<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACE*COMM CORPORATION
(Exact name of registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
MARYLAND 3669 52-1283030
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
--------------------------
209 PERRY PARKWAY
GAITHERSBURG, MARYLAND 20877
(301) 258-9850
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
GEORGE T. JIMENEZ
PRESIDENT
ACE*COMM CORPORATION
209 PERRY PARKWAY
GAITHERSBURG, MARYLAND 20877
(301) 258-9850
(Name, Address and Telephone Number of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Ariel Vannier, Esq. Melvin Epstein, Esq.
Venable, Baetjer and Howard, LLP Stroock & Stroock & Lavan
1800 Mercantile Bank and Trust Building Seven Hanover Square
Two Hopkins Plaza New York, New York 10004-2696
Baltimore, Maryland 21201-2978 (212) 806-5400
(410) 244-7400
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE HEREOF.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 2,895,933 Shares(2) $11.00 $31,855,263 $10,984.66
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 377,730 shares which the Underwriters have the right to purchase
from the Company solely to cover over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
ACE*COMM CORPORATION
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM AND CAPTION LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
PART I
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................. Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Page of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Principal and Selling Stockholders
8. Plan of Distribution................................. Underwriting
9. Description of Securities to be Registered........... Description of Capital Stock
10. Interest of Named Experts and Counsel................ Not Applicable
11. Information With Respect to the Registrant........... Front Cover Page; Prospectus Summary; Risk Factors;
Use of Proceeds; Dividend Policy; Capitalization;
Dilution; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Certain
Transactions; Principal and Selling Stockholders;
Description of Capital Stock; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 25, 1996
PROSPECTUS
2,518,203 SHARES
ACE*COMM CORPORATION
COMMON STOCK
---------------------
Of the 2,518,203 shares of Common Stock, $.01 par value per share ("Common
Stock"), of ACE*COMM Corporation ("ACE*COMM" or the "Company"), offered hereby,
2,250,000 shares are being offered by the Company and 268,203 shares are being
offered by a stockholder of the Company (the "Selling Stockholder"). See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholder. Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$9 and $11 per share. See "Underwriting." The Company has applied to have the
Common Stock listed on the Nasdaq National Market under the symbol "ACEC."
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING AT
PAGE 8.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE- SENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO THE
DISCOUNTS AND PROCEEDS TO THE SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $750,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 377,730 additional shares of Common Stock, on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to the Company and Proceeds to the
Selling Stockholder will be $ , $ , $ and
$ , respectively. See "Underwriting."
The shares are being offered by the several Underwriters, subject to prior
sale, when, as, and if delivered to and accepted by the Underwriters, and
subject to various prior conditions, including the right to reject orders in
whole or in part. It is expected that delivery of share certificates will be
made against payment therefor at the offices of Furman Selz LLC in New York, New
York, on or about , 1996.
FURMAN SELZ
OPPENHEIMER & CO., INC.
RODMAN & RENSHAW, INC.
---------------
The date of this Prospectus is , 1996.
<PAGE>
The inside front cover page contains a map of the world indicating the
number of installations of the Company's products and the countries in which the
Company's products have been installed.
In addition, the inside front cover folds open to reveal two pages, which
contain brief descriptions of the Company's carrier network products and network
management products and depict where such products fit within an end user's
network.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) THE EFFECT OF A 5.42-FOR-ONE
STOCK SPLIT OF THE COMPANY'S COMMON STOCK TO BE EFFECTED IN THE FORM OF A STOCK
DIVIDEND PRIOR TO THE DATE OF THIS PROSPECTUS, (III) THE REDEMPTION OF ALL
OUTSTANDING SHARES OF THE COMPANY'S CLASS B PREFERRED STOCK AND (IV) THE
CONVERSION OF ALL OUTSTANDING SHARES OF THE COMPANY'S CLASS C CONVERTIBLE
PREFERRED STOCK (THE "CLASS C PREFERRED STOCK") INTO 1,843,944 SHARES OF COMMON
STOCK, WHICH WILL OCCUR AUTOMATICALLY UPON THE COMPLETION OF THIS OFFERING. THE
COMPANY CONSIDERS TELECOMMUNICATIONS SERVICE PROVIDERS TO CONSIST GENERALLY OF
BOTH CARRIERS OPERATING VOICE AND DATA NETWORKS FOR THEIR CUSTOMERS AND OF
ENTERPRISES WHICH OPERATE VOICE AND DATA NETWORKS FOR THEIR OWN USE. CERTAIN
TECHNICAL TERMS AND ACRONYMS USED IN THIS PROSPECTUS ARE DEFINED IN THE
"GLOSSARY OF TERMS" BEGINNING ON PAGE 55.
THE COMPANY
ACE*COMM Corporation ("ACE*COMM" or the "Company") develops, markets and
services operations support systems ("OSS") products for networks deployed by
telecommunications service providers, such as telephone companies, other public
carriers and large enterprises operating data and voice networks using intranets
and the Internet. The Company's products perform such functions as billing data
collection, network surveillance, alarm processing and network management for
some of the largest carriers and enterprises in the world.
Increasing worldwide demand for data, voice and video services has created a
need for increased network capacity and new network services. In addition,
telecommunications service providers face an increasingly competitive
environment due to continued deregulation and privatization of the global
telecommunications industry. In response to these developments, interexchange
and local exchange carriers and providers of Internet, personal communications
and cellular services are offering a wide range of network features and options.
As a result of the growth in network usage and new services, large enterprises
require timely, accurate information regarding network performance and system
usage to support the increasing volumes of data and voice communications to and
from employees, customers and suppliers. ACE*COMM's solutions are designed to
enable carriers and large enterprises to optimize the use of new and existing
communications networks.
The Company's carrier network products connect to existing network
infrastructures and enable carriers to rapidly and accurately collect call
records and performance data which are used for billing, fraud detection,
customer care, marketing research and forecasting, and other operations support
functions. These products are designed to enhance the carriers' competitive
position by allowing them to offer new features and services, minimize network
down-time, increase revenue through more accurate and timely billing and improve
network productivity. The Company believes that it is well positioned to
continue to offer its carrier network products to international customers
located, for example, in Europe, Asia and the Pacific Rim, which typically
operate a wide variety of switches from different manufacturers and require a
data collection system capable of adapting to and integrating with the billing
system and other OSSs.
Leveraging its experience in developing carrier network products, the
Company has also produced network management products that meet the growing
needs of large enterprises in the United States and abroad, including government
agencies, military organizations, educational institutions and "Fortune 1000"
size organizations. As these enterprises have become increasingly dependent on
the Internet and intranets for voice and data communications, their demand for
reliable and flexible network management tools has increased. The Company's
network management products consist of standardized software-based systems that
enable network managers to manage voice and data communications by automating
service administration, tracking network connections, detecting system errors
and malfunctions, controlling network inventory assignments and configuration,
monitoring
3
<PAGE>
traffic and performing billing functions. The Company's network management
products are designed to increase the efficiency of communication operations and
incorporate recent developments in object-oriented development, real-time
response, client server architecture and graphical user interfaces.
The Company is well positioned to develop products to support the
convergence and growth of telephony and data networks within the enterprise, as
a result of its knowledge and experience in data control and network switching
technology, data capture and warehousing, and client-server systems. The Company
presently is partnering with Newbridge Networks Corporation ("Newbridge") to
develop software designed to provide billing data collection capabilities for
asynchronous transfer mode ("ATM"), Frame Relay and X.25 switch users. The
Company anticipates similar opportunities to develop other network edge
technologies for equipment and service providers in the data services market.
The Company has established strategic alliances with several companies in
order to distribute its products effectively and develop products that can be
responsive to the needs of the Company's end users. The Company's principal
strategic partners are AT&T Corporation, Cincinnati Bell Information Systems,
Inc. ("CBIS"), Teleglobe Canada, Inc. ("Teleglobe"), International Computers
Limited ("ICL"), Lucent Technologies, Inc., GTE Government Systems Corporation
("GTE Government Systems") and BellSouth Communication Services, Inc.
("BellSouth"). These relationships have resulted in the sale of products to
domestic and overseas carriers, the U.S. Armed Forces, the U.S. Department of
State and major airports, among others. The alliances have been especially
helpful in enabling the Company to further penetrate, on a cost-effective basis,
the international telecommunications carrier markets, where the Company's
alliance partners are well recognized and have well-developed business
relationships. The Company also sells directly to large customers such as
Telefonos de Mexico S.A. de C.V. ("TELMEX"), NYNEX and the University of Iowa.
The Company's carrier network products have been installed in over 500 end
user sites in 32 countries and its network management products have been
installed in over 100 end user sites in 10 countries. The Company believes that
these installations constitute one of the largest installed bases in the world
for billing mediation and network management systems in the telecommunications
service provider market. The Company's telecommunication carrier products can be
tailored to the needs of operating companies in both the wireline and wireless
sectors, as well as end users, regardless of the geographical location of the
switches. The Company's network management products are compatible with
virtually all standard network management platforms.
The Company was incorporated in the State of Maryland in 1983. Its principal
executive offices are located at 209 Perry Parkway, Gaithersburg, Maryland
20877, and its telephone number is (301) 258-9850. The Company's site on the
World Wide Web is located at http://www.acec.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company........................ 2,250,000 shares
The Selling Stockholder............ 268,203 shares
Common Stock to be outstanding after
the offering......................... 8,418,442 shares(1)
Use of Proceeds to the Company....... For general corporate purposes, including working
capital, the employment of additional personnel, the
repayment of bank indebtedness, the redemption of
Class B Preferred Stock and the repayment of certain
indebtedness held by the holder of such stock and by
a related party. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................... ACEC
</TABLE>
- ------------------------
(1) Excludes 1,293,217 shares of Common Stock issuable upon exercise of
outstanding options.
RISK FACTORS
For a discussion of certain factors that should be considered by prospective
purchasers of the securities offered hereby, see "Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue -- products and services......... $ 11,137 $ 14,523 $ 12,415 $ 9,238 $ 13,111
Costs and operating expenses:
Cost of products and services.......... 5,870 7,675 6,579 4,758 6,672
Selling, general and administrative.... 4,065 5,473 6,049 4,675 4,744
Research and development............... 780 573 1,045 712 631
--------- --------- --------- --------- ---------
(Loss) income from operations............ 422 802 (1,258) (907) 1,064
Interest expense, net.................... (53) (156) (335) (229) (285)
--------- --------- --------- --------- ---------
(Loss) income before income taxes and
extraordinary item...................... 369 646 (1,593) (1,136) 779
Income taxes............................. (151) -- -- -- --
--------- --------- --------- --------- ---------
(Loss) income before extraordinary
item.................................... 218 646 (1,593) (1,136) 779
Extraordinary item -- tax benefit of net
operating loss carryforwards............ 151 -- -- -- --
--------- --------- --------- --------- ---------
Net (loss) income........................ $ 369 $ 646 $ (1,593) $ (1,136) $ 779
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net (loss) income per
share (1)............................... $ (0.26) $ 0.12
--------- ---------
--------- ---------
Shares used to compute pro forma net
(loss) income per share (1)............. 6,200,992 6,510,335
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1995 1995 1995 1995 1996
----------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue -- products and services..... $ 2,879 $ 3,552 $ 2,807 $ 3,177 $ 3,433 $ 4,772 $ 4,906
Costs and operating expenses:
Cost of products and services...... 1,485 2,027 1,246 1,821 1,736 2,736 2,200
Selling, general and
administrative.................... 1,505 1,576 1,594 1,374 1,362 1,610 1,772
Research and development........... 218 268 226 333 132 235 264
----------- --------- --------- --------- ----------- --------- ---------
(Loss) income from operations........ (329) (319) (259) (351) 203 191 670
Interest expense, net................ (53) (74) (102) (106) (104) (97) (84)
----------- --------- --------- --------- ----------- --------- ---------
(Loss) income before income taxes.... (382) (393) (361) (457) 99 94 586
Income taxes......................... -- -- -- -- -- -- --
----------- --------- --------- --------- ----------- --------- ---------
Net (loss) income.................... $ (382) $ (393) $ (361) $ (457) $ 99 $ 94 $ 586
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
</TABLE>
- ------------------------
(1) For a description of the computation of pro forma net (loss) income per
share and shares used in computing pro forma net (loss) income per share,
see Note 1 to the Company's financial statements included elsewhere in this
Prospectus.
