by the United States Mail, certified or registered mail, with postage
prepaid and addressed, via facsimile or sent by way of Federal Express
service:
IF TO FEDERAL, TO: Federal Express Corporation
3875 Airways Module H-1
Memphis, Tennessee 38116-4611
Attention: Senior Manager, Customer Account
Services
WITH A COPY TO the Managing Director of ITD Category Management
2600 Nonconnah Boulevard
Suite 307
Memphis, Tennessee 38132
AND IF TO IBS: International Billing Services, Inc.
5220 Robert J. Mathews Parkway
El Dorado Hills, California 95762
Attention: Senior Vice President, Customer
Operations
Fax: 916-939-4561
and
USCS International, Inc.
2969 Prospect Park Drive
Rancho Cordova, CA 95670
Attention: General Counsel
Fax: 916-636-4561
or to such other address provided to the other Party by written notification.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
SECTION 17.18. WORK AT SITE. When working at any of Federal's sites,
IBS, its agents, employees, and sub-contractors will comply with all
reasonable safety and security requirements of Federal. including the wearing
of identification badges on the site. When working at any of IBS's sites,
Federal, its agents, employees, and sub-contractors will comply with all
reasonable safety and security requirements of IBS, including wearing of
identification badges on the site.
SECTION 17.19. VALIDITY OF AGREEMENT. This Agreement shall not be
valid nor binding upon Federal unless it shall have been executed by an
officer of Federal and approved by its Legal Department. This Agreement
shall not be valid nor binding upon IBS unless it shall have been executed by
an officer of IBS and approved by its Legal Department.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the day and year first above written.
INTERNATIONAL BILLING SERVICES, INC. FEDERAL EXPRESS CORPORATION
By:/DouglasThompson/ By:/DorothyE.
----------------
Berg/
----------------------------
Title: Senior Vice President Title: Vice President
("IBS") ("Federal")
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "A"
DESCRIPTION OF SERVICES AND STATEMENT OF WORK
This Exhibit is comprised of a definitional section labeled Attachment
"A", which is confidential, and the document known as the Statement of Work.
__________
ATTACHMENT A
ACCOUNT STATEMENT PRODUCTION SERVICES
These items are individually charged on Attachment B and are described in the
following pages.
[***]
DETAIL OF PRODUCTS AND SPECIFICATIONS FOR ATTACHMENT "B"
Computer Processing is a per image charge for processing Account
Statement data and includes the following:
- CASS Certification for automated mail discounts
- Postal sorting
- Postal calculation
- Manifest line generation
- Pre-processing
- Job scheduling and control
- Confirmation of Account Statement, image, and page counts
IBS will optimize each inserting plan for maximum postal discount; the
level of postal discount is dependent upon mailing piece physical
characteristics and customer provided accuracy of ZIP and ZIP+4
information, address accuracy and density. Computer images are defined
as a logical Account Statement page. In a simplex mode there will be a
maximum of (1) computer image per physical sheet of paper, in duplex
mode there will be a maximum of (2) computer images per physical sheet
of paper, and in quadraplex mode there will be a maximum of (4) computer
images per physical sheet of paper.
The image printing fee includes printing the image, inserting the image
into the Account Statement and, where appropriate, collating summary
forms with detail forms, folding the Account Statement and inserting the
finished Account Statement into the appropriate sending envelope. Image
Printing (Simplex) is defined as (1) print image per physical sheet of
paper. Image Printing (Duplex) is defined as, (2) print images per
physical sheet of paper (whether or not data is printed on both sides).
Image Printing
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
(Quadraplex) is defined as, (2) print images per physical sheet of paper
(whether or not data is printed on both sides).
Inserting is charged per piece inserted. Inserting does not include the
printing of the piece. The charge covers the normal receiving,
workstation preparation, and placement of each insert into the sending
envelope. Return envelopes are considered an insert; and each Account
Statement is considered an insert.
All inserts must meet requirements in the IBS Insert Order Guide.
Technical Support is a per Account Statement charge for 24 hour, 7 day a
week customer support services consisting of:
- Telephone Customer Support
- Monitoring of process controls
- Account Statement Statistical Reporting
- Quality Control
Quality Checkpoints are included during all phases of the process. This
process is dedicated to ensuring the quality of the customer's Account
Statement production run. There are many points in the process where
quality exceptions can be located and dealt with immediately. The
Customer Services group monitors and controls the job while it is in
house and after its completion to ensure a quality customer experience.
Per form, insert, and envelope. Receiving, warehousing, control,
management and warehouse staging of forms, envelopes and inserts. Fees
for Inventory Management will be charged upon use of the item.
PAPER PRODUCTS - ACCOUNT STATEMENT PRODUCTION SERVICES DETAIL
Includes the one time creation of artwork (thereafter artwork will be
separately charged), and ongoing purchasing, handling and custom
printing of forms and envelopes. A form is a sheet of paper pre-printed
on one or both sides. All forms will include any marks required for
printing, forms verification, and production equipment alignment
purposes.
FIRST PAGE FORM:
Description: [***] Finished Size: [***]
Paper: [***] Colors - Front: [***] Colors -
Back [***] Perforation: [***]
Description: [***] Finished Size: [***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
Paper: [***] Colors - Front: [***] Colors -
Back [***] Perforation: [***]
Description: [***]
Size: [***] Paper: [***]
Window Type: [***] Colors - Outside: TBD
Inside Tint: [***] Tolerance: [***] Facing
Mark: [***]
Envelope Type: [***]
Size:
Paper:
Window Size:
Window Location:
Window Type:
Colors - Outside:
Description: [***]
Size: [***] Paper: [***]
Window Size: [***] Window Location: [***]
Window Type: [***]
Colors - Outside: [***] Inside Tint: [***]
Tolerance: [***] Facing Mark: [***]
11.
Description: [***] Size: [***]
Paper: [***] Window Size: [***] Window Location:
[***] Window Type: [***] Colors - Outside:
[***] Closure: [***] MINIMUM CHARGES
Any Account Statement run whose total charges for Rate Card Items (1-11)
fall below the stated minimum, Customer will be charged the Account
Statement Run Minimum Charge set forth in Attachment B. A Account
Statement run is Account Statements received as a cycle cutoff in a
single file transmission. Each Account Statement run will have its own
unique identification number.
This charge applies to all Account Statement plans within each cutoff.
A "plan" is a group of Account Statements that have a similar processing
characteristic (e.g., flat or folded) and utilize a common superset of
inserts.
The [***] plans are defined below:
[***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
SPECIAL SERVICES
Special Services are charges for items not otherwise included in this
contract (see Attachment B for rates) and include, but are not limited to,
the following:
Preprocessor Development
IBS will develop, at Customer's expense, pre-processor software necessary
to pre-process customer's print images into the agreed Account Statement
format and into the IBS standard format. Sixty (60) days prior to live
implementation, the parties shall agree in writing (Final Statement of
Work) as an addendum to this agreement on the scope of work for such
pre-processor development and the prices therefore.
Requested Enhancements
Other programming charges will apply if customer requests changes that
require custom programming over and above Statement of Work herein.
Non-Scheduled Programming (Process Interruption)
In the event that Customer makes a change to its data format without
notifying IBS in advance and such change results in a disruption of
processing or printing, then Customer will be charged a minimum of
[***] programming time to cover IBS' costs of implementing a
correction to enable processing or printing to continue. Should the
estimated time needed to implement a correction be greater than [***]
then IBS will notify Customer of such fact within [***]
of the cessation of processing or printing. Customer will then have the
option of authorizing IBS to effect the necessary corrections to allow
processing or printing to continue, or it may elect to retransmit the
data in an acceptable format. The Customer will be responsible for all
processing and printing charges incurred prior to the disruption of the
Account Statement run.
Image based microfiche includes the fonts, graphics, and electronic
overlays used to print your Account Statements.
Image based microfiche copies are available.
Creation of artwork for pre-printed forms and envelopes.
Creation of laser printed electronic overlays.
Creative design for forms, envelopes, and inserts.
Custom reports are created to suit customer specific requirements.
These will be charged on a per report basis, based on a mutually
agreed to format and price.
PROCESSING INTERRUPTIONS
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
DIRECT ACCESS-TM-
Direct Access-TM- provides customers the ability to view their own
production-related data as it is accrued through IBS' production
process. This product utilizes a real-time relational database which
gives the user access to their specific data 24 hours a day, 7 days a
week.
22. HOLD
A Hold may be called by the customer when a Account Statement run is
still in the Computer Processing mode and has not left the computer room
for processing on the Production Floor. There is no charge for this
hold.
23. A halt is charged when the customer requests a halt to the processing of
any specific Account Statement run in process. Upon such a request, IBS
would issue a stop order to all stations. All work in process is then
retrieved and caged. In a halt situation, a best effort will be made by
IBS to minimize mail processing; however no guarantee is made that mail
will not have been entered into the postal system. Following a halt, the
customer can issue a Restart or an Abort. IBS will provide the customer
with a list, by account number, of all mail pieces delivered into the
postal system in the event that some mail was entered into the postal
system before a halt was effected.
Restart/Abort
Restart/Abort charges are incurred when a restart or an abort is
requested by the customer.
Restart: After a Halt is canceled by the customer, the Account
Statement run is restarted using original data.
Abort: An Abort signifies that the Account Statement run is unusable
and that the customer will re-transmit the Account Statement print file.
Customer is liable, at standard rates, for all processing charges,
stock used, and any postage incurred before the Abort was effected.
INSERT HANDLING
24. Charges will apply if IBS is required to perform special handling of
inserts as required by individual situations, such as hand inserting,
re-sorting inserts, identifying unlabeled inserts, or deinserting
inserts from Account Statements. Please reference attached Insert Order
Guide.
25. Insert Storage fees will be charged for inserts stored (or received):
- more than [***] days beyond their last use,
- more than [***] days from prior to their scheduled use.
Insert storage fees do not apply to return envelopes. When IBS is
printing the inserts, insert storage fees will not apply unless the
customer has directed IBS to store inserts under the storage fee charge
situations listed above.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
ACCOUNT STATEMENT SPECIAL HANDLING
Account Statement Special Handling is defined as the following services:
26. Any Account Statement that is rejected by the IBS postal processor for
not having a valid U.S. address or zip code as defined by the U.S.
Postal Service national zip directory will be charged the Invalid Zip
Code / Foreign fee. This fee is charged on a per Account Statement
basis. Packaging charges may also apply. If customer chooses to mail
invalid Zip Codes as residual mail, this charge will not apply (U.S.
mail only).
27. After processing and before mailing, any Account Statement manually
identified by the customer by account number that needs to be located
before mailing and shipped to an address other than the sending address
of the Account Statement is considered a pulled Account Statement and
will be charged the Pulled Account Statement Fee. This fee is a per
Account Statement fee. Packaging charges may also apply.
28. A Held Account Statement is any Account Statement that is electronically
flagged by the customer, during processing, that is to be located and
shipped to an address other than the sending address of the Account
Statement or handled manually. A fee will be charged on a per Account
Statement basis. Packaging charges may also apply.
29. Any Account Statement over 11 oz will require special handling and
will be charged the Over 11 oz. Account Statement Fee. Packaging
charges may also apply.
30. A Packaging charge will apply to all Account Statements or predetermined
groups of Account Statements that are unable to be mailed through the
normal IBS manifest mail system and require packaging. Does not apply
to variable depth boxes.
INTERNATIONAL BILLING SERVICES
FEDERAL EXPRESS
FINAL STATEMENT OF WORK
Customer Systems Development
Information Systems Department
Project Document [***] Last Changed: 07/01/97 4:09 PM
Printed: 07/29/97 1:54 PM
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
WARNING: This confidential and proprietary document is an internal working
draft and is subject to change without prior notice. Complimentary copies of
this document to users outside of the Information Systems department must not
be reproduced in any manner without prior consent from Information Systems
management. Information Systems claims no responsibility for user
misrepresentations and/or incorrect interpretations resulting from use of
this Statement of Work Document.
Team Information: Suresh Chandrappa - Developer
Kun Hu - Developer
Kathy Green - QA
Nancy Baracosa - Technical Writer
Project Manager: [***]
U.S. Computer Services, International Billing Services
El Dorado Hills, CA 95762
- -C- 1997 U.S. Computer Services. All rights reserved.
Printed in the United States of America.
[***] TABLE OF CONTENTS.................................
1. INTRODUCTION............................................1
1.1. FEDEX PROJECT OVERVIEW................................1
1.2. DOCUMENT DESCRIPTION..................................1
1.2.1. PURPOSE..........................................1
1.2.2. AUDIENCE.........................................1
1.3. FEDEX REFERENCE DOCUMENTS.............................1
1.4. DEFINITION OF TERMS AND ACRONYMS......................2
1.4.1. FEDEX TERMS AND ACRONYMS.........................2
1.4.2. IBS TERMS AND ACRONYMS...........................2
2. NEW PHYSICAL PRODUCT DESCRIPTION........................3
2.1. FORMS.................................................3
2.1.1. FIRST SHEET STOCK................................4
2.1.2. FIRST-SHEET IMAGES...............................4
2.1.3. SECOND SHEET STOCK...............................4
2.1.4. SECOND-SHEET IMAGES..............................4
2.2. ENVELOPES.............................................4
2.2.1. SEND / REMIT ENVELOPE............................4
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
2.2.2. FLAT SENDING ENVELOPE(S).........................4
2.2.3. VARIABLE DEPTH BOX...............................5
2.3. PRODUCTION LINE.......................................5
2.3.1. PRIMARY..........................................5
2.3.2. REMAKE...........................................5
3. INPUT DATA DESCRIPTION..................................5
3.1. DATA RECEIPT..........................................5
3.1.1. PRIMARY DATA RECEIPT METHOD......................5
3.1.2. SECONDARY DATA RECEIPT METHOD....................6
3.1.3. TERTIARY DATA RECEIPT METHOD.....................6
3.2. DATA FORMAT...........................................6
3.2.1. TYPE.............................................6
3.2.2. ORDER............................................6
3.2.3. SIZE.............................................6
3.3. ANCILLARY INPUT SOURCES...............................6
4. PRE-PROCESSING..........................................7
5. PROCESSING DESCRIPTION..................................7
5.1. CORP MAPPING..........................................7
5.2. STATEMENT BREAK IDENTIFICATION........................7
5.3. ACCOUNT NUMBER IDENTIFICATION.........................7
5.4. SPECIAL HANDLING STATEMENT IDENTIFICATION.............8
5.5. MULTIPLE-COPY STATEMENT IDENTIFICATION................9
5.6. END-OF-STATEMENT IDENTIFICATION.......................9
5.7. INSERT IDENTIFICATION.................................9
5.8. REMITTANCE ADDRESSES..................................9
5.9. FEDEX MESSAGES........................................9
5.9.1. INVOICE LEVEL MESSAGE..........................10
5.9.2. MARKETING MESSAGES.............................10
5.9.3. SERVICE MESSAGES...............................11
5.9.4. AIRBILL DETAIL MESSAGES........................12
5.10. FEDEX STATEMENT CATEGORY............................12