6
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AS
ACTUAL(1) ADJUSTED(2)
----------- -----------
BALANCE SHEET DATA:
<S> <C> <C>
Cash............................................................. $ 2 $ 16,520
Working capital (deficit)........................................ 2,588 19,228
Total assets..................................................... 8,861 25,379
Total liabilities................................................ 7,167 3,819
Stockholders' equity............................................. 1,694 21,560
</TABLE>
- ------------------------
(1) Gives effect to the conversion of all outstanding shares of Class C
Preferred Stock into 1,843,944 shares of Common Stock.
(2) Adjusted to reflect the sale of 2,250,000 shares of Common Stock offered by
the Company hereby at an initial offering price of $10 per share (the
mid-point of the estimated range of the initial public offering price) after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company, and the application of the estimated net
proceeds therefrom, including the repayment of certain indebtedness and the
redemption of shares of Class B Preferred Stock. See "Use of Proceeds" and
"Capitalization."
BACKLOG
The following table sets forth, on the dates indicated, the Company's
backlog by backlog type. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business -- Backlog."
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Order Backlog...................................... $ 3,723 $ 5,656 $ 3,606 $ 5,478 $ 11,362
<S> <C> <C> <C> <C> <C>
Contract Backlog................................... 1,500 2,600 1,005 830 38,231
</TABLE>
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. THE FOLLOWING FACTORS AND CAUTIONARY STATEMENTS SHOULD BE CAREFULLY
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.
RELIANCE ON SIGNIFICANT CUSTOMERS AND LARGE ORDERS; LONG SALES CYCLES;
FLUCTUATIONS IN RESULTS. A significant portion of the Company's revenues have
been, and will continue to be, derived from substantial orders placed by large
organizations. For the nine months ended March 31, 1996, TELMEX and Teleglobe,
its largest carrier network product customers for the period, represented
approximately 24.5% and 13.2% of total revenue, respectively, and ANSTEC, Inc.
("ANSTEC") and GTE Government Systems, its largest network management product
customers for the period, represented approximately 10.7% and 7.1% of total
revenue, respectively. The Company expects that in the future it will continue
to be dependent upon a limited number of customers in any given period for a
significant portion of its revenue. Furthermore, such customers are concentrated
in the carrier market. The Company's future success may depend upon the
continued demand by such customers for its products and services. Customer
demand can be affected by numerous variables, including changes in governmental
regulation, changes in the customers' competitive environment, pricing policies
by the Company or its competitors, personnel changes, demand for the Company's
products in this market, the number, timing and significance of new product and
product enhancement announcements by the Company and its competitors, the
ability of the Company to develop, introduce and market new and enhanced
versions of its products on a timely basis, and the mix of direct and indirect
sales and general economic factors. There can be no assurance that revenue from
customers that have accounted for significant revenues in past periods,
individually or as a group, will continue, or if continued will reach or exceed
historical levels in any future period. The Company's results of operations and
financial condition could be materially adversely affected by the failure of
anticipated orders to materialize and by deferrals or cancellation of orders.
The Company's revenue is difficult to forecast as a result of the fact that
the purchase of operations support and network management systems generally
involves a significant commitment of capital and management time. Accordingly,
the sales cycle associated with the purchase of the Company's products -- from
initial contact to contract execution and delivery of product -- typically is
lengthy, varies from customer to customer and from project to project, and is
subject to a number of additional significant risks, including customers'
budgetary constraints and internal acceptance reviews, over which the Company
has little or no control.
The Company's results also vary based on the type and quantity of products
shipped, the timing of product shipments, the relative revenue mix in a given
period and the resulting margins. The variations may be material.
As a result of these and other factors, the Company believes that revenue
and operating results, and particularly quarterly results, are likely to vary
significantly in the future and to be difficult to forecast and that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
In addition, the Company's expense levels are based, in part, on its
expectations as to future revenue levels. If revenue levels are below
expectations in any given period, operating results are likely to be materially
adversely affected. Further, it is likely that in some future period the
Company's revenue or operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Common Stock will
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Selected Quarterly Results" and
"Business -- Strategic Alliances and Other Customers."
RELIANCE ON TELECOMMUNICATIONS SERVICE PROVIDER MARKET. The Company derived
substantially all of its revenue from sales to telecommunications service
providers during the twelve months ended June 30, 1994 and 1995 and the nine
months ended March 31, 1996. Sales to the telecommunications service provider
market are expected to provide the substantial majority of the Company's revenue
in
8
<PAGE>
the foreseeable future. The Company's business is dependent upon the continued
growth of the telecommunications industry in the United States and
internationally, on the continued convergence of voice and data networks and on
the evolution and widespread adoption of emerging network technologies. Any
decline in the growth of the industry, the failure of these markets to converge
or the failure of these network technologies to evolve or achieve widespread
market acceptance could have a material adverse effect on the Company and its
results of operations.
The telecommunications industry is subject to extensive regulation in the
United States and other countries and regulatory approvals generally must be
obtained by most of the Company's customers. The enactment by federal, state or
foreign governments of new laws or regulations or changes in the interpretation
of existing regulations could adversely affect the Company's customers.
Any adverse development in the carrier or telecommunications market,
including reregulation, or reduction in demand for the Company's products by
these industry sectors, could have a material adverse effect on the financial
condition and results of operations of the Company.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. Sales of products to be
delivered outside of the United States accounted for approximately 37.1%, 62.9%
and 68.6% of the Company's total revenue for the years ended June 30, 1994 and
1995 and for the nine months ended March 31, 1996, respectively. The Company
expects that revenue from the sale of products outside of the United States will
continue to account for a significant portion of its total revenue in future
periods. The Company intends to enter additional international markets and to
continue to expand its operations outside of the United States by expanding its
direct sales force, opening additional in-region customer support and sales
offices, adding licensees and distributors and pursuing additional strategic
relationships. Market acceptance of the Company's products for emerging markets,
such as Asia and the Pacific Rim, is important to the Company's future success,
but these markets are diverse and rapidly evolving, and it is difficult to
predict their potential size, future growth rate or the timing of their
development. In addition, access to international markets is often difficult due
to the established relationships between a government owned or controlled
communications company and its traditional indigenous suppliers of
communications products. Accordingly, there can be no assurance that the
Company's products will be widely accepted by the service providers in these
emerging markets or that the Company will be able to continue to penetrate these
markets effectively.
The proposed further expansion into international markets will require
significant management attention and expenditure of significant financial
resources and could adversely affect the Company's operating margins. The
Company's international operations and revenue involve a number of inherent
risks, including extensive field testing and a lengthier sales cycle than with
domestic customers, longer receivables collection periods and greater collection
difficulty, difficulty in staffing and managing international operations, the
impact of possible recessionary environments in economies outside the United
States, unexpected changes in regulatory requirements, including a slowdown in
the rate of privatization of carriers, reduced protection for intellectual
property rights in some countries and tariffs and other trade barriers. There
can be no assurance that the Company will be able to sustain or increase revenue
derived from international sales or that the foregoing factors will not have a
material adverse effect on the Company's future international revenue, and,
consequently, on the Company's results of operations and financial condition.
Currency exchange fluctuations in countries in which the Company sells its
products could have a material adverse effect on the Company's results of
operations and financial condition by resulting in pricing that is not
competitive with products priced in local currencies. In addition, sales in
Europe and certain other parts of the world typically are adversely affected in
the third quarter of each calendar year as many customers reduce their business
activities during the summer months. If the Company's international sales become
a greater component of total revenue, these seasonal factors may have a more
pronounced effect on the Company's operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Sales and Marketing" and "-- Strategic Alliances and Other
Customers."
9
<PAGE>
DEPENDENCE ON THIRD PARTY RELATIONSHIPS. A key element of the Company's
business strategy is to develop strategic alliances with leading companies that
provide telecommunications services or that manufacture and market network
equipment, in order to expand the Company's distribution channels and enter new
markets. There can be no assurance that the Company will be able to continue to
increase the number of, or to expand these types of relationships, in order to
market its products effectively, particularly internationally. Many of the
Company's strategic alliances are nonexclusive and certain of the companies with
which the Company has such alliances also have agreements with, or are
themselves, competitors or potential competitors of the Company. The Company
believes that these alliances are critical to the Company's ability to expand
its penetration of international markets for its carrier network products and to
increase sales of its network management products in the United States. There
can be no assurance that the Company's strategic partners will not discontinue
one or more of their alliances with the Company or form additional competing
arrangements with competitors of the Company or themselves begin to compete with
the Company. See "Business -- Strategic Alliances and Other Customers."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
degree upon the continuing contributions of its key management, sales, customer
support and product development personnel. In particular, the Company would be
materially adversely affected if it were to lose the services of George Jimenez,
Joseph Dorr or Thomas Russotto, who have provided significant leadership and
direction to the Company since its inception and who have significant knowledge
of the Company's proprietary technology and products. The Company currently does
not have employment agreements with its key personnel, although the Company has
non-competition and non-disclosure agreements with each of them. The Company has
obtained key man life insurance on the life of Mr. Jimenez in the amount of $1.0
million, payable to the Company. The loss of key management or technical
personnel could have a material adverse effect on the Company's results of
operations and financial condition.
INTENSE COMPETITION. The market for carrier network and network management
products is highly competitive. Many providers offer products that are directly
competitive with those offered by the Company in both domestic and international
markets. The Company also experiences competition from in-house systems
developed by existing and potential customers. Many of the Company's current and
potential competitors have significantly greater financial, marketing,
technical, and other competitive resources than the Company. Current and
potential competitors, including providers of software or processing services,
may establish cooperative relationships with one another or with third parties
or consolidate to compete more effectively against the Company. It is also
possible that new competitors may emerge and acquire market share. Any of these
events could have a material adverse effect on the Company's results of
operations and financial condition. See "Business -- Competition."
NEW PRODUCTS AND TECHNOLOGY AND NEED TO RESPOND TO RAPIDLY CHANGING CUSTOMER
NEEDS. The market for the Company's products is characterized by rapid change
and is highly competitive with respect to the need for timely product innovation
and new product introductions. The Company believes that its future success
depends in part upon its ability to enhance its current offerings and develop
new products that address the increasingly complex needs of customers. In
particular, the Company believes that it must respond quickly to customers'
needs for additional functionality and new software technologies. There can be
no assurance that the Company will be able to do so. The Company continually
seeks to develop new products and individual features within a complex hardware
and software system. Development projects can be lengthy and are subject to
changing requirements, programming difficulties, and unforeseen factors which
can result in delays. In addition, new products or features, when first released
by the Company, may contain undetected errors that, despite testing by the
Company, are discovered only after a product has been installed and used by
customers. Delays or undetected errors could have a material adverse effect on
the Company's results of operations and financial condition.
10
<PAGE>
The introduction or announcement by the Company or one or more of its
competitors of products embodying new technologies, or changes in industry
standards or customer requirements, could render the Company's existing products
obsolete or unmarketable. The introduction of new or enhanced versions of its
products also requires the Company to manage the transition from older products
in order to minimize disruption in customer operations. There can be no
assurance that the introduction or announcement by the Company or one or more of
its competitors of new products, or changes in industry standards or customer
requirements, will not cause customers to limit or defer purchases of Company
products. Such actions could have a material adverse effect on the Company's
results of operations and financial condition.
MANAGEMENT OF GROWTH. The Company is expanding into new products, services
and markets. This growth has resulted in new and increased responsibilities for
management personnel and has placed and continues to place a significant strain
upon the Company's management, operating and financial systems and resources.
Although the Company believes that there are currently no existing material
weaknesses, in order to accommodate recent growth and to compete effectively and
manage future growth, if any, the Company will be required to continue to
implement and improve operating, financial and management information systems,
procedures and controls on a timely basis and in such a manner as is necessary
to accommodate the increased number of transactions and customers and the
increased size of the Company's operations. Management of future growth, if any,
will also require that the Company continuously expand, train, motivate and
manage its work force. These demands will require the addition of new management
personnel. The Company's future success will depend to a significant extent on
the ability of its current and future executive officers to operate effectively,
both independently and as a group. There can be no assurance that the Company's
personnel, systems, procedures and controls will be adequate to support the
Company's existing and future operations. Any failure to implement and improve
the Company's operating, financial and management systems or to expand, train,
motivate or manage employees could have a material adverse effect on the
Company's results of operations and financial condition.