5.10.1. REGULAR/REBILL INVOICE.........................12
5.10.2. POWERSHIP SUPPLEMENTAL INVOICE.................13
5.10.3. PARTIAL REPRINT INVOICE........................13
5.10.4. REPRINT INVOICE................................14
5.10.5. PAST DUE INVOICE...............................14
5.10.6. FINAL DEMAND INVOICE...........................15
5.10.7. DEMAND FOR PAYMENT INVOICE.....................15
5.10.8. DEBIT ADVICE INVOICE...........................15
6. PRESENTATION DESCRIPTION...............................16
6.1. PAGE BREAK GUIDELINES................................16
6.2. PARAGRAPH BREAK GUIDELINES...........................16
6.3. WIDOW/ORPHAN GUIDELINES..............................16
6.3.1. REMITTANCE PAGE.................................16
6.3.2. AIRBILL PAGE....................................16
6.3.3. SUMMARY PAGE....................................16
7. PROCESSING FEATURES....................................16
7.1. CASS.................................................16
7.2. AUTO PLAN SETUP......................................17
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
7.3. PLAN SELECTION.......................................17
7.4. DYNAMIC INSERTING....................................17
7.5. MICROFICHE...........................................17
7.6. IBS POSTAL PROCESSOR.................................17
7.7. FORMS VERIFICATION...................................18
7.8. AUTOMATED CONTAINER LINE.............................18
8. REPORTS................................................18
8.1. CASS ERROR REPORT....................................18
8.1.1. DESCRIPTION....................................18
8.1.2. FREQUENCY......................................18
8.1.3. RESPONSIBLE PARTY..............................18
8.1.4. ROUTING........................................19
8.2. SPECIAL HANDLING RETURN MANIFEST REPORT..............19
8.2.1. DESCRIPTION....................................19
8.2.2. FREQUENCY......................................19
8.2.3. RESPONSIBLE PARTY..............................19
8.2.4. ROUTING........................................19
8.3. DIRECT ACCESS........................................19
9. BUSINESS ISSUES........................................20
9.1. TRANSMISSION INTEGRITY ASSURANCE.....................20
9.2. START OF CLOCK.......................................20
9.3. INSERT LIMITATIONS...................................20
9.4. RELEASE TO PRINT.....................................20
9.5. TURNAROUND COMMITMENT................................20
9.6. DATA RETENTION PERIOD................................21
9.7. DATA/FORMAT CHANGE CONTROL...........................21
9.8. BILLING..............................................21
10. PROJECT ISSUES........................................21
10.1. ASSUMPTIONS AND/OR CONSTRAINTS......................21
10.2. TEST DATA REQUIRED..................................22
10.3. REMITTANCE SCAN DECK TESTING........................23
10.4. CUSTOMER ACCEPTANCE CRITERIA........................23
10.5. CUSTOMER RESPONSIBILITIES...........................23
10.6. IBS RESPONSIBILITIES................................24
10.7. PROJECT MILESTONES..................................25
10.8. CUSTOMER APPROVAL SIGNATURE PAGE....................26
APPENDICES................................................27
APPENDIX A: FEDEX STATEMENT MOCKUPS......................27
APPENDIX B: FEDEX STATEMENT FONT SPECIFICATIONS..........27
APPENDIX C: FEDEX STATEMENT MOCKUPS WITH DATA MAPPING....27
APPENDIX D: FEDEX INPUT FILES / PRINT RULES..............27
APPENDIX E: CUTOFF SCHEDULE & VOLUME DESCRIPTION.........27
APPENDIX F: CORP NUMBERS.................................27
APPENDIX G: FILE NAMING CONVENTION.......................27
APPENDIX H: CONVERSION CONTACT INFORMATION...............27
APPENDIX I: ESCALATION CONTACT INFORMATION...............27
APPENDIX J: FEDEX / IBS NETWORK DESIGN...................27
APPENDIX K: ERROR CONDITIONS.............................28
APPENDIX L: FEDEX CONTROL REPORT FILE DEFINITION &
RECORD LAYOUT................................28
APPENDIX M: STOCK / ENVELOPE DIAGRAMS....................28
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
APPENDIX N: ARCHIVE PROCEDURES...........................28
[***] This documents the agreement as to the scope of development for the
IBS [***]. [***] These [***] are required to produce Federal Express [***].
THE STATEMENT-OF-WORK REPRESENTS IBS' CURRENT UNDERSTANDING OF FEDERAL
EXPRESS' REQUIREMENTS. SHOULD THIS UNDERSTANDING PROVE INCORRECT AFTER
COMPLETE ANALYSIS OR IF FEDERAL EXPRESS DELIVERABLES ARE NOT RECEIVED ON A
TIMELY BASIS IBS CANNOT GUARANTEE DELIVERY [***] IN THE TIME FRAMES
SPECIFIED WITHIN THIS DOCUMENT. SIGNIFICANT REQUIREMENT VARIANCES MAY ALSO
REQUIRE CHANGES TO THE QUOTED PRICE [***]. [***] 1.1. FEDEX PROJECT OVERVIEW
FedEx is the world's express distribution leader. They offer shippers
more cargo capacity than any other aircraft carrier, and an integrated
global information and distribution network. FedEx has 122,000
employees, 557 aircraft and almost 37,000 vehicles shipping 16 million
pounds of cargo daily.
THE FIRST PHASE OF THIS PROJECT IS SCHEDULED FOR COMPLETION IN [***] AND
INCLUDES [***]. [***] 0.2. DOCUMENT DESCRIPTION
0.2.1. PURPOSE
THE PURPOSE OF THIS DOCUMENT IS TO DOCUMENT FEDERAL EXPRESS BUSINESS
REQUIREMENTS TO CREATE THE FUNCTIONALITY REQUIRED TO PRINT [***]. [***]
0.2.2. AUDIENCE
The audience for this Statement of Work is FedEx / IBS
Management and Technical personnel.
0.3. FEDEX REFERENCE DOCUMENTS
All IBS Customer Systems documentation for this project can be referenced
using project number [***].
CHRONOS Format and Distribute File Layout Definition Version 1.5.
Other reference documents include the following Project Deliverable
Acceptance Documents:
[***] FEDEX01 - Statement Mockup (6/11/97)
[***] FEDEX02 - Appendix C - Statement Mockup with Data Mapping
[***] FEDEX03 - Appendix E - Cutoff Schedule & Volume Description
[***] FEDEX04 - Appendix F - Corp Numbers
[***] FEDEX05 - Appendix K - Error Conditions
[***] FEDEX06 - Appendix M - Stock / Envelope Diagrams
[***] FEDEX07 - Statement Samples from IBS Factory Test
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
[***] . [***]
0.4. DEFINITION OF TERMS AND ACRONYMS
0.4.1. FEDEX TERMS AND ACRONYMS
TERM/ACRONYM DEFINITION
ORBIT DOMESTIC US BILLING SYSTEM
Orbit stands for 'ONLINE
REVENUE BILLING AND INVOICING
TECHNOLOGY'.
Domestic US billing system that
rates, discounts, invoices, and
reports package shipments.
AMBASSADOR INTERNATIONAL BILLING SYSTEM
Ambassador stands for 'ADVANCED
MULTI-NATIONAL BASE AUTOMATED
SERVICE SYSTEMS AND DIRECT
ONLINE REPORTING'.
Ambassador provides a means to
gather information and rate,
discount, invoice, and report
international package shipments.
0.4.2. IBS TERMS AND ACRONYMS
TERM/ACRONYM DEFINITION
ADVANCED An IBM-proprietary print/data format that controls
FUNCTION the features on the printed statements, such as
PRINTING (AFP) fonts, overlays, where printing should begin on a
page, and where printing should end on a page.
AUTOMATED [***] software-enhanced conveyor [***]. [***].
CONTAINER LINE [***]. [***]. [***].
(ACL)
CODING A system designed by the U.S. Postal Service that
ACCURACY validates the addresses and zip codes in customer
SUPPORT SYSTEM statements. CASS compares the information in these
(CASS) statements against a current U.S. Postal Service
database. CASS certification is mandatory for
automation mailings that use ZIP+4, and allows
discounts to be taken if at least 85% of the file
is matched.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
CORP NUMBER A number designated by IBS for [***].
HOPPER The receptacles on the PHILLIPSBURG INSERTER where
inserts and envelopes are loaded.
IBS International Billing Services
INDICIA A postal marking used as a substitute for a postage
stamp or metering on SENDING ENVELOPES.
IP ADDRESS Internet Protocol Address
MANIFEST LINE A line of information printed above the
subscriber's name and address that includes the
statement sequence number, discount rate, tray
number, file number, and other information that
allows U.S. Postal Service and IBS to audit the
production and mailing of each statement.
[***] The following section describes the physical product which will be
mailed by IBS for the customer as a result of this project.