DIFFICULTY IN ATTRACTING AND RETAINING NECESSARY PERSONNEL. Certain members
of the senior management team of the Company have been in place for a relatively
short time. James Moore, Vice President, Marketing, began his employment in May
1996. The Company believes that its future success will depend in large part
upon its ability to continue to attract and retain highly skilled managerial,
sales, professional services, customer support and product development
personnel. The Company has at times experienced and continues to experience
difficulty in recruiting qualified personnel. Competition for qualified
personnel with knowledge of the telecommunications industry is intense, and
there can be no assurance that the Company will be successful in attracting and
retaining such personnel. The complex nature of the products demanded by the
Company's customers requires that the Company recruit and hire personnel with
expertise in and a broad understanding of the telecommunications and other
industries in which the Company's customers compete. In addition, there are only
a limited number of qualified development and customer support engineers, and
competition for such individuals is especially intense. Competitors have in the
past and may in the future attempt to recruit the Company's employees. Failure
to attract and retain key personnel could have a material adverse effect on the
Company's results of operations and financial condition.
DEPENDENCE UPON PROPRIETARY TECHNOLOGY. The Company's success and ability
to compete is dependent in part upon its proprietary technology. The Company
relies on a combination of trade secret, copyright and trademark laws,
nondisclosure and other contractual agreements and technical measures to protect
its proprietary rights. The Company currently has no patents or patent
applications pending. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary, or to develop products with functionality or features similar to
the Company's products that are substantially equivalent or superior to the
Company's products. In addition, effective copyright, trademark and trade secret
protection may be unavailable or limited in certain countries. The Company
believes that its products and trademarks do not infringe upon the
11
<PAGE>
proprietary rights of third parties, but there can be no assurance that third
parties will not in the future assert claims of infringement of their
proprietary rights. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to develop non-infringing technology or enter into royalty
or licensing agreements which, if available, may not be on terms acceptable to
the Company. A claim of product infringement against the Company and failure or
inability of the Company to develop non-infringing technology, or license the
infringed or similar technology, could have a material adverse effect on the
Company's results of operations and financial condition. The Company relies on
certain software that it licenses from third parties, including software that is
integrated with internally developed software and used in the Company's products
to perform key functions. There can be no assurance that these third party
software licenses will continue to be available to the Company on commercially
reasonable terms. The absence of such software, if the Company is unable to find
a substitute, could have a material adverse effect on the Company's ability to
produce products. See "Business -- Proprietary Rights and Licenses."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
OF STOCK PRICE. Prior to this offering, there has been no public market for the
Company's Common Stock. There can be no assurance that an active trading market
will develop for the Common Stock or that the price at which shares of Common
Stock may trade in the public market from time to time subsequent to this
offering will exceed the initial public offering price. The initial public
offering price will be determined by negotiations between the Company and the
representatives of the Underwriters and may not be indicative of future market
prices. See "Underwriting" for a discussion of factors to be considered in
determining the initial public offering price. The stock market has from time to
time experienced extreme price and volume fluctuations, particularly in the
technology sector, which often have been unrelated to the operating performance
of particular companies. Any announcement with respect to any variance in
revenue or earnings from levels generally expected by securities analysts for a
given period could have an immediate and significant effect on the trading price
of the Common Stock. In addition, factors such as announcements of technological
innovations or new products by the Company, its competitors, or third parties,
as well as changing market conditions in the industry, may have a significant
impact on the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely affect
prevailing market prices for the Common Stock. Upon the expiration of "lock-up"
agreements, 180 days following the date of this Prospectus, approximately
5,635,634 shares of Common Stock will be eligible for sale under Rule 701 or
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"). On
the date 90 days following the date of this Prospectus and without consideration
of the foregoing contractual restrictions, substantially all of the Common Stock
outstanding prior to this offering will be eligible for sale in the public
markets subject to the provisions of Rule 144. After this offering, holders of
1,575,740 shares of Common Stock are entitled to certain registration rights
(taking into account the conversion of the Class C Preferred Stock). If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales may have an adverse
effect on the market price for the Common Stock. In addition, the Company
intends to register on one or more registration statements filed after
completion of this offering, up to 1,500,000 shares of Common Stock reserved for
issuance under the Company's plans. Shares covered by these registration
statements will be eligible for sale in the public market immediately after the
effective dates of such registration statements. See "Shares Eligible for Future
Sale" and "Underwriting."
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS. The Company's
directors and officers and their affiliates will, in the aggregate, beneficially
own more than 49.7% of the outstanding Common Stock after this offering. As a
result, these stockholders, if they act together, would be able to control most
matters requiring approval by the Company's stockholders, including the election
of directors. In addition, the Company's Charter and By-laws will contain
provisions that may discourage acquisition bids for the Company by persons
unrelated to certain existing stockholders. The effect
12
<PAGE>
of this stock ownership and these provisions may be to limit the price that
investors might be willing to pay in the future for shares of the Common Stock
or prevent or delay a merger, takeover, or other change in control of the
Company and thus discourage attempts to acquire the Company. See "Principal and
Selling Stockholders" and "Shares Eligible for Future Sale." In addition, the
Company's Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plan to issue any shares of Preferred Stock.
The Company's Charter and By-laws contain other provisions, such as notice
requirements for stockholders, staggered terms for its Board of Directors, and
limitations on the stockholders' ability to remove directors or to present
proposals to the stockholders for a vote, all of which may have the further
effect of making it more difficult for a third party to gain control or to
acquire the Company. See "Description of Capital Stock" and "Certain Charter and
By-law Provisions."
DILUTION. The initial public offering price will be substantially higher
than the book value per share of Common Stock. Assuming an initial public
offering price of $10.00 per share (the mid-point of the estimated range of the
initial public offering price), investors participating in this offering will
incur immediate, substantial dilution of approximately $7.41 per share. To the
extent outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $20.2 million (approximately
$24.0 million if the Underwriters' over-allotment option is exercised in full),
after deducting the underwriting discounts and commissions and estimated
offering expenses and assuming a public offering price of $10.00 per share.
The Company expects to use the net proceeds for general corporate purposes
including working capital and employment of additional personnel, provided that:
(i) certain amounts will be used for repayment of bank indebtedness of which
approximately $3.2 million was outstanding at March 31, 1996, (ii) approximately
$0.4 million will be used for redemption of all outstanding shares of Class B
Preferred Stock and the repayment of certain indebtedness held by the holder of
such shares, of which approximately $52,000 was outstanding at March 31, 1996,
and (iii) approximately $0.1 million will be used for repayment of outstanding
related-party indebtedness. See Note 13 to the Company's financial statements
and "Certain Transactions" for further information.
The principal purposes of this offering are to increase the Company's equity
and to create a public market for the Company's Common Stock. The Company
believes that success in its industry requires substantial capital in order to
maintain the flexibility to take advantage of opportunities that arise and to be
able to withstand adverse business conditions, should they occur. Portions of
net proceeds may also be used to fund acquisitions of complementary businesses,
products or technologies, although no specific acquisitions are planned or under
negotiation as of the date of this Prospectus. The Company has not allocated a
significant portion of the net proceeds of this offering to any particular use.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. Pending application of the proceeds as described
above, the Company intends to invest the net proceeds in investment-grade,
short-term securities.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholder. See "Principal and Selling
Stockholders."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on the Common Stock.
The Company currently intends to retain earnings, if any, to finance the growth
and development of its business and does not anticipate paying cash dividends in
the foreseeable future. The terms of the Company's bank credit facilities
prohibit the payment of cash dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The future payment of cash dividends, if any, is also within
the discretion of the Board of Directors and will depend on the future earnings,
capital requirements, financial condition and future prospects of the Company
and such other factors as the Board of Directors may deem relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996, (i) giving effect to a 5.42-to-one stock split and assuming the
conversion of all outstanding Class C Preferred Stock into Common Stock and (ii)
as adjusted to reflect the sale of 2,250,000 shares of Common Stock offered by
the Company hereby (at an assumed initial public offering price of $10 per
share), and the application of the estimated net proceeds of this offering as
described in "Use of Proceeds." This table should be read in conjunction with
the Company's financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS EXCEPT
FOR SHARE DATA)
<S> <C> <C>
Long-term debt, net of current portion...................................................... $ 3,228 --
---------
Stockholders' equity: (1)
Class B Preferred Stock, $1.00 par value; 1,000 shares authorized, 1,000 issued and
outstanding, actual; none issued and outstanding, as adjusted............................ 1 --
Common Stock, $.01 par value; 45,000,000 shares authorized, 6,074,937 issued and
outstanding, actual; 45,000,000 shares authorized, 8,324,937 issued and outstanding, as
adjusted................................................................................. 61 $ 83
Additional paid-in capital.................................................................. 2,557 22,402
Stock subscriptions receivable.............................................................. (114) (114)
Accumulated deficit......................................................................... (811) (811)
--------- ---------
Total stockholders' equity.............................................................. 1,694 21,560
--------- ---------
Total capitalization.................................................................. $ 4,957 $ 21,560
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Excludes options to purchase 1,130,617 shares of Common Stock at exercise
prices ranging from $.34 to $.69 per share, outstanding as of March 31,
1996.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
was $1.7 million, or $.28 per share of Common Stock. "Pro forma net tangible
book value" per share represents the amount of total tangible assets less total
liabilities, divided by the total number of shares of Common Stock then
outstanding (without giving effect to this offering but assuming the automatic
conversion of all outstanding shares of Class C Preferred Stock into 1,843,944
shares of Common Stock and the effectiveness of a 5.42-to-one stock split).
After giving effect to the sale by the Company of the 2,250,000 shares of
Common Stock offered by the Company and the application of the estimated net
proceeds of this offering as described in "Use of Proceeds" (after deduction of
underwriting discounts and commissions and estimated offering expenses), the
Company's pro forma net tangible book value at March 31, 1996, would have been
$21.6 million, or $2.59 per share of Common Stock to purchasers of Common Stock
in this offering. This represents an immediate dilution of $7.41 per share to
new investors. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 10.00
Pro forma net tangible book value per share at March 31, 1996..... $ 0.28
Increase in pro forma net tangible book value per share
attributable to new investors.................................... 2.31
---------
Pro forma net tangible book value per share after this offering..... 2.59
---------
Dilution per share to new investors................................. $ 7.41
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and by purchasers of Common Stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ --------------------------- PRICE PER
NUMBER PERCENT AMOUNT(2) PERCENT SHARE
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders (1)......................... 6,074,937 73.0% $ 2,544,209 10.2% $ 0.42
New Investors (1)................................. 2,250,000 27.0 22,500,000 89.8 $ 10.00
----------- ----- -------------- -----
Total......................................... 8,324,937 100.0% $ 25,044,209 100.0%
----------- ----- -------------- -----
----------- ----- -------------- -----
</TABLE>
- ------------------------
(1) The sale by the Selling Stockholder in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 5,806,734, or
approximately 69.8% (5,806,734 shares, or approximately 66.7%, if the
Underwriters' over-allotment option is exercised in full), and will increase
the number of shares held by new investors to 2,518,203, or approximately
30.2% (2,895,933 shares, or approximately 33.3%, if the Underwriters'
over-allotment option is exercised in full), of the total number of shares
of Common Stock outstanding after this offering. See "Principal and Selling
Stockholders."
(2) The consideration received from existing stockholders for the purchase of
their shares includes notes in the aggregate principal amount at March 31,
1996 of $113,663.
16
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth for the periods indicated selected financial
data for the Company. The statement of operations and balance sheet data for the
years ended June 30, 1993, 1994 and 1995 have been derived from the Company's
financial statements, which have been audited by Price Waterhouse LLP,
independent accountants. The statement of operations and balance sheet data for
the years ended June 30, 1991 and 1992 have been derived from the Company's
audited financial statements which have not been included in this Prospectus.