0.5. FORMS
FEDERAL EXPRESS WILL UTILIZE [***] PAPER TO PRINT THEIR INVOICES. [***].
[***] 0.5.1. FIRST SHEET STOCK
First sheet stock will be [***]. [***]. [***]. [***]. [***]
See Appendix M for detailed form specifications.
0.5.2. FIRST-SHEET IMAGES
FedEx will [***] statement during Phase I implementation.
0.5.3. SECOND SHEET STOCK
This is [***] as described in the paragraph above.
0.5.4. SECOND-SHEET IMAGES
FedEx will [***] of the statement during Phase I implementation.
0.6. ENVELOPES
0.6.1. SEND / REMIT ENVELOPE
[***]. [***]. [***]. [***]. [***]. [***]. [***]
See Appendix M for detailed form specifications.
0.6.2. FLAT SENDING ENVELOPE(S)
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
The flat sending envelope is [***].[***] It will be
used for [***] . [***] It has [***].[***].[***]
See Appendix M for detailed form specifications.
0.6.3. VARIABLE DEPTH BOX
The Variable Depth [***].[***].[***].[***].
See Appendix M for detailed form specifications.
0.7. PRODUCTION LINE
0.7.1. PRIMARY
STATEMENTS WILL BE PRINTED ON [***].[***] THIS
PRODUCTION LINE PRODUCES [***].[***] 0.7.2.
REMAKE
IBS' remake process allows [***].
IN THE EVENT OF DAMAGED BILLS, ALL REMAKE STATEMENTS WILL BE
PRODUCED AT [***].[***] 0.8. DATA RECEIPT
FedEx is expected to send [***] daily files transmitted
over a [***] line. FedEx is responsible for acquiring,
installing and managing their environment on the FedEx
system. See Appendix J for the FedEx / IBS Network Design.
0.8.1. PRIMARY DATA RECEIPT METHOD
FedEx data will be [***].[***] See Appendix G for the
standard file naming convention. [***] FedEx and IBS have
jointly defined the details regarding this convention.
[***] will initiate the transfer of statement data from
their system to the IBS receiving system.
0.8.2. SECONDARY DATA RECEIPT METHOD
AS A BACKUP METHOD, SHOULD THE PRIMARY METHOD FAIL DUE TO A
NETWORK OUTAGE [***].[***] 0.8.3. TERTIARY DATA
RECEIPT METHOD
In addition to the [***].
Tapes will be [***]. The tapes must be shipped to:
International Billing Services
Customer Services
5220 Robert J. Mathews Parkway
El Dorado Hills, CA 95762-5712
0.9. DATA FORMAT
0.9.1. TYPE
The format of the file is [***].[***] See Appendix E
for the input data definition.
0.9.2. ORDER
Federal Express will transmit [***].
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
0.9.3. SIZE
The largest raw data file Federal Express currently
processes [***].[***] .
0.10. ANCILLARY INPUT SOURCES
For Phase I implementation, FedEx [***].
[***] There is [***] file required to produce [***]. The [***]
file for [***] will be transmitted to IBS by FedEx via [***].
The products that are produced by the FedEx [***] are:
[***].[***].[***].[***].[***].[***].[***].[***] 0.11. CORP MAPPING
Each FedEx file will be mapped to [***]. See Appendix F
for a list of applicable corp numbers.
0.12. STATEMENT BREAK IDENTIFICATION
Code [***] identifies a [***].[***].
0.13. ACCOUNT NUMBER IDENTIFICATION
THE ACCOUNT NUMBER IS IDENTIFIED IN [***].[***].[***].[***].[***].
[***]. 0.14. SPECIAL HANDLING STATEMENT IDENTIFICATION
Fed Ex has identified the following special handling
requirements for Phase I implementation:
- [***] print and run [***]
- insert into [***]
- [***] remit envelope
- apply postage and send via USPS
- b) [***] print [***] separate invoices by [***]
- [***] remit envelope
- insert [***]
- place [***]
- apply [***]
- enter [***] provide FedEx with [***].[***].
c) Internal FedEx Requests
- each internal request will have [***] compile all [***]
Generate [***] and ship to:
Jerry Washington
Manager - Microscan Operations
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
3965 Airways Boulevard
Memphis, TN 38194-4611
0.15. MULTIPLE-COPY STATEMENT IDENTIFICATION
FedEx will send an identifier [***].[***].
0.16. END-OF-STATEMENT IDENTIFICATION
AN [***] WILL BE PRINTED [***].[***].[***] 0.17. INSERT IDENTIFICATION
[***] CALLED AN INSERT IDENTIFIER [***].[***].[***].[***].[***].[***]
0.18. REMITTANCE ADDRESSES
IBS will maintain a [***] with each invoice. [***] IBS
will receive [***] at the beginning [***].[***] To
search [***] field will be concatenated with the [***]
to create [***].[***].
0.19. FEDEX MESSAGES
Federal Express will be responsible for maintaining [***]
. [***] IBS will maintain a [***].[***] IBS will receive
[***].[***] The [***] are as follows [***].[***] These
[***] will be [***].[***]
As these [***] are being processed [***].[***].[***]
Federal Express and IBS will share responsibility for
[***], with FedEx controlling the [***] and IBS
controlling [***].
0.19.1. INVOICE LEVEL MESSAGE
The [***] will be concatenated with the [***] code
from the [***] to create the [***]. If a match is
not found [***].[***]
There can be [***] per invoice.
[***].[***].[***].[***] .[***].[***]
0.19.2. [***] MESSAGES
The [***] will be concatenated with the [***] to
create [***].[***].[***] There can be [***].[***]
[***] Although there can be [***], only those that
fit into [***] will be printed. Any messages that fall
outside [***] will not be printed on the invoice.
[***].[***].
Embedded blank lines will [***].[***].[***].
0.19.3. [***] MESSAGES
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
The [***] will be concatenated with the language code
from the [***] to create the key to the appropriate
message to be printed on the invoice. If a match is not
found [***].[***] There can be [***].
[***] Although there can be [***], only those that
fit into [***] will be printed. Any messages that fall
outside [***] will not be printed on the invoice.
[***].[***]
Embedded blank lines will [***].[***].[***].[***].
0.19.4. [***] MESSAGES
The [***] will be concatenated with the language code
from [***] to create the key to the appropriate message
to be printed on the invoice. If a match is not found
[***].[***]
There can be [***].
[***] Each Airbill Detail Message will be [***].
[***].[***]
0.20. FEDEX STATEMENT CATEGORY
Federal Express Remittance Records will contain a field
called [***] which is used to determined [***] being
processed. Depending on the [***] invoice descriptions
are printed in the [***] of the [***] and [***]
are printed in [***] after the [***]. Also, some
[***] require special messages in [***].
All [***] except [***] will have the following
message printed at the top of the [***]:"[***].[***]".
0.20.1. REGULAR/REBILL INVOICE
For a Regular Invoice, the [***] and for a Rebill
Invoice that field contains [***].
[***] For regular and rebill invoices, nothing is printed
in [***].
For rebill invoices, the special message printed in bold in
[***] will be "[***]". Also, in the [***], print "[***]"
in bold.
There are no [***], however, on the [***] print "[***]"
in bold.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
0.20.2. POWERSHIP SUPPLEMENTAL INVOICE
PowerShip Supplementals are invoices that contain [***].
The [***]".
[***] For [***] the description area at the top of
the invoice will contain the words "[***]" in bold. The
following special message is passed to IBS in the
datastream: [***].[***].[***].[***]."
Also, on the Remittance Stub, IBS will print "[***]" in
bold. The [***] on a [***].
0.20.3. PARTIAL REPRINT INVOICE
[***] are sent [***]. It [***] the [***]
that [***].[***].
[***] Print the words "[***]" in [***] on the
[***]. The following [***] is passed to IBS in the
datastream: [***]. In the [***], print "[***]"
in bold.
Also, if the [***], a [***] will be [***] to [***].
0.20.4. REPRINT INVOICE
This is a reprint of an invoice. [***].
[***] Print the word "[***]" in [***]. For
reprint invoices, [***]:"[***].[***].
In the Remittance Stub, print "[***]" in [***].
Also, if the [***], a [***] will be [***] to [***].
0.20.5. PAST DUE INVOICE
This invoice type is sent to the payor when no payment has
been received for the original invoice. [***].
[***] Print "[***]" in [***] at the [***]. The
[***] for this type of invoice is "[***].[***].
[***].[***].". Also, in [***] print "[***]"
in [***] in the [***].
0.20.6. [***] INVOICE
This invoice type is sent [***].
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
[***] Print "[***]" in [***] at [***]. The
[***] for this type of invoice is "[***].[***].
[***].[***].". Also, in [***] print "[***]"
in [***] in the [***].
0.20.7. [***] INVOICE
This invoice type is sent [***].
[***] Print "[***]" in [***] at the [***].
The [***] for this type of invoice is "[***].[***].
[***].[***].[***]. Also, in [***] print "[***]" in
[***] in the [***].
0.20.8. [***] INVOICE
This invoice type is sent [***].
[***] Print "[***]" in [***] at the [***].
There are no [***] for debit advice invoices, but print
"[***]" in [***] on the [***]. Also, print "[***]"
in [***] in the [***]. The [***] will be "[***]" in
[***], and the [***] at the [***] of the [***] will
be [***].
[***] 0.21. PAGE BREAK GUIDELINES
[***] will be responsible for inserting page breaks
within an invoice. All invoices will follow the [***].
0.22. PARAGRAPH BREAK GUIDELINES
This section is [***].
0.23. WIDOW/ORPHAN GUIDELINES
For messages other than the [***], the widow/orphan
rules are included in the [***] section of this document.
0.23.1. REMITTANCE PAGE
If all [***] ([***] of [***]) will [***] in the [***].
0.23.2. AIRBILL PAGE
If the [***] will [***] on the [***] the [***]
to a [***]. Also, if [***], or [***] (print "[***]"
and [***]).
0.23.3. SUMMARY PAGE
If the [***]. If a [***]. Also, if [***].
[***] 0.24. CASS
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
The CASS feature performs address verification and
correction. It also generates an Error Report, by account
number, detailing all recommended address changes.
FedEx statements will [***] .
FEDEX WILL RECEIVE [***] 0.25. AUTO PLAN SETUP
The Auto Plan Setup [***]. This [***].[***].
0.26. PLAN SELECTION
The Plan Selection [***].[***].
0.27. DYNAMIC INSERTING
The Dynamic Inserting feature [***].
[***].[***] Dynamic Inserting [***].
0.28. MICROFICHE
Microfiche can be [***], or from [***].[***] FedEx [***].
0.29. IBS POSTAL PROCESSOR
The IBS Postal Processor feature will [***].[***].
[***] the IBS Postal Processor feature.
0.30. FORMS VERIFICATION
The Forms Verification feature [***].[***].
[***] the Forms Verification feature.
0.31. AUTOMATED CONTAINER LINE
The Automated Container Line (ACL) feature [***] of
[***] the [***] to the [***].
[***] the Automated Container Line feature.
[***] FEDEX WILL UTILIZE THE DIRECT ACCESS FEATURE TO
OBTAIN ON-LINE REPORTING INFORMATION. THE CASS [***],
AND THE [***] WILL BE [***].
[***] 0.32. CASS ERROR REPORT
0.32.1. DESCRIPTION
The Error Report [***]. The [***] is [***] onto the [***].
0.32.2. FREQUENCY
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
The Error Report is [***], however, [***]. The
Error Report is [***]. For example, a [***] would
[***].
0.32.3. RESPONSIBLE PARTY
[***] generates the Error Report. [***].[***].[***].
CASS Error Reports [***] include associated materials to
assist in the interpretation and use of the Error Report.
0.32.4. ROUTING
This report is [***].
0.33. SPECIAL HANDLING RETURN MANIFEST REPORT
0.33.1. DESCRIPTION
This report [***] that were [***] and [***], and
the [***] with [***].
0.33.2. FREQUENCY
This report is [***].
0.33.3. RESPONSIBLE PARTY
[***] generates a [***] of this report.
0.33.4. ROUTING
THIS REPORT IS [***].[***] 0.34. DIRECT ACCESS
As your statement solutions partner, International Billing
Services (IBS) is committed to making critical job status
and statement detail data available to FedEx on-line, 24
hours a day, 7 days a week with its newest product, Direct
Access. Direct Access allows FedEx immediate access to data
on their statement processing jobs by linking them to IBS'
secured relational database. It provides FedEx with real-
time data-viewing and reporting capabilities, enabling
strategic decision-making and faster response to business
needs, Here is just a sampling of the many reports
available via Direct Access to FedEx:
- Corp Container
- Job Status
- Mailed Statement Distribution
- Insert Summary
- Production Statistics
- Sheet Distribution
- Postage Expense
[***] 0.35. TRANSMISSION INTEGRITY ASSURANCE
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
[***] WILL [***] PRODUCT AS THE DATA TRANSFER PROGRAM. IT IS EXPECTED
THAT [***] WILL EXTEND FROM [***].[***] 0.36. START OF CLOCK
The clock starts when [***] . Clock stoppages caused by [***].
0.37. INSERT LIMITATIONS
maximum of [***] inserts can be identified for a [***];
A [***] can be inserted into a single piece of mail, including
the [***]. The minimum insert size is [***] and the maximum
insert size is [***]. The remit envelope is [***].
A maximum of [***] stock can be identified per [***].
A maximum of [***] can be identified per [***].
IBS requires that the [***] be printed on [***]. This
[***] is usually placed in [***] in small print. If
the insert is folded, the [***] must be placed [***].
As many inserts are virtually identical, subtle
differences are easily mistaken. [***].
0.38. RELEASE TO PRINT
[***].
0.39. TURNAROUND COMMITMENT
The turnaround commitment for FedEx is [***].
0.40. DATA RETENTION PERIOD
PRINT IMAGE (PI) DATA WILL BE RETAINED [***].[***] 0.41. DATA/FORMAT
CHANGE CONTROL
FedEx will notify IBS Account Manager, in writing, at least
[***] days prior to any change in its data, stock,
envelopes, or statement format. Refer to contract schedule
(Section 1.10 {E}).
0.42. BILLING
Billing charges to FedEx are defined in the contract
document between IBS and FedEx.
[***] 0.43. ASSUMPTIONS AND/OR CONSTRAINTS
- This document addresses only those requirements for a
[***].[***] [***].
- Requirements currently identified for future phases include
[***]. IBS has not addressed these requirements in the
statement of work or the cost proposal.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
IBS ASSUMES THAT THE [***] STATEMENTS WILL BE PLACED INTO [***].[***].
[***] FEDEX DOES NOT REQUIRE IBS TO PROVIDE AN [***].[***] FEDEX DOES
NOT REQUIRE ANY [***].[***] 0.44. TEST DATA REQUIRED
IBS will work with Federal Express to ensure that a
representative sample of data is used for testing.
IBS is responsible for all [***].[***] as defined in
the testing milestones. FedEx also requires the following
items for product testing.
Accurate, complete invoices to be generated for the
following settlement types:
[***]
Examples of the following format attributes and features:
PRINT IMAGE TYPE:
[***]
DETAIL TYPES:
[***]
SORTS:
[***]
MESSAGES:
[***] A test failure occurs if the printed invoices do
not adhere to business requirements as specified in the
Final Statement of Work. These include print rules (Appendix D
of the Statement of Work) and the layout format as defined
by the statement mock-ups (Appendix A of the Statement of
Work). A test can also fail if it does not meet expected
print quality standards, as specified in Section 4.01,
Quality Standards in the Statement Production Services
Agreement.