Management believes that the unaudited interim financial statements for the nine
months ended March 31, 1995 and 1996 reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
data for such periods. Results of operations for the nine months ended March 31,
1996 are not necessarily indicative of the results to be expected for the entire
year. The information set forth below is qualified by reference to, and should
be read in conjunction with, the Company's financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
------------------------------------------------------ ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue -- products and services........ $ 5,545 $ 7,877 $ 11,137 $ 14,523 $ 12,415 $ 9,238 $ 13,111
Costs and operating expenses:
Cost of products and services......... 4,181 4,462 5,870 7,675 6,579 4,758 6,672
Selling, general and administrative... 2,259 3,098 4,065 5,473 6,049 4,675 4,744
Research and development.............. 50 218 780 573 1,045 712 631
--------- --------- --------- --------- ---------- --------- ----------
(Loss) income from operations........... (945) 99 422 802 (1,258) (907) 1,064
Interest expense, net................... (136) (56) (53) (156) (335) (229) (285)
--------- --------- --------- --------- ---------- --------- ----------
(Loss) income before income taxes and
extraordinary item..................... (1,081) 43 369 646 (1,593) (1,136) 779
Income taxes............................ -- (21) (151) -- -- -- --
--------- --------- --------- --------- ---------- --------- ----------
(Loss) income before extraordinary
item................................... (1,081) 22 218 646 (1,593) (1,136) 779
Extraordinary item -- tax benefit of net
operating loss carryforwards........... -- 21 151 -- -- -- --
--------- --------- --------- --------- ---------- --------- ----------
Net (loss) income....................... $ (1,081) $ 43 $ 369 $ 646 $ (1,593) $ (1,136) $ 779
--------- --------- --------- --------- ---------- --------- ----------
--------- --------- --------- --------- ---------- --------- ----------
Pro forma net (loss) income per shares
(1).................................... $ (0.26) $ 0.12
---------- ----------
---------- ----------
Number of shares used in computing pro
forma net (loss) income per share...... 6,200,992 6,510,335
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................................... $ 80 $ 52 $ 62 $ 147 $ 190 $ 2
Working capital (deficit)............................... (1,511) 117 519 590 (1,374) 2,588
Total assets............................................ 2,980 4,645 6,582 7,407 8,293 8,861
Total liabilities....................................... 3,231 3,195 4,763 4,943 7,414 7,167
Mandatorily redeemable preferred stock.................. -- 1,749 1,842 1,982 2,122 2,227
Stockholders' (deficit) equity.......................... (251) (299) (23) 483 (1,242) (533)
</TABLE>
- ------------------------------
(1) For a description of the computation of pro forma net (loss) income per
share and shares used in computing pro forma net (loss) income per share,
see Note 1 of the notes to the Company's financial statements included
elsewhere in this Prospectus.
BACKLOG
The following table sets forth, on the dates indicated, the Company's
backlog by backlog type. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business -- Backlog."
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Order Backlog.......................................... $ 3,723 $ 5,656 $ 3,606 $ 5,478 $ 11,362
Contract Backlog....................................... 1,500 2,600 1,005 830 38,231
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company sells carrier network products and network management products,
both through direct channels and through its strategic alliance partners, for
delivery in the United States and internationally. Since June 1994, the Company,
consistent with its strategic emphasis, has derived most of its revenue from the
sale of its carrier network products. The Company expects the sales of such
products to increase as a percentage of its revenue for at least the next
several years. The balance of the Company's revenue is derived from the sale of
network management products to enterprise customers, including agencies of the
U.S. Government.
The Company has generated growth in its revenue in every fiscal year since
fiscal 1986 except for fiscal 1995. In fiscal 1995, the Company experienced
simultaneous delays in three large contract awards due to internal customer
matters unrelated to the Company and beyond its control. The delays caused a
decline in the Company's revenue, without any offsetting reduction in expenses
because of the need to retain key personnel, maintain fixed overhead costs and
incur substantial sales and marketing expenses associated with trying to obtain
the delayed contracts. Two of these delayed contracts, one awarded by NYNEX and
one by the U.S. Air Force, were finally awarded late in fiscal 1995 and early in
fiscal 1996, with the Company realizing revenue from these contracts in fiscal
1996.
The Company's products typically are sold pursuant to long-term contracts
having an aggregate contract value of several hundred thousand to several
million dollars. As part of the contract, the Company agrees to provide certain
services, including postcontract customer support, assistance to customers in
the development and installation of new systems, maintenance and enhancement of
installed systems, and customer training and technical support. These contracts
may involve significant production, modification or tailoring of hardware and
software. The Company recognizes revenue principally from contracts of this
type, using the percentage-of-completion method, based on performance milestones
specified in each contract, if any, where such milestones fairly reflect
progress toward contract completion. Revenue from maintenance and other
postcontract customer support is recognized ratably over the term of the related
agreement.
The Company sells most of its products as components in the products or
systems developed and marketed by its strategic partners. The Company also sells
products directly to end users. The Company typically experiences higher margins
in connection with its direct sales contracts, offset in part by relatively
higher sales and marketing expenses.
The Company tracks two types of backlog: "order backlog," which represents
signed purchase orders and which the Company believes represents a reliable
indication of future revenue, and "contract backlog," which represents signed
project contracts and future revenue, subject to the signing of specific
purchase orders. Order backlog reached its highest level in the Company's
history during fiscal 1996 and was $11.4 million at March 31, 1996, compared to
$5.5 million at March 31, 1995.
The Company's revenue typically is concentrated among certain customers, the
largest of which in the first nine months of fiscal 1996 consisted of TELMEX,
Teleglobe and ANSTEC. These customers represented approximately 24.5%, 13.2% and
10.7%, respectively, of total revenue for the nine months ended March 31, 1996.
See "Risk Factors -- Reliance on Significant Customers and Large Orders; Long
Sales Cycles; Fluctuations in Results" and "Business -- Backlog."
As a result of the size of most of its contracts, the significant length of
sales cycles and the complexities which arise from time to time in completing
any given contract, the Company typically experiences fluctuations in quarterly
and year-to-year results. Marketing in foreign countries, particularly in Asia
and other emerging markets, frequently requires extensive field testing and may
result in delays in the timing and closing of sales. The Company has experienced
significant delays in timing
18
<PAGE>
of revenue related to sales in overseas markets. See "Risk Factors -- Reliance
on Significant Customers and Large Orders; Long Sales Cycles; Fluctuations in
Results" and "-- Risks Associated with International Operations."
The Company's cost of products and services consists of the cost of product
engineering and production, personnel cost of customer support personnel,
license fees paid to third-party software vendors, amortization of costs of
capitalized software development and the cost of hardware purchased by the
Company for incorporation into its products.
Selling, general and administrative expenses consist of costs to support the
Company's sales and administrative functions. Included within these costs are
salaries, bonuses, commissions, rent, insurance, depreciation and non-product
amortization expenses. Also included are costs associated with the Company's
participation in trade shows and industry conferences, and related travel and
other promotional costs.
Research and development expenses consist of personnel costs related to the
design and development of the Company's products. These costs are expensed as
incurred. However, computer software development costs incurred after the
technological feasibility of a product is established and until the product is
available for release to customers are capitalized. Capitalized software and
purchased technology costs are amortized on a product by product basis based on
the greater of the ratio of current sales to estimated total future sales or a
straight-line basis over the remaining estimated economic life of the product
(no greater than three years) including the current year.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Previously, the Company used the deferral method for computing income taxes. The
adoption of this standard did not have a material impact on the Company's
financial position or results of operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items on
of the Company's statement of operations as a percentage of revenue:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue -- products and services.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and operating expenses:
Cost of products and services........................... 52.7 52.8 53.0 51.5 50.9
Selling, general and administrative..................... 36.5 37.7 48.7 50.6 36.2
Research and development................................ 7.0 3.9 8.4 7.7 4.8
----- ----- ----- ----- -----
Income (loss) from operations............................. 3.8% 5.6% (10.1)% (9.8)% 8.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
REVENUE. Revenue increased by 42%, from $9.2 million in the nine months
ended March 31, 1995 to $13.1 million in the nine months ended March 31, 1996.
The increase is attributable to increased sales volume of the Company's carrier
network products to NYNEX and TELMEX and delivery of
NetPlus-Registered Trademark- network management systems under the Company's
contract with the U.S. Government.
COST OF PRODUCTS AND SERVICES. Cost of products and services increased 40%
from $4.8 million in the nine months ended March 31, 1995 to $6.7 million in the
nine months ended March 31, 1996. The increase is attributable to increased
purchases of hardware related to DCMS-Registered Trademark- units for the TELMEX
contract which were subsequently incorporated in shipped products. Gross margins
were 48% and 49% for the nine months ended March 31, 1995 and March 31, 1996,
respectively. The improvement in gross margin was caused primarily by
efficiencies resulting from increased order quantities and the sale of products
directly to end users which have higher associated profit margins.
19
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses remained relatively constant for the nine month periods ended March 31,
1995 and 1996. These expenses represented 50.6% and 36.2% of total revenue in
the nine months ended March 31, 1995 and March 31, 1996, respectively. The
increase is attributed to the Company's continued expansion of marketing
programs. The Company expects these expenses to increase in future periods as a
result of plans to position itself to penetrate international markets for its
carrier network products, to expand sales of its network management products in
the United States and to hire additional management personnel to supplement its
current management team. See "Business -- Sales and Marketing."
RESEARCH AND DEVELOPMENT. Research and development expense remained
relatively constant for the nine month periods ended March 31, 1995 and 1996. As
a percentage of revenue, research and development expense decreased from 7.7% in
the nine months ended March 31, 1995 to 4.8% in the nine months ended March 31,
1996, as a result of the increase in period to period revenue. The Company plans
to spend significant resources on research and development in future periods to
enhance its technology and expects that expenses, as a percentage of total
revenue, will increase.
PROVISION FOR INCOME TAXES. No income tax benefit or provision was recorded
for the nine months ended March 31, 1995 and 1996, respectively, since any
benefit or provision was offset by a similar increase or decrease in the
valuation allowance.
YEARS ENDED JUNE 30, 1994 AND 1995
REVENUE. Revenue decreased 14.5%, from $14.5 million in fiscal 1994 to
$12.4 million in fiscal 1995. The decrease is attributable to simultaneous
delays in three large contracts due to matters beyond the Company's control. See
"-- Overview."
COST OF PRODUCTS AND SERVICES. Cost of products and services decreased
14.2% from $7.7 million in fiscal 1994 to $6.6 million in fiscal 1995. The
decrease is attributable to reduced hardware purchases, reflecting the reduced
delivery of network management products in fiscal 1995. Since the decrease in
these costs was offset by a corresponding decrease in period to period revenue,
cost as a percentage of revenue remained unchanged. As a result, gross margins,
as a percentage of revenue were also unchanged.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 10.5% from $5.5 million in fiscal 1994 to $6.0 million in
fiscal 1995. These expenses represented 37.7% and 48.7% of revenue in fiscal
1994 and fiscal 1995, respectively. The increase in expenses resulted from
increases in the Company's direct sales force and in marketing programs,
specifically on bid and proposal efforts relating to the TELMEX and ANSTEC -
U.S. Air Force contracts described under "Business -- Strategic Alliances and
Other Customers." Additional costs were incurred in fiscal 1995 as a result of
the hiring of executive accounting personnel. The increase in these expenses as
a percentage of revenue from fiscal 1994 to fiscal 1995 is primarily
attributable to the decrease in period to period revenue.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
82.3% from $0.6 million in fiscal 1994 to $1.0 million in fiscal 1995. These
expenses represented 4.0% and 8.4% of revenue in fiscal 1994 and 1995,
respectively. The increase in these expenses was primarily attributable to work
performed on the software development relating to the technology platform
developed in anticipation of a contract with Teleglobe. An increase in expense
was also experienced as a result of hiring additional software engineers and
support personnel in anticipation of planned research and development expansion
in fiscal 1996. The increase in these expenses as a percentage of total revenue
from fiscal 1994 to fiscal 1995 is primarily attributable to the decrease in
period to period revenue.
PROVISION FOR INCOME TAXES. No income tax benefit or provision was recorded
for the fiscal years ended June 30, 1994 and 1995 since any benefit or provision
was offset by a similar increase or decrease in the valuation allowance.
20
<PAGE>
YEARS ENDED JUNE 30, 1993 AND 1994
REVENUE. Revenue increased 30.4% from $11.1 million in fiscal 1993 to $14.5
million in fiscal 1994. The increase is attributable to the delivery of a higher
volume of products. The Company also experienced an increase in fiscal 1994
revenue as a result of additional sales to an overseas subsidiary of Digital
Equipment Corporation and to AT&T.
COST OF PRODUCTS AND SERVICES. Cost of products and services increased
30.8% from $5.9 million in fiscal 1993 to $7.7 million in fiscal 1994. These
costs increased as a result of purchases of hardware and software incorporated
in automated directory attendance systems, primarily purchased for U.S. Army
bases. As a percentage of revenue, such costs remained unchanged. Accordingly,
gross margins as a percentage of revenue were also unchanged.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 34.6% from $4.1 million in fiscal 1993 to $5.5 million in
fiscal 1994. These expenses represented 36.5% and 37.7% of revenue in fiscal
1993 and fiscal 1994, respectively. The increase in these expenses resulted in
part from increases in the Company's direct sales force, primarily at the
executive level. In addition, the Company hired outside marketing consultants in
fiscal 1994, to help obtain certain contracts with certain government agencies.
The decrease in these expenses as a percentage of revenue is primarily
attributable to the increase in period to period revenue.
RESEARCH AND DEVELOPMENT. Research and development expenses declined 26.4%
from $0.8 million in fiscal 1993 to $0.6 million in fiscal 1994. These expenses
represented 7.0% and 3.9% of revenue in fiscal 1993 and 1994, respectively. The
decrease in these expenses was primarily attributable to the capitalization of
costs associated with the NetPlus technology platform, as a result of the
establishment of technological feasibility.
PROVISION FOR INCOME TAXES. The fiscal 1993 provision for income taxes
contained a charge in lieu of Federal and state income taxes that would have
been required to be paid had the Company not been able to utilize its net
operating loss carryforwards. The tax benefit for fiscal 1993 of $0.2 million
resulting from such utilization is shown as an extraordinary item.
SELECTED QUARTERLY RESULTS
The following tables present certain unaudited statement of operations data
for each quarter of fiscal 1995 and the first three quarters of fiscal 1996.
These data have been derived from the Company's unaudited financial statements
and have been prepared on the same basis as the Company's audited financial
statements which appear elsewhere in this Prospectus. In the opinion of the
Company's management, these data include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of such data.
Such quarterly results are not necessarily
21
<PAGE>
indicative of future results of operations. This information is qualified by
reference to, and should be read in conjunction with, the Company's financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1996
-------------------------------------------------- -------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1995 1995 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue -- products and services..... $ 2,879 $ 3,552 $ 2,807 $ 3,177 $ 3,433 $ 4,772 $ 4,906
Costs and operating expenses:
Cost of products and services...... 1,485 2,027 1,246 1,821 1,736 2,736 2,200
Selling, general and
administrative.................... 1,505 1,576 1,594 1,374 1,362 1,610 1,772
Research and development........... 218 268 226 333 132 235 264
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) income from operations........ (329) (319) (259) (351) 203 191 670
Interest expense, net................ (53) (74) (102) (106) (104) (97) (84)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes.... (382) (393) (361) (457) 99 94 586
Income taxes......................... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income.................... $ (382) $ (393) $ (361) $ (457) $ 99 $ 94 $ 586
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
AS A PERCENTAGE OF REVENUES:
Revenue -- products and services..... 100% 100% 100% 100% 100% 100% 100%
Costs and operating expenses:
Cost of products and services...... 52 57 44 57 51 57 45
Selling, general and
administrative.................... 52 44 57 43 40 34 36
Research and development........... 8 8 8 10 4 5 5
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) income from operations........ (12) (9) (9) (10) 5 4 14
Interest expense, net................ (2) (2) (4) (3) (3) (2) (2)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes.... (14) (11) (13) (13) 2 2 12
Income taxes......................... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income.................... (14)% (11)% (13)% (13)% 2% 2% 12%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The Company's quarterly operating results have in the past and will in the
future vary significantly as a result of the timing of contract execution and
delivery of significant product orders. Large orders typically are preceded by
long sales cycles and, accordingly, the timing of such an order has been and
will continue to be difficult to predict. The failure to obtain one or more
large orders, for any reason, could have a material adverse effect on the
Company's results of operations and financial condition.
The timing of large orders depends on a variety of factors affecting the
capital spending decisions of the Company's customers, which, in turn, can
affect the Company's quarterly operating results. These factors include changes
in governmental regulation, changes in the customers' competitive environment,
pricing policies by the Company or its competitors, personnel changes, demand
for the Company's products, the number, timing and significance of new product
and product enhancement announcements by the Company and its competitors, the
ability of the Company to develop, introduce and market new and enhanced
versions of its products on a timely basis, and the mix of direct and indirect
sales and general economic factors.
The Company's sales cycle, from initial contact to contract execution and
delivery of product, also varies substantially from customer to customer and
from project to project. The purchase of carrier network products and network
management products generally involves a significant commitment of customer
capital and management time. The sales cycle associated with the purchase of the
Company's products is subject to a number of additional significant risks,
including customers' budgetary constraints and internal acceptance reviews, over
which the Company has little or no control.
22
<PAGE>
The Company's expense levels are based, in part, on its expectations as to
future revenue levels. If revenue levels are below expectations, operating
results are likely to be materially adversely affected.
Based upon all of the foregoing, the Company believes that quarterly revenue
and operating results are likely to vary significantly in the future and that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Further, it is likely that in some future quarter the Company's revenue or
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Common Stock could be materially
adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $0.5 million,
$0.001 million, and $1.2 million in fiscal years 1993, 1994, and 1995,
respectively, and generated cash of approximately $1.5 million in the nine month
period ended March 31, 1996. During fiscal 1993, the combination of a $2.3
million increase in accounts receivable and a $0.5 million decrease in deferred
revenue more than offset cash provided by the sum of net income, adjusted for
$0.7 million in non-cash charges, and a $1.1 million increase in accounts
payable. During fiscal 1994, net income, increased by $0.6 million of non-cash
charges, was offset by the combination of a $0.7 million increase in accounts
receivable, a $0.4 million increase in inventory and a $0.4 million decrease in
accounts payable. Cash used in 1995 reflects the impact of a net loss for the
period combined with a $0.3 million increase in accounts receivable offset, in
part, by a $0.3 million increase in deferred revenue. Cash generated during the
nine months ended March 31, 1996 is primarily attributable to net income of $0.8
million adjusted for non-cash charges of $0.6 million offset, in part, by a $0.4
million increase in inventories.
Cash used for investing activities of $0.4 million, $0.2 million, $1.0
million, and $0.7 million in fiscal 1993, 1994, 1995 and the nine month period
ended March 31, 1996, respectively, reflect purchases of property and equipment
and capitalization of software development costs. Purchases of property and
equipment, consisting primarily of computers and related equipment, were $0.3
million, $0.3 million, $0.5 million, and $0.2 million in fiscal 1993, 1994, 1995
and for the nine months ended March 31, 1996, respectively. Capitalized software
development costs were $0.3 million, $0.7 million, $0.5 million and $0.5 million
in fiscal 1993, 1994, 1995 and for the nine months ended March 31, 1996.
To date, the Company has used sales of preferred equity, cash generated from
operations and revolving bank lines of credit to fund its working capital and
investing activities. Effective March 31, 1996, the Company entered into a
credit agreement with a bank to finance inventory for a large foreign contract.
Under the agreement, the Company can borrow up to $1 million at 1.25% over the
bank's prime rate. The agreement requires the Company to comply with certain
financial covenants. The U.S. Export-Import Bank guarantees 90% of the
outstanding balance, which is collateralized by the inventory and the foreign
receivables generated by the contract. This agreement expires on August 31,
1996.
The Company entered into an agreement for a $2.5 million revolving line of
credit which became effective on May 29, 1996 and expires on November 30, 1997.
Borrowings under the facility bear interest, payable monthly, at 0.5% over the
bank's prime rate. In addition, the Company replaced a second $1.35 million line
of credit with $1 million revolving line of credit. This facility bears
interest, payable monthly, at 0.5% over the bank's prime rate and is due on
November 30, 1997. The Company also replaced $0.6 million of demand indebtedness
with a loan of $0.6 million. This loan bears interest, payable monthly, at 1.0%
over the bank's prime rate and is due on November 30, 1997. These new credit
facilities are secured by accounts receivable and inventory certain of which are
subordinated to the security interests under the credit agreement described in
the immediately preceding paragraph, and the agreement contains certain
financial covenants.
In connection with these agreements, the Company reclassified $2.9 million
of current borrowings at March 31, 1996 to noncurrent borrowings in accordance
with SFAS No. 6, "Classification of Short-Term Obligations Expected to be
Refinanced."
23
<PAGE>
The Company believes that the net proceeds from this offering, together with
existing cash balances, cash flow from operations and available bank lines, will
be sufficient to support the Company's working capital requirement for at least
the next 12 months. Thereafter, if cash generated from operations is
insufficient to satisfy the Company's working capital requirements, the Company
may be required to raise additional funds. No assurance can be given that
additional financing will be available or that, if available, such financing
will be obtainable on terms favorable to the Company or its stockholders. To the
extent the Company raises additional capital by issuing equity or convertible
debt securities, ownership dilution to the Company's stockholders will result.
In the event that adequate funds are not available, the Company's business may
be adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and SFAS No. 123, "Accounting for Stock
Based Compensation," both effective beginning with fiscal 1997, are not expected
to have a material impact on the Company's financial position or results of
operations.
The Company's business is subject to significant risks that could cause the
Company's results to differ materially from those expressed in any
forward-looking statements made in this Prospectus. These risks include the
matters set forth above this caption, under "Risk Factors" and elsewhere herein.
24
<PAGE>
BUSINESS
GENERAL
ACE*COMM develops, markets and services OSS products for networks deployed
by telecommunications service providers, such as telephone companies, other
public carriers and large enterprises operating data and voice networks using,
intranets and the Internet. The Company's products perform such functions as
billing data collection, network surveillance, alarm processing and network
management for some of the largest carriers and enterprises in the world.
CARRIER NETWORK PRODUCTS
The Company's primary carrier network products include billing data
collection and network surveillance systems for carriers seeking the ability to
bring services to market quickly and for many emerging carriers that lack
state-of-the-art billing data collection systems. These carriers typically focus
their internal development resources on networking and switching technology and
on marketing their services and turn to outside suppliers to obtain OSSs.
Outside suppliers provide flexible, efficient solutions that may be more costly
for carriers to develop internally.
The Company's carrier network products, which consist of software and
hardware, connect to existing network infrastructures and enable carriers to
rapidly and accurately collect call records and performance data and generate
displays, graphics and reports which are used for billing, fraud detection,
customer care, marketing research and forecasting and other operations support
functions. These products are designed to enhance the carriers' competitive
position by allowing them to offer new features and services, minimize network
down-time, increase revenue through more accurate and timely billing and improve
network productivity. The Company has expertise derived from 13 years of
developing products adapted to a variety of network hardware and software
configurations. The Company believes that it is well-positioned to continue to
offer its carrier network products to international customers located, for
example in Europe, Asia and the Pacific Rim, which typically operate a wide
variety of switches from different manufacturers and require a data collection
system capable of adapting to and integrating with the billing system and other
OSSs. The Company's carrier network products have been installed in over 500 end
user sites in 32 countries in North, South and Central America, Europe, the
Middle East, and Asia, including China.
The Company expects to increase revenues from international markets, which
are experiencing increasing deregulation and privatization, and where
telecommunications infrastructures have not reached nearly the stage of
development as in the United States. The Company believes that its strategic
alliances with prominent U.S. and international carriers and equipment
manufacturers, such as AT&T, ICL and Teleglobe which are actively marketing
carrier systems abroad, will enable it to effectively increase its penetration
of international markets.
The Company also expects demand for its carrier network products to increase
in the United States as a result of the recent passage of the Telecommunications
Act of 1996, which removed certain existing barriers to entry and is expected to
result in the creation of new, alternative carriers and to cause existing
carriers to upgrade their systems to meet increasing competition.