0.45. REMITTANCE SCAN DECK TESTING
IBS will provide Federal Express with [***] scan deck
[***] for lock box testing purposes. The milestone for
this deliverable is [***]. The scan deck will be sent
to:
Chuck Haire
Federal Express
US Revenue Operations
2650 Thousand Oaks Blvd.
Suite 4150
Memphis, TN 38118
(901) 360-7005
0.46. CUSTOMER ACCEPTANCE CRITERIA
- Approval and signature on all Project Deliverable Acceptance
Documents.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
- Approval and signature on all artwork for statement and envelope
design. NOTE: There is a patent on the FedEx envelope.
- Approval and signature of statements produced in the IBS
end-to-end factory production test.
0.47. CUSTOMER RESPONSIBILITIES
- Customer is responsible for providing [***].
- Customer is responsible for providing [***] to IBS for [***]
prior to implementation. Data from [***] is requested if
there are any [***] which contain [***] or which have [***]
as identified during the analysis phase.
- Customer is responsible for providing approval for the Final
Statement of Work and feedback on the first statement samples
in the proposed scheduled outline.
- Customer is responsible for approving final samples of all
output products prior to the first IBS production run.
- Customer is responsible for appointing a single point of
contact for IBS during the implementation project. This person
is responsible for bringing the appropriate customer resources
into the project as needed in order to get accurate answers to
specific questions in a rapid manner. This person should be
generally knowledgeable about the customer's current billing
processes and procedures.
0.48. IBS RESPONSIBILITIES
- IBS is responsible for developing [***] as described and
for the production of statements as described in this
Statement of Work.
- IBS is responsible for appointing a single point of contact
for the project. This person is responsible for coordinating
the implementation of the Customer across all IBS departments.
- IBS will provide [***] for testing
- IBS will assist in [***] setup
- IBS will design and order [***]
- IBS will transmit a [***] Report to FedEx after each corp
has mailed.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
0.49. PROJECT MILESTONES
[***] [***] [***]
- - Negotiate Professional Services Contract [***] [***]
- - Final approval on all invoice mockups [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***] [***]
- - [***] [***]
0.50. CUSTOMER APPROVAL SIGNATURE PAGE
Your signature below signifies that you have read,
understood, and approve this Statement of Work, with the
following noted changes for the Federal Express project.
Changes must be counter-approved by IBS prior to acceptance
and implementation.
Dorothy E. Berry
FedEx -- Printed Name
/Dorothy E. Berry/
Signature
7/16/97 [***] Date
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
This Statement of Work is approved with the following changes:
The initialed changes noted above have been discussed and accepted into the
scope of this project, and will be incorporated into the final version of
this document.
Douglas Thompson
IBS -- Printed Name
/Douglas Thompson/ [***] Signature
7/2/97 [***] Date
APPENDICES
APPENDIX A: FEDEX STATEMENT MOCKUPS
APPENDIX B: FEDEX STATEMENT FONT SPECIFICATIONS
APPENDIX C: FEDEX STATEMENT MOCKUPS WITH DATA MAPPING
APPENDIX D: FEDEX INPUT FILES / PRINT RULES
APPENDIX E: CUTOFF SCHEDULE & VOLUME DESCRIPTION
APPENDIX F: CORP NUMBERS
Appendix G: File Naming Convention
APPENDIX H: CONVERSION CONTACT INFORMATION
APPENDIX I: ESCALATION CONTACT INFORMATION
APPENDIX J: FEDEX / IBS NETWORK DESIGN
APPENDIX K: ERROR CONDITIONS
APPENDIX L: FEDEX CONTROL REPORT FILE DEFINITION & RECORD LAYOUT
APPENDIX M: STOCK / ENVELOPE DIAGRAMS
APPENDIX N: ARCHIVE PROCEDURES
APPENDIX A: FEDEX STATEMENT MOCKUPS
[***]
APPENDIX B: FEDEX STATEMENT FONT SPECIFICATIONS
[***]
APPENDIX C: FEDEX STATEMENT MOCKUPS WITH DATA MAPPING
[***]
APPENDIX D: FEDEX INPUT FILES / PRINT RULES
[***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
APPENDIX E: CUTOFF SCHEDULE & VOLUME DESCRIPTION
[***]
APPENDIX F: CORP NUMBERS
[***]
Appendix G: File Naming Convention
[***]
APPENDIX H: CONVERSION CONTACT INFORMATION
[***]
APPENDIX I: ESCALATION CONTACT INFORMATION
[***]
APPENDIX J: FEDEX / IBS NETWORK DESIGN
[***]
APPENDIX K: ERROR CONDITIONS
[***]
APPENDIX L: FEDEX CONTROL REPORT FILE DEFINITION & RECORD LAYOUT
[***]
APPENDIX M: STOCK / ENVELOPE DIAGRAMS
[***]
APPENDIX N: ARCHIVE PROCEDURES
[***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "B"
CONVERSION COSTS
I. Agreed Medium for Transmission- [***]
II. Agreed Format-As set forth in Exhibit "A"
III. Agreed Conversion Schedule-See Attachment B-1
IV. Cost of Initial Conversion-See Exhibit "C"
V. Cost for Additional Conversion Services-See Exhibit "C"
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "C"
PRICES
INTERNATIONAL BILLING SERVICES (IBS)
ATTACHMENT B
FOR
FEDERAL EXPRESS
APPLICATION OF UNIT PRICING
PRODUCTS & SERVICES
IBS will: - [***]
ACCOUNT STATEMENTS INCLUDE:
[***]
[***] STATEMENTS
- Provide [***]
- Provide [***]
- Provide [***]
- Provide [***]
VOLUME ASSUMPTIONS
CUTOFFS STATEMENTS SHEETS PRINT IMAGES COMPUTER IMAGES
Account
Statements [***] [***] [***] [***] [***]
OTHER CHARGES
OTHER CHARGES
CHARGE UNIT MINIMUM EVENT
12. Account Statement Run Minimum [***] 13. Plan Setup [***]
[***]
The price for custom software development and design services for Account
Statement Production as contained within
CUSTOM SOFTWARE DEVELOPMENT AND DESIGN SERVICES [***]
Pre-processor Software Development $ [***]
Statement Design Services $ [***]
TOTAL $ [***]
SPECIAL SERVICES
SPECIAL SERVICES
UNIT CHARGE PER UNIT PER EVENT MINIMUM EVENT
14. [***] 15. [***] 16 [***] 17. [***] 18. [***] 19. [***] 20. [***]
21. [***]
PROCESSING INTERRUPTIONS
22. Hold [***] 23. Halt /Restart / Abort [***]
INSERT HANDLING
24. [***] 25. [***]
ACCOUNT STATEMENT SPECIAL HANDLING
26. [***] 27. [***] 28. [***] 29. [***] 30. [***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
*Note: Pulled Account Statement fee will be a maximum of [***] per [***].
If more than [***] required to be pulled from [***] charge will apply.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
5 YEAR PRICING
ACCOUNT STATEMENTS
[***] Statements
[***] Printers
[***]
[***] Cutoffs per Month
STATEMENT [***] [***] [***] [***] [***] [***] [***] [***] [***]
VOLUMES FROM:
STATEMENT [***] [***] [***] [***] [***] [***] [***] [***] [***]
VOLUMES TO:
[***] [***] UNIT UNIT UNIT UNIT UNIT UNIT UNIT UNIT UNIT
PRICE PRICE PRICE PRICE PRICE PRICE PRICE PRICE PRICE
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Note: After the ramp-up scheduled for completion [***], the Unit Prices will
be based on the actual statement volume processed for the month.
Durring the ramp-up period scheduled for completion [***] the Unit
Prices will be based on [***] statement volumes.
*** Portions of this exhibit have been relacted pursuant to a Confidential
Treatment Request.
<PAGE>
[***] PRICING
STATEMENT MARKETING SERVICES VOLUME DISCOUNTS
MARKETING INSERTS)
DISCOUNT %
SALES VOLUME PERCENTAGE CREDIT
[***]
Statement Marketing Services specializes in helping IBS customers to
market and communicate with their customers.
Our expertise is built on developing and implementing high-impact
marketing campaigns that have allowed our customers
to maximize the value of their mailings, increase response rates and
put additional revenue in their pockets. To achieve
this goal we would like to provide you with an annual volume discount
program, to be paid in the form of a credit at the end
of your fiscal year.