NETWORK MANAGEMENT PRODUCTS
The Company's network management products are designed to meet the growing
needs of large enterprises in the United States and abroad, including government
agencies, military organizations, educational institutions and "Fortune 1000"
size organizations. As these enterprises have become increasingly dependent on
the Internet and intranets for voice and data communications, their demand for
reliable and flexible network management tools has increased.
The Company has packaged network management products into standardized,
flexible state-of-the-art software based systems that enable network managers to
manage voice and data communications by automating service administration,
tracking network connections, detecting system errors
25
<PAGE>
and malfunctions, controlling the network inventory assignments and
configuration, monitoring traffic and performing billing functions. The
Company's network management products have been installed in networks operated
by over 100 end users sites in 10 countries.
The Company is well positioned to develop products to support the
convergence and growth of telephony and data networks within the enterprise, as
a result of its knowledge and experience in data control and network switching
technology. The Company's network management products are designed to increase
the efficiency of communication operations and incorporate recent developments
in object-oriented development, real-time response, client server architecture
and graphical user interfaces.
INDUSTRY BACKGROUND
CARRIERS
Historically, the telecommunications industry has been characterized by
significant government regulation or ownership and limited competition. In this
environment, telecommunications services consisted primarily of monopoly local
and long distance telephone service over traditional landlines. The beginning of
the break-up of AT&T in 1984 began a deregulatory trend that has led to a
proliferation of competition in the long-distance carrier market. More recently,
the passage of the U.S. Telecommunications Act of 1996 is expected to create an
environment where both long distance and local exchange carriers in the United
States will increasingly compete with one another for both local and
long-distance services. In addition, domestic service providers are aligning
with international telephone companies to deliver seamless services globally.
Today, both domestic and international telephony carriers face increasing
competition from cable and wireless companies for telephony and new, high
bandwidth voice, data and video services.
In response to this evolving competitive environment, carriers have sought
to reduce expenses and differentiate themselves by improving existing services,
and rapidly introducing new services and new technologies. New
telecommunications services include high-speed data services, video
teleconferencing, video-on-demand, home shopping and home banking. Competition
has increased the importance of rapidly bringing these new and enhanced services
to market. The availability of new and enhanced services has fueled a dramatic
increase in usage of telecommunications services by organizations and
individuals, placing additional burdens on existing telecommunications
infrastructures.
Internationally, demand for better telecommunications services has increased
competition and resulted in privatization, investment in new infrastructures and
increased competition to provide better service. In less developed parts of the
world, carriers are implementing new systems through traditional landline
networks, new wireless technologies and other new technologies. Various factors
have further contributed to acceleration in the rate of growth in the
development of the telecommunications systems outside of the United States,
including the globalization of business, the rise in standards of living, the
increasing demand for reliable communications and the increasing deregulation in
the industry. Service providers in less developed parts of the world typically
are building systems through the purchase of equipment from a wide variety of
suppliers, which results in a heterogeneous assortment of switches and other
network hardware and software. This mix generates a need for products that
support network operations and can be flexible and adapted to these various
switches and system features. The Company's specialized knowledge and experience
with a wide variety of switch equipment is particularly suited to meeting these
requirements.
To develop, deploy and manage networks and services, carriers rely on OSSs
including network management systems ("NMS") that, among other functions,
monitor equipment performance to detect errors (fault management), report
network performance and traffic loads (traffic reporting), help in the
performance of market research and forecasting and collect and consolidate
customer usage information (billing data collection). Historically, OSSs and
NMSs were developed and deployed in an environment characterized by limited
competition and slowly changing technologies and services. These systems were
typically mainframe-based, with proprietary software written in early generation
programming languages. As a result, these "legacy" systems were not designed for
rapid
26
<PAGE>
deployment or adaptation, do not easily support heterogeneous equipment and are
not easily customized to fit specific business needs. In view of the industry
trends toward increased competition, technological complexity and rapid change,
carriers require OSSs and NMSs that:
- can be rapidly deployed and easily adapted to changing business and
network requirements;
- interface with a wide variety of existing network equipment and systems
and accommodate new equipment and systems as they are deployed;
- can be tailored through software to provide a variety of OSS and NMS
functions; and
- allow existing networks to accommodate rapid growth through scaleable
architecture.
OSSs and NMSs that provide the foregoing benefits, and the products designed to
support them, will enable carriers to rapidly and cost effectively bring new and
enhanced services to market.
ENTERPRISE NETWORKS
The proliferation of new voice and data services offered by communications
companies has increased the awareness of and demand for network management and
billing systems. As a result of the growth of network usage and competitive
pressures, enterprises in most industries have developed needs for sophisticated
NMSs, which permit network managers to manage networks carrying different types
of voice and data communications and to lower costs, manage growth, track
expenses and provide services without interruption.
The growing dependence on intranets and the Internet to support the
expanding information flow between offices, buildings and countries, both within
the enterprise and to and from customers and suppliers of the enterprise,
requires an efficient NMS to avoid the costly disruption of critical day-to-day
operations. Enterprises increasingly rely on e-mail, phone mail, facsimiles,
on-line order entry, customer service and telecommuting programs for employees
to transmit critical business information. For example, banks rely on dispersed
automated teller machines to conduct banking transactions, and doctors and
hospitals rely on networks to transmit medical records and provide on-line care.
Furthermore, as enterprises increase the employment of sophisticated network
equipment like ATM, Frame Relay and X.25 data switches, it will become
increasingly important for network managers to have the ability to charge based
on the amount of data transmitted. In cooperation with and funded by Newbridge,
the Company is developing the billing component for their advanced data
switches. The billing element gives access providers flexible options for
billing users of data network services. The Company anticipates similar
opportunities to develop other network edge technologies for equipment and
service providers in the growing market for data services.
Enterprises which require NMSs capable of handling large numbers of
subscribers efficiently, reliably and rapidly include: government agencies,
military organizations, educational institutions and "Fortune 1000" size
organizations. The NMS requirements of an organization become more sophisticated
as the number of subscribers, locations, users, countries, third parties
communicating with the organization, and types of hardware involved, increases.
Network managers therefore require NMSs that provide:
- the ability to perform high volume data collection and to produce
displays, graphics and reports with respect to usage, surveillance and
management requirements;
- the ability to manage communications over both voice circuits (e.g.,
telephone, voice-mail) and data circuits (e.g., the Internet and intranet
connections, e-mail, facsimilies, orders, inventory control)
simultaneously;
- the ability to bill for usage;
27
<PAGE>
- proprietary and standard protocol features which may include the Simple
Network Management Protocol ("SNMP");
- compatibility with standard network management platforms (e.g.,
Hewlett-Packard Open View, IBM Netview and Sun Net Manager) and the
ability to run under standard operating systems (e.g., UNIX, Windows 95
and Windows NT); and
- flexibility to accommodate expanding network management requirements.
Telecommunications service providers benefit from the availability of timely
and accurate information about their deployed networks because it allows
increased service availability without increasing network investment. The
Company believes that advanced products that support their network operations
and sophisticated network management products are important to their future
success.
ACE*COMM SOLUTIONS
The Company provides flexible, tailored solutions that operate at the edge
of the network and address a range of systems and network management needs. The
Company's products, developed with the benefit of the Company's 13 years of
experience, are designed to improve the efficiency of revenue collection for
carriers and decrease network operating expenses for enterprises. These products
provide the information required for prompt, accurate billing, real time fraud
detection, subscriber management and the ability to conduct market research and
forecasting. The products incorporate open system architectures, accommodate
growth through scaleable architecture, and can adapt to most standard
interfaces. Network management products are modular products designed to
increase the efficiency and management of data and voice networks and facilitate
communications on enterprise intranets and the Internet.
The Company develops close, long-term relationships with its customers, from
the early stage of project development through product implementation and
upgrading, to identify their needs, and design and implement solutions that can
operate on a stand-alone basis or be tailored to a customer's specific network.
The Company has developed, and continuously refines, its base of software
applications, which can be combined and tailored to meet the current and
evolving requirements of its customers. The Company works closely with customers
after initial implementation, to enable customers to include new features,
expand into additional geographic markets or operate with new network
technologies and protocols. In addition, the Company provides ongoing support,
maintenance and training related to the customer's system.
STRATEGY
The Company's objective is to be the market leader in the markets in which
it participates. The Company plans to achieve this objective by implementing the
following strategies:
FOCUS ON NEW AND EMERGING GROWTH MARKETS. The Company's principal marketing
emphasis is on two types of carriers: existing providers and emerging providers.
Existing providers are replacing their older systems, augmenting their existing
systems to support new features and services or adding new systems to enable
them to expand into new domestic and international markets. Emerging providers
worldwide are expected to offer new types of services such as personal
communications systems ("PCS") and are entering existing service markets that
have been recently opened to competition as a result of the Telecommunications
Act of 1996 and similar legislation in other countries. The Company believes
that its experience in providing solutions to markets worldwide within the
carrier market, including local exchange, long distance and wireless, involving
applications for a wide variety of switches and other heterogeneous network
system elements, provides it with a significant competitive advantage in
designing products which can effectively handle the growing needs of these
providers.
EXPAND STRATEGIC ALLIANCES. The Company is strengthening its existing
strategic alliances with marketing partners and creating new alliances as a
means of identifying new business opportunities
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and entering new markets. These strategic alliances are with
internationally-recognized telecommunications equipment and service providers.
The alliances are a critical component of the Company's strategy to increase
penetration in large international markets, by leveraging on the reputation and
marketing efforts of its partners.
POSITIONING COMPANY PRODUCTS IN INTERNATIONAL MARKETS. Through its
alliances with internationally focused partners, the Company intends to continue
to identify new users in emerging countries. Each new installation represents an
opportunity for the Company to provide additional products and services for end
users. The Company has expanded its opportunities by providing products to one
type of carrier in a country, often a cellular carrier, and leveraging its
performance and reputation with that customer to sell products to other local
carriers. The Company's experience with TELMEX is a model for this strategy. See
" -- Strategic Alliances and Other Customers."
LEVERAGE TECHNOLOGICAL LEADERSHIP. The Company is continually pursuing
opportunities to use its technological leadership to create product enhancements
such as real time data collection and subscriber data warehousing. Recently, the
Company led a national effort for the development of a standard protocol for use
with the Microsoft Windows operating system ("WinSNMP") which is enabling the
development of flexible, decentralized data network management systems. In
conjunction with this effort, the Company developed enabling technology that
facilitates the use of Microsoft Windows, Intel processors and the Company's
NetPlus products for managing networks. To date, over 500 such kits have been
sold to customers such as Microsoft Corporation, Oracle Corporation, 3Com
Corporation, Lotus Development Corporation, CISCO Systems, Inc. and Symantec
Inc. To further its penetration of the data network market, the Company is also
developing the billing component for advanced data switches, which provides
access providers with flexible options for billing users of data network
services. The Company anticipates similar opportunities to develop other network
edge technologies for equipment and service providers in the growing market for
data services.
EXPAND SOFTWARE OPTIONS TO MEET THE NEEDS OF ENTERPRISES. The Company
continues to package its NetPlus software features into Company-standard systems
designed to work individually or as a group and to facilitate enterprise-wide
voice and data communications. The Company is also expanding the number of
available features to support data communications networks and operations. The
Company believes it will be particularly important to provide network managers
with the flexibility to meet the increasing demands of converging voice and data
telecommunications markets and expanding enterprise network requirements.
MAINTAIN ISO 9001 PRODUCT QUALITY REGISTRATION. The Company has invested
substantial resources to obtain, and plans to continue such investments to
maintain, the registration of its processes and procedures under the
international quality standard ISO 9001. This standard assures that the Company
meets rigorous performance and quality criteria established by an
internationally recognized organization. Compliance with this standard is
particularly important in establishing credibility and acceptance in
international markets.
PRODUCTS
All of the following products reflect the Company's extensive knowledge of
switch interface technology and experience in the collection and management of
data from switches made by virtually any manufacturer. The Company has applied
the same expertise to network management products for large enterprises, whose
complex networks often involve remote locations and require similarly flexible
and innovative designs to facilitate the flow of communications.
CARRIER NETWORK PRODUCTS
The Company's carrier network products meet the requirements of the existing
telephony wireline businesses and the growing markets of cable television, the
Internet and wireless businesses. The automation of data collection from remote
switches enables carriers to operate larger, increasingly complex systems with
more customer features more reliably, more cost effectively and with fewer
personnel. The Company's carrier network products are designed to facilitate
more accurate and more
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frequent billing, thereby reducing billing lag time and accounts receivable.