[***] PRICING
ACCOUNT STATEMENT ARCHIVE IMAGE PROCESSING
AFP IMAGE FILE
ESTIMATED [***] VOLUMES UNIT UNIT PRICE
[***] Computer Image [***]
ITEMS PRICE
Mailing, Pickup and Delivery [***]
Account Statement Archive Image Processing will include [***] [***].
The archive file will be [***] have been mailed.
*** Portions of this exhibit have been relacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "D"
IMPLEMENTATION SCHEDULE
I. FLOW CHART FOR IMPLEMENTATION-See Attachment D-1
II. ORIENTATION AND TRAINING OF FEDERAL'S PERSONNEL
A. Training on the Direct Access System shall be completed by no later
than [***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "E"
SYSTEMS TESTING, RE-TESTING, IF APPLICABLE, AND ACCEPTANCE
I. A. Network Connectivity Testing-Success must be achieved with regard to
this test no later than [***]
B. Products Test-Success must be achieved with regard to this test no
later than [***]
C. Controls File-Success must be achieved with regard to this test no
later than [***]
D.. Initial CD-ROM Archive Test-Success must be achieved with regard
to this test no later than [***]
E. Daily Volume Test Transmissions-Success must be achieved with regard
to this test no later than [***].
F. Lockbox Test-Success must be achieved with regard to this test no
later than [***].
If IBS fails any of the above testing and cannot demonstrate success in the
area being tested, Federal, at its sole discretion, has the right allow IBS
to re-test beyond the dates set forth above or to terminate this Agreement
without notice to IBS or any penalty or liability hereunder.
II. IBS End-to-End Factory Test
A. First End-to-End Factory Test shall be performed on or before [***]
1. If the End-to-End Factory Test is successful, Federal shall sign an
Acceptance Form in substantially the form attached hereto as Attachment E-1.
2. If the End-to-End Factory Test is unsuccessful, IBS has [***] days
to remedy.
B. Second End-to-End Factory Test.
1. If the End-to-End Factory Test is successful, Federal shall sign an
Acceptance Form in substantially the form attached hereto as Attachment E-1.
2. If the End-to-End Factory Test is unsuccessful, IBS has [***]
days to remedy.
C. Third End-to-End Factory Test.
1. If the End-to-End Factory Test is successful, Federal shall sign an
Acceptance Form in substantially the form attached hereto as Attachment E-1.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
2. If the End-to-End Factory Test is unsuccessful, Federal, at its sole
discretion, has the right to terminate this Agreement without notice to IBS
or any penalty or liability hereunder.
In those instances in which live statement runs occur and result in a
statement's being mailed by IBS for Federal and such occurs prior to the
Execution Date, as that term is defined below, the Parties agree to be bound
by the provisions related to the payment terms of this Agreement as if they
had been in effect on the date of the live statement run.
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
ATTACHMENT E-1
FORM OF ACCEPTANCE DURING TESTING PROCESS
[***] International Billing Services
Project Deliverable Acceptance Document
Customer Name: Federal Express Document No.: FEDEXnn
Deliverable: FedEx Deliverable Name Issue Date: mm/dd/yy
Project Name: FedEx Phase I Implem,entation I.S. Project Manager: Terri
Fisher
Project No: [***]
Acceptance Deliverable(s):
Description: 'Place deliverable description here'.
Acceptance:
The intent of this document is to obtain verification that the referenced
deliverable(s) are acceptable and meet the requirements of Federal Express.
Sign off indicates that the deliverable has been accepted. If accepted, any
future requirement changes which impact this deliverable can cause schedule
delays and/or cost impacts.
Deliverable is accepted: With Modifications: Without Modifications:
Describe modifications below or on attached sheets:
Acceptor Name:
Acceptor Signature:
Acceptor Title:
Date Accepted:
Agreement on Modifications:
IBS and FedEx agree to the following modifications as being within the scope
of the project:
FedEx Signature: IBS Signature:
Date: Date:
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "F"
CHANGE ORDER
Statement Production Services Agreement No. [***] Change Order Date:
To Consultant: INTERNATIONAL BILLING SERVICES, INC.
Address:
City/State:
As provided in your Statement Production Services Agreement with Federal
Express Corporation dated as of June 25, 1997, the following changes in the
Work are made:
This Change Order when signed by the Parties will have the following
effect on Prices:
This Change Order in no other way alters the terms and conditions of the
Agreement which are ratified and confirmed other than as amended by this
Change Order.
INTERNATIONAL BILLING SERVICES, INC. FEDERAL EXPRESS CORPORATION
By: By:
Title: Title:
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "G"
FORM OF INVOICE
[***]
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "H"
NON-DISCLOSURE AGREEMENT
Contract No. [***]
MUTUAL NON-DISCLOSURE AGREEMENT
This MUTUAL NON-DISCLOSURE AGREEMENT (the "Agreement") made this ____ day of
____ , 199__ (the "Effective Date") between FEDERAL EXPRESS CORPORATION
("Federal") and INTERNATIONAL BILLING SERVICES, INC ("IBS").
RECITALS
1. Federal and IBS have each developed certain confidential and
proprietary information ("Federal's Confidential Information" or "IBS's
Confidential Information") including, but not limited to, financial
statements, financing documents, trade secrets, new products, copyrights,
computer software, documentation, specifications, systems, hardware,
concepts, designs, configurations, schedules, costs, performance features,
techniques, copyrighted matter, patentable and patented inventions, plans,
methods, drawings, data, tables, calculations, documents or other paperwork,
computer program narratives, flow charts, source and object codes, business
and marketing plans, dealings, arrangements, objectives, locations and
customer information.
2. In order to discuss the pursuit of a business relationship, Federal
and IBS recognize the need for disclosure of Federal's Confidential
Information to IBS, and of IBS's Confidential Information to Federal.
3. Federal is willing to disclose its Confidential Information to IBS and
IBS is willing to disclose its Confidential Information to Federal pursuant
to the terms and subject to the conditions of this Agreement.
FOR AND IN CONSIDERATION of the mutual covenants contained in this Agreement,
Federal and IBS (individually a "Party" and collectively the "Parties") agree
as follows:
Section 1. Confidentiality of Information. (a) Each party acknowledges
that all Confidential Information which has or will come into its possession
or knowledge after the Effective Date in connection with business
discussions, conferences or other activities in pursuit of a business
relationship between Federal and IBS:
(i) is proprietary to the disclosing party, having been designed,
developed or accumulated by the disclosing party at a great expense and over
lengthy periods of time and
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
(ii) is secret, confidential and unique, and constitutes the exclusive
property of the disclosing party. Each party acknowledges that any disclosure
of the other's Confidential Information other than for the benefit of the
other party will be wrongful and will cause irreparable injury to the other
party and, therefore, each party agrees to hold the other's Confidential
information in strictest confidence and not to make use of it other than for
the benefit of the other party.
(b) Information shall be deemed "Confidential Information" and shall be
subject to the terms of this Agreement if:
(i) the party to which such information is being
disclosed is notified that the information is confidential
or proprietary prior to its disclosure; or
(ii) information in a tangible form is labeled as confidential or
proprietary prior to its disclosure; or
(iii) the party to which such information is being disclosed knows that
such information is confidential or proprietary or would be reasonably
expected to understand the confidential or proprietary nature of such
information.
Section 2. Non-Disclosure to Third Parties. Neither party shall
communicate the other's Confidential Information in any form to any third
party without the other party's prior written consent and each party shall
use its best efforts to prevent inadvertent disclosure of the other's
Confidential Information to any third party. Any Confidential Information
disclosed to a third party pursuant to this Section shall be provided
pursuant to a non-disclosure agreement between the party providing the
information and the third party, which non-disclosure agreement shall
substantially conform to this Agreement. In addition, the parties agree that
they will conform to the provisions of applicable securities laws in
connection with their use of the Confidential Information.
Section 3. Authorized Disclosure. The parties acknowledge that in order to
enable them to discuss pursuit of a business relationship each may be
required to disseminate the other party's Confidential Information to various
of its employees. Each party undertakes to cause any of its employees to whom
such Confidential Information is transmitted to be bound to the same
obligation of secrecy and confidentiality to which the parties are bound
under this Agreement.
Section 4. Survival of Terms. The obligations of this Agreement shall
terminate with respect to any particular portion of a party's Confidential
Information:
(i) if either party can show that the Confidential Information
received from the other is or has become generally available to the public
through no violation of the terms of this Agreement;
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
(ii) if either party can show that such Confidential Information is in
a written record in such party's files prior to receipt from the other party;
(iii) if either party at any time lawfully obtains such Confidential
Information in writing from a third party under circumstances
permitting its disclosure;
(iv) if such Confidential Information is disclosed with the prior
written consent of the party to whom such Confidential Information belongs,
provided that any disclosure complies in all respects with the terms of such
written consent; or
(v) if such Confidential Information is disclosed pursuant to the
lawful requirement of a governmental agency or required by operation of law;
provided that the party to whom such Confidential Information belongs
shall be given written notice prior to such disclosure and such disclosure
shall be permitted only to the extent required by law.
Otherwise, the obligations of this Agreement with respect to either party's
Confidential Information shall terminate on the later of (i) three (3) years
after the Expiration Date (or earlier termination date) of this Agreement as
set forth in Section 5 hereof, or (ii) in the event there are
any contracts or agreements between the parties which are entered into in
connection with information disclosed under this Agreement, three (3) years
after the date of termination or expiration of all such contracts and
agreements between the parties.
Section 5. Extent of Agreement. (a) This Agreement shall govern all
communications between Federal and IBS that are made from the Effective Date
of this Agreement through and including the date which shall be three (3)
years from the Effective Date of this Agreement (the "Expiration Date").
Notwithstanding the Expiration Date, the parties agree that in the event of
any breach of this Agreement by a party, the injured party shall have the
right to immediately terminate this Agreement.
(b) This Agreement is not an agreement by either party to enter into any
business relationship with the other or to procure any product or service
from the other. Any agreement for such business relationship, purchase or
other procurement shall be at the discretion of the parties and shall be
evidenced by separate written agreements executed by the parties.
Section 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Tennessee.
written.
Section 7. Injunctive Relief. In addition to and not in lieu of the
right to terminate as provided in Section 5, the parties agree that in the
event of any violation or threatened
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
violation of this Agreement the injured party shall be authorized and
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as an equitable accounting of all profits
or benefits arising from such violation, which rights and remedies shall be
cumulative and in addition to any other rights or remedies at law or in
equity to which the injured party may be entitled.
Section 8. Valid Agreement. Both parties acknowledge that this Agreement
is valid and legally binding and has been executed by an authorized
representative, and each party confirms and ratifies the terms and conditions
herein.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date
first above written.
INTERNATIONAL BILLING SERVICES, INC.
By: /R. Karl Turner/
Title: Sr. Vice President
("IBS")
APPROVED LEGAL DEPT. TK 10/21/96
FEDERAL EXPRESS CORPORATION
By: /Sandra W. Cohn/
Title: Managing Director
("Federal")
APPROVED AS TO LEGAL FORM CSS 10/11/96
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
EXHIBIT "I"
PRESS RELEASE
LMEM1 49148.1 07/02/97 5:13 PM
DRAFT 6-30-97 HOLD FOR RELEASE
For More Information Contact:
Linda Cutler
VP, Investor Relations
USCS International, Inc.
Phone: 916.636.5861
Email: [email protected]
Morgen-Walke Associates, Inc.
Suzanne Craig, Jim Byers, Doug Sherk
Phone: 415.296.7383
FEDERAL EXPRESS CHOOSES USCS INTERNATIONAL SUBSIDIARY,
INTERNATIONAL BILLING SERVICES
FOR STATEMENT PROCESSING ASSISTANCE
EL DORADO HILLS, Calif., July XX, 1997 - USCS International today announced
that its subsidiary, International Billing Services (IBS), a leading provider
of complete statement processing solutions, today announced it has signed a
5-year contract with Federal Express Corporation. Under the terms of the
contract, IBS will process and produce billing statements sent monthly to
customers of the world's leading express delivery service.
Federal Express has also relied on IBS to redesign its statements, making
them easier to understand, more informative and consistent with the company's
corporate identity. This is the first time Federal Express has changed its
statement design since the company's formation in 1971.
"This agreement is an important step in our strategy to expand our solutions
to world-class companies outside of the communications marketplace," said IBS
President Randy Lintecum. "We look forward to working with Federal Express
to help provide exemplary billing services to their customers."
International Billing Services is the leading provider of complete statement
processing solutions for the communications marketplace, with a significant
presence in other industries. IBS is a USCS International (NASDAQ:USCS)
company. USCS International offers
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
customer management software and statement processing solutions to the global
communications marketplace. In the United States, the company currently
serves 58 percent of all cable television subscribers, 39 percent of all
cellular telephone subscribers and 11 percent of all landline telephone
subscribers. USCS International's clients include providers of cable
television, wireless and landline telephony, direct broadcast satellite and
multiple communications services in the United States and 20 other countries.
More information on IBS' products and services can be found at
http://www.billing.com. ###
*** Portions of this exhibit have been redacted pursuant to a Confidential
Treatment Request.
<PAGE>
For more information, contact:
USCS International, Inc.
Doug Shurtleff
Chief Financial Officer
Linda Cutler
Vice President, Investor Relations
(916) 636-5861
Morgen-Walke Associates, Inc.
Jim Byers, Suzanne Craig, Doug Sherk
(415) 296-7383
Josh Passman
FOR IMMEDIATE RELEASE (212) 850-5698
USCS INTERNATIONAL COMMENTS ON TCI ANNOUNCEMENT
RANCHO CORDOVA, Calif., August 11, 1997 - USCS International, Inc.
(Nasdaq:USCS) today reported that it received notification from
Tele-Communications, Inc. (TCI) after the stock market opening that a
competitive bid had been chosen by affiliates of TCI for a 15-year customer
management contract and the purchase of the SUMMITrak assets. SUMMITrak is an
in-house customer care and billing system in beta test by affiliates of TCI.
"As previously reported, we have been planning for a migration of TCI's
U.S. subscribers to the SUMMITrak system," stated Dr. James Castle, chairman
and chief executive officer of USCS. "We, along with several other companies,
have been in disussions with TCI regarding the potential sale of the
SUMMITrak assets and the associated long term customer management contract.
We made an attractive offer to TCI and we were told we would be notified of
their decision at the close of business today. TCI's decision will not have
an impact on our previously stated long term strategy to grow and diversify
our customer and geographic base. We will continue to aggressively pursue
business in the worldwide telecommunications market including U.S. cable. In
addition, we have been expanding our presence in industries outside of our
traditional telecommunications marketplace."
<PAGE>
Dr. Castle noted that for the six month period ended June 30, 1996, TCI
and its affiliates represented approximately 18% of USCS International's
total revenues. "It is important to note that we believe there will be a
orderly transition of TCI subscribers over an extended period, thus reducing
both the short and long term impact on our Company's financial performance,"
Dr. Castle concluded.
This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. Actual results could differ materially from those
projected in the forward-looking statements, which involve a number of risks
and uncertainties and should be considered in conjunction with the cautionary
statements contained in the registration statement filed by USCS on Form S-1
and declared effective by the Securities and Exchange Commission on June 20,
1996, and its report on Form 10K for the year ended December 31, 1996.
USCS International is a leading provider of customer management software
and statement processing solutions to the global communications marketplace.
In the United States, the Company currently serves 58 percent of all cable
television subscribers, 30 percent of all cellular telephone subscribers and
11 percent of all landline telephone subscribers. USCS International's clients
include providers of cable television, wireless and landline telephony,
direct broadcast satellite and multiple communications services in the United
States and 20 other countries. More information on USCS International can be
found at http://www.uscs.com.