They also enable carriers to track calling patterns, reduce fraud, perform fault
management, improve network performance, and verify that calls are not
needlessly routed through inefficient or expensive paths. These products enable
a carrier to increase the size of its system and provide its end users with
better service, in remote and international locations. Following are
descriptions of the Company's principal carrier network products:
DATA COLLECTION
DCMS-REGISTERED TRADEMARK- -- DCMS, Distributed Call Measurement
System-TM-, is a hardware and software based microprocessor controlled
product which collects call record data from telephone switches and
electronically transmits them to a central location, where the data can be
processed for such purposes as billing, traffic analysis and fraud
detection. DCMS eliminates magnetic tape storage units and manual data
collection, reduces processing costs, and increases the accuracy of billing
data which, in turn, increases revenue. The most recent version of DCMS,
NEDS-TM-, Network Element Data Server, can provide the data on a real-time
basis. The Company also offers the DCMS*Plus-TM-, a version of DCMS which is
based on a new technology platform and is targeted at carriers in third
world and emerging countries. These products can be adapted to support
virtually all wireline and wireless telephone switches.
BILLING REPORTS AND ACCESS TO CUSTOMER DATA
UPS-32-REGISTERED TRADEMARK- -- UPS-32, Universal Polling System-32-TM-,
is a mini-computer, server or PC-based product, programmed to control the
collection and transmission of call detail records transmitted by multiple
DCMS units and similar equipment of other vendors. UPS-32 collects call data
from dispersed switch sites, processes and formats the data on a
customer-defined schedule, and distributes the data to the customer's
billing center. The most recent version of UPS-32, CANS-TM-, Central Access
Network Server, collects and distributes data in real-time.
TIBS-TM- -- TIBS, TELMARS-TM- International Billing System, a
software-based alternative carrier billing system, uses information gathered
by the DCMS or other providers' data collection products, and provides
carriers with billing information. TIBS is designed to reliably and
accurately bill for subscriber calls originating in over 30 countries, and
to support accurate currency conversions based on daily exchange rates.
TREX*COMM-TM- -- TREX*COMM is a software-based product designed for U.S.
local exchange carriers who use network switches to provide customer
premises voice and data communication services for business customers, under
a service concept called CENTREX. TREX*COMM automates the transfer of
CENTREX call usage data from remote switch sites to customers' equipment and
sorts records by customer codes, group codes, or other identifying data
fields. Using standard modem protocols, customers can dial the TREX*COMM
system to retrieve their data. Running on UNIX platforms and used in
conjunction with a data collection product, such as the DCMS, TREX*COMM
makes network information available to CENTREX subscribers to enable them to
manage and control data.
SURVEILLANCE AND ALARM (TRAFFIC REPORTING)
UTS-32-REGISTERED TRADEMARK- -- UTS-32, Universal Traffic System-32-TM-,
uses information gathered by DCMS products or other providers' data
collection products to provide reports on system traffic and usage on a
periodic basis. UTS-32 produces hourly group traffic reports, multi-day
study reports, multi-day load balancing reports, multi-day group traffic
analyses, weekly historical usage reports, yearly trunk forecasting reports,
and other engineering information used to monitor and maximize the
efficiency of the system and enable the carrier to minimize down-time.
RTMS-TM- -- RTMS, Real Time Management System, a system originally
developed for Teleglobe, monitors network data in real time and provides,
from a single data base, information for billing, fraud detection,
subscriber management and network management. The heart of
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RTMS is a 600 gigabyte data warehouse. RTMS uses NEDS to capture call
records in real time from remote switches. RTMS processing software presents
the data for analysis within 15 seconds of call completion.
ANMS-REGISTERED TRADEMARK- -- ANMS, AMAT Network Management System-TM-,
monitors the elements of a billing network. ANMS is a mini-computer based
product that collects and reports on alarms sent by DCMSs, UPS-32s and other
network elements in the billing system to assure that no billing data is
lost. In addition, ANMS serves as a user interface and collects system logs
from the network elements. The Company presently is adding standard network
management protocols to ANMS.
NETWORK MANAGEMENT PRODUCTS
The Company provides network management products to enable network managers
to manage their networks more effectively and to reduce the cost of operating
the network. The Company's network management products meet the requirements of
network managers of large, growing and increasingly complex integrated voice and
data networks. The Company's network management products are designed to enable
network managers to operate their networks more efficiently, to more accurately
control costs, to minimize network down time, and to implement other network
management features as their requirements grow and change.
NETPLUS-REGISTERED TRADEMARK- VOICE AND DATA NETWORK MANAGEMENT SYSTEM
-- The NetPlus family of network management products consists of five
systems designed to automate network operations and management functions.
These systems employ a client server architecture and common database that
permits them to operate either independently or as an integrated whole.
NetPlus products are scaleable, providing flexibility to accommodate a broad
range of network sizes and multiple locations. The Company typically
provides NetPlus products as fully integrated hardware and software
configurations. These products are intended to manage voice and data
networks for 1,000 to 50,000 users. The Company also licenses NetPlus
software to resellers to reach the market for small size networks. NetPlus
products are capable of providing total network management including: FAULT,
CONFIGURATION, ACCOUNTING, PERFORMANCE AND SECURITY MANAGEMENT ("FCAPS").
These products allow a network to automate tasks such as alarm processing,
connectivity tracking, automatic cable and channel assignment, creation of
subscriber and circuit records, inventory control, traffic surveillance and
management, work order and trouble ticket processing, directory assistance
and subscriber billing.
SALES AND MARKETING
Historically, the Company's sales and marketing efforts have been managed by
a small group of senior managers with substantial experience in the
telecommunications service provider market. These managers relied on the
Company's proven performance in promoting the Company's products. Sales
opportunities originated primarily from (i) referrals, (ii) involvement in trade
shows and industry conferences, (iii) responses to Requests for Proposals
received from telecommunications service providers, governments and other
organizations and (iv) leads from or contract proposals with the Company's
strategic alliance partners. See "-- Strategic Alliances and Other Customers."
The sales process for new contracts generally requires a significant
investment of time and money and takes from several months to several years.
This process involves senior executives, sales representatives and support
personnel and typically requires presentations, demonstrations, field trials,
and lengthy negotiations.
As part of its sales strategy, the Company spends a significant amount of
time consulting with strategic partners and end users to adapt its products to
meet end user requirements. Through ongoing sales, maintenance, training and
systems analysis, the Company maintains contact with its partners and end users
to determine their evolving requirements for updates and enhancements. Through
these processes, the Company gains valuable industry expertise, as well as the
ability to identify emerging industry applications and new sales opportunities.
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At present, the Company plans to significantly increase its sales efforts
over the next six to 12 months through more aggressive sales and marketing
strategies. The Company is hiring more direct, experienced sales
representatives, adding third party distribution channels and developing
additional strategic alliances with carriers and communications equipment
manufacturers to market the Company's products.
The Company's products typically are sold as part of systems sold to the
customers of strategic partners. Resellers are also used to target markets where
large numbers of customers with smaller networks are predominant. A small,
direct sales force markets the Company's products in markets where relationships
are not established. The Company is in the process of identifying and targeting
the markets most likely to need its products. To date, as a result of market
research and analysis, the Company has begun to actively market its network
management products to universities and airports. The Company plans also certain
promotional efforts targeted at identified potential enterprise customers, such
as through participation at the American College and University Telecom
Association and other national conferences on network management and billing.
The Company is working with several manufacturers to promote the visibility
and positioning of its network management products. As a leader in the promotion
of SNMP, which is emerging as an industry standard for network management, the
Company has sold licenses to various suppliers, including Microsoft Corporation,
3Com Corporation, CISCO Systems, Inc., Lotus Development Corporation, Oracle
Corporation and Symantec Inc., enabling them to incorporate WinSNMP in their
products for use in establishing network management applications, which could
include NetPlus products.
The Company plans to increase its promotional and name recognition efforts
over the next 12 months. It will continue to exhibit in trade shows and industry
conferences, publish newsletters and hold user group meetings. The Company has
also established a home page on the Internet to communicate with customers and
prospects.
CUSTOMER SUPPORT
The Company believes that a high level of engineering and development
services and customer support is critical to the Company's continuing success in
developing relationships with its strategic partners and end users. To augment
its sales efforts, the Company offers product-related engineering and
development services to its customers. The Company offers a range of other
services to customers, including requirements analysis, project management,
system design, tailoring and installation, training, ongoing support and
upgrades. Because the Company's services personnel work closely with customers,
they are able to gain valuable industry expertise, as well as identify emerging
industry applications. In addition, the Company's services personnel are able to
identify new sales opportunities. When the Company undertakes engineering and
development services for customers, the development often results in product
enhancement.
The Company offers technical customer support 24 hours per day, seven days
per week. Support is provided via telephone, remote login, e-mail and, if
necessary, on-site assistance. In addition, the Company has established a World
Wide Web site on the Internet which keeps customers informed of product
developments. International customers are supported directly by the Company or
by local representatives that have been trained by the Company. The Company also
conducts training classes for its strategic partners and other customers.
STRATEGIC ALLIANCES AND OTHER CUSTOMERS
In order to distribute its products effectively, the Company has established
strategic alliances with several companies. The Company's strategic alliances
apply to both its carrier network products and its network management products.
Each alliance is designed to do one or more of the following:
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establish a joint marketing relationship, create a reseller channel for
products, facilitate the development of products and facilitate the distribution
of products. These alliances have been especially helpful in enabling the
Company to penetrate, on a cost-effective basis, international markets, where
the Company's alliance partners are well known and have well developed business
relationships.
Typically, the Company enters into a formal agreement with the partner which
specifies product pricing and the responsibilities of each partner for system
integration, proposal drafting and marketing. The Company's partners generally
include ACE*COMM products in proposals to their customers in accordance with the
terms of these agreements. In some instances, the partner is the direct end user
of the Company's products.
The Company's carrier network products have been installed in over 500 end
user sites in 32 countries. The Company's three largest carrier network product
customers, including strategic alliance partners and end users, in each of 1993,
1994 and 1995, accounted for approximately 20.9%, 24.6%, and 43.0%,
respectively, of the Company's revenues in each of such years.
The Company's network management products have been installed in networks
operated by over 100 end user sites in 10 countries. Network management products
accounted for approximately 68.7%, 59.4%, and 37.1% of the Company's revenues in
1993, 1994 and 1995, respectively. Sales to ANSTEC during the nine months ended
March 31, 1996 represented 10.7% of the Company's total revenues for that
period.
The following is a list of the Company's most significant strategic
alliances:
CARRIER NETWORK PRODUCTS
- AT&T WORLD SERVICES, INC. ("AT&T WORLD SERVICES") -- selected the DCMS
and UPS-32 as operating components of its billing analysis systems for
international toll gateways, to be sold to customers worldwide. These
systems are used to collect data for traffic analysis and billing.
These systems have been sold to Telecom Networks and International,
Ltd. of Auckland, New Zealand; the Philippines Long Distance
Telephone; Brunei; Codetel, the Dominican Republic's long distance
carrier; Unisource, a consortium of joint venture companies providing
services in Europe; Taiwan's International Telephone Authority and
Compania Anonima Nacional Telefonos de Venezuela.
- CINCINNATI BELL INFORMATION SYSTEMS, INC. -- CBIS is the largest
cellular billing service provider in the world. The Company and CBIS
developed a customized version of the DCMS which contains information
management software designed to meet the needs of cellular service
providers. CBIS has installed over 50 DCMS units in the United States
for AT&T Wireless, formerly McCaw Cellular, one of CBIS's largest
customers. In addition, the Company currently is doing follow-on work
to further upgrade these systems and to deploy additional DCMS
products for other CBIS customers.
- TELEGLOBE CANADA, INC. -- Teleglobe is the government chartered
international long distance provider for Canada. Teleglobe has an
agreement with the Company for the development of a data collection
network, data warehouse and operator display system to capture and
monitor international traffic and usage data and provide information
for fraud detection and other OSS functions on a real time basis. The
result of this cooperative development project was the Company's RTMS
product, which is being marketed to other carriers worldwide.
- LUCENT TECHNOLOGIES, INC. (FORMERLY AT&T NETWORK SYSTEMS) -- developed
an OEM version of the DCMS to be used in combination with Lucent's
BILLDATS-Registered Trademark- (corresponding to the Company's
UPS-32/CANS product) collection software with the Company. Lucent has
deployed BILLDATS systems incorporating the Company's products in
various domestic
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and international teleprocessing projects, including projects for
Ameritech, the People's Republic of China and Korea Mobile Telephone.
As Lucent pursues other opportunities in Asia, the Company expects its
product to be included in future proposals.
- SAMSUNG ELECTRONICS COMPANY, LIMITED, LG INFORMATION AND
COMMUNICATIONS, LIMITED AND ILGIN CORPORATION -- formed a consortium
to provide a billing data collection system for Korea Telecom, the
national carrier for the Republic of South Korea. The consortium has
purchased significant quantities of the Company's products for tests
and field trials and the Company expects to conclude partnering
agreements with one or more of the consortium members in the near
future.
- INTERNATIONAL COMPUTERS LIMITED -- is installing the Company's NEDS
and CANS products along with its own billing system for Vodafone
Limited in the United Kingdom and the national cellular carrier in
Indonesia.
- GTE-TSI -- ordered DCMSs for installation at NYNEX Mobile, SNET
Cellular and Puerto Rico Telephone Company Cellular for use with
GTE-TSI's telephone fraud detection product. GTE-TSI has installed the
UPS-32 product as part of its own product and the Company expects to
install additional units pursuant to this arrangement.
NETWORK MANAGEMENT PRODUCTS
- ANSTEC, INC. -- teamed with the Company and was selected, through a
competitive procurement process, to install the Company's NetPlus
products at 107 U.S. Air Force bases and 50 other U.S. government
installations throughout the world.
- AMERLND, INC. -- installed a version of the Company's NetPlus products
as a part of the U.S. Army's automated directory attendance system at
installations throughout the United States.
- BELLSOUTH COMMUNICATION SERVICES, INC. UNDER CONTRACT TO HARRIS
CORPORATION -- installed systems containing the Company's NetPlus
products to be operated by Harris Corporation at National and Dulles
Airports near Washington, D.C. The Company expects to participate in
further airport projects with BellSouth and Harris Corporation.
- GTE GOVERNMENT SYSTEMS -- provides telephone systems at military
facilities throughout the world. The Company, as a subcontractor to
GTE Government Systems for network management products, installs and
supports NetPlus products at 40 of these military facilities. The
Company expects, through its continuing relationship with GTE
Government Systems, to provide additional products and services to
military facilities.
- AT&T CORPORATION, FEDERAL SYSTEMS DIVISION -- provides telephone
systems for the Executive Branch of the U.S. Government. The Company,
as a subcontractor to AT&T, installed and supports NetPlus products in
the U.S. Department of State.
The following is a list of some of the Company's other most significant
customers that have installed the Company's carrier network and network
management products within their organizations:
- TELEFONOS DE MEXICO, S.A. DE C.V. -- TELMEX, the national and local
long distance carrier of Mexico, selected the Company to upgrade data
collection throughout its switch network system. The three-year
contract has an estimated value of $12 million.
- GTE TELOPS (A DIVISION OF GTE TELEPHONE COMPANY) -- purchased DCMS
systems for installation on certain switch types through its network.
- TELCEL -- is the largest cellular carrier in Mexico and has installed
the Company's DCMS and UPS-32 products in its network.
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- NYNEX -- is installing one of the Company's newest products,
TREX*COMM, to support its CENTREX customers.
- ALLTEL -- is using the Company's UPS-32 product to provide billing
services to its customers.
- UNIVERSITY OF IOWA -- awarded the Company a contract to install
NetPlus to manage and monitor the University's voice and data network.
In addition, companies such as ISI Infortext Inc., Computer Science
Corporation, Polaris Communication Services, Inc. and Telsoft International,
Inc. have agreed to promote and sell the Company's products on a non-exclusive
basis. They participate in trade shows, industry conferences and customer events
and feature ACE*COMM products in their marketing programs.
As more ATM, Frame Relay and X.25 data switches are incorporated into
carrier and enterprise networks, it will become increasingly important for
network managers to be able to bill customers based on actual usage. The Company
is developing a billing component for advanced data switches, which provides
access providers with flexible options for billing users of data network
services. The Company anticipates similar opportunities to develop other network
edge technologies for equipment and service providers in the growing market for
data services.
The Company plans to continue to develop and expand its strategic alliances
with established, well-recognized industry leaders, as it believes that these
alliances enable the Company to increase sales most cost-effectively and
successfully position it to increase market penetration of its products.
BACKLOG
The Company tracks two types of backlog: "order backlog," which represents
signed purchase orders and which the Company believes represents a reliable tool
for forecasting revenues, and "contract backlog," which represents signed
project contracts and future revenues, subject to the signing of specific
purchase orders. Order backlog was approximately as follows: $3.7 million, $5.7
million, $3.6 million, and $11.4 million, at June 30, 1993, 1994 and 1995, and
at March 31, 1996, respectively. Contract backlog was approximately: $1.5
million, $2.6 million, $1.0 million, and $38.2 million at June 30, 1993, 1994
and 1995, and at March 31, 1996, respectively.
The Company's contracts are large and technically complicated and require a
significant commitment of management and financial resources from the Company's
customers. The development of a contract typically is a lengthy process because
it must address a customer's specific technical requirements and often requires
internal approvals that require substantial lead time. Accordingly, the Company
may experience significant variations in revenue from quarter to quarter,
reflecting delays in contract signing or contract order deliveries.
COMPETITION
Competition in the market for the Company's products is driven by rapidly
changing technologies, evolving industry standards, frequent new product
introductions and enhancements and rapid changes in customer requirements. To
maintain and improve its competitive position, the Company must continue to
develop and introduce, on a timely and cost-effective basis, new products and
product features that keep pace with technological developments and emerging
industry standards and address the increasingly sophisticated needs of its
customers.
The Company expects the continued growth of the carrier market and of the
large enterprise network management market to encourage new competitors to enter
the markets in the future. The Company believes that the principal competitive
factors in these markets include specialized project management capabilities and
technical expertise, compliance with industry quality standards and protocols,
customer support, product features such as adaptability, scaleability and
flexibility, ability to integrate with other products, functionality and ease of
use, product reputation, responsiveness to
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customer needs, and timeliness of implementation. In the future, the Company
will be required to respond promptly and effectively to the challenges of
technological change and its competitors' innovations.
In the carrier network products market, the Company's current and
prospective competitors include (i) large carriers which internally develop full
system products for themselves, tailored to their particular specifications,
(ii) companies, such as Securicor Telesciences, Inc., CGI, Inc. ("CGI"), and IDT
- - Alston that can supply individual billing data collection components and (iii)
vendors that supply product components, including Hewlett-Packard Company
("HP"), IBM Corporation ("IBM"), Moscom Corporation ("Moscom"), Objective System
Integrators, Inc. ("OSI") and CGI.
In the network management products market, the Company's current and
prospective competitors include (i) companies that provide products for
telephony networks, such as Telco Research Corporation, Complimentary Solutions,
Inc., Stonehouse & Company, Switchview, Inc., Moscom and OSI and (ii) companies
that provide products for data networks, such as Remedy Corporation, Net Manage,
Inc., Computer Associates International, Inc., FTP Software, Inc., Castle Rock
Computing, HP, IBM and Sun Microsystems, Inc.
The Company believes that its ability to compete in both markets depends in
part on a number of competitive factors outside its control, including the
ability of others to develop technology that is competitive with the Company's
products, the price at which competitors offer comparable products and services,
the extent of competitors' responsiveness to customer needs and the ability of
the Company's competitors to hire, retain and motivate key personnel.
The Company competes with a number of companies that have substantially
greater financial, technical, sales marketing and other resources, as well as
greater name recognition than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
promotion and sale of their products than can the Company. There can be no
assurance that the Company's current or potential competitors will not develop
products comparable or superior to those developed by the Company or adapt more
quickly than the Company to new technologies, evolving industry trends or
changing customer requirements.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's research and development efforts are focused on developing new
products to meet the growing needs of carriers and enterprises and on improving
existing products by incorporating new features and technologies. The Company
believes that the timely development of new products and enhancements is
essential to its maintaining its competitive position in the marketplace.
In its research and development efforts the Company works closely with
customers, end users and leading technology vendors, often in cooperative
funding arrangements. For example, the Company is working with Newbridge to
develop new software for its data switch products. The Company continually
reviews opportunities to license technologies from third parties when
appropriate based on timing and cost considerations. The Company believes that
this approach facilitates and accelerates the development of new and enhanced
products.
The Company's efforts are influenced significantly by industry developments
and by customer and end user requirements. New features may be tailored
initially for delivery to a single customer and subsequently incorporated into
future versions of the product which are available to all customers.
During the fiscal years 1994, 1995 and the nine months ended March 31, 1996,
product research and development expenses were $0.6 million, $1.0 million and
$0.6 million, respectively.
PROPRIETARY RIGHTS AND LICENSES
The Company does not currently hold any patents and relies on a combination
of statutory and/or common law, copyright, trademark, contract and trade secret
laws to maintain its proprietary rights
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to its products. The Company believes that, because of, among other things, the
rapid pace of technological change in the telecommunication and software
industries, patent protection for its products is a less significant factor in
the Company's success than the knowledge, ability and experience of the
Company's employees, the frequency of product enhancements and the timeliness
and quality of support services provided by the Company.
The Company generally enters into confidentiality agreements with its
employees, consultants, customers and potential customers and limits access to,
and distribution of, its proprietary information. Use of the Company's software
products is usually restricted to specified locations and is subject to terms
and conditions prohibiting unauthorized reproduction or transfer of the software
products. The Company also seeks to protect its software, including the source
code, as a trade secret and as a copyrighted work.
EMPLOYEES
At March 31, 1996, the Company employed a total of 119 employees, including
29 involved in manufacturing and quality assurance, 26 in research and
development, 21 in sales and marketing, 15 in professional services and 28 in
administration and finance. None of the Company's employees is represented by a
labor union. The Company has experienced no work stoppages and believes that its
employee relations are good.
PROPERTIES
The Company leases space at its four office locations: two in Gaithersburg,
Maryland and one each in Flemington, New Jersey and Orlando, Florida. The
Gaithersburg offices are the Company's corporate headquarters and are used for
product assembly, software and engineering development and support. The
Flemington office is used for the development and project management liaison
with NYNEX, AT&T and Lucent Technologies. The Orlando office is used primarily
for sales and sales support.
The following sets forth information concerning the Company's leased
facilities:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION ANNUAL RENT
- ------------------------------- --------- ----------------------- ------------
<S> <C> <C> <C>
Gaithersburg, Maryland
Perry Parkway 21,800 July 31, 1996 $ 220,000
North Frederick Avenue 4,500 December 1, 1996 $ 36,000
Flemington, New Jersey 2,500 December 31, 1996 $ 39,600
Orlando, Florida 400 April 30, 1997 $ 11,040
</TABLE>
The Company believes that its facilities are adequate for its current needs
and that suitable additional space will be available as required.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- ---------------------------------------------------------
<S> <C> <C>
George T. Jimenez..................... 60 President, Treasurer and Director
S. Joseph Dorr........................ 48 Vice President -- Network Management Division
Thomas V. Russotto.................... 51 Vice President -- Carrier Networks Division
James M. Moore........................ 54 Vice President -- Marketing
Paul G. Casner, Jr. .................. 58 Director
Gary P. Golding....................... 39 Director
Gilbert A. Wetzel..................... 63 Director
</TABLE>
GEORGE T. JIMENEZ has served as President and a Director of the Company
since its inception in 1983. From 1980 to 1983, Mr. Jimenez served as the
President of the Company's predecessor.
S. JOSEPH DORR has been Vice President -- Network Management Division since
1988 and a Vice President of the Company since 1983. From 1983 to 1989, he
served as Corporate Secretary of the Company. From 1980 to 1983, he served as
Director of the Commercial Systems Division of the Company's predecessor.
THOMAS V. RUSSOTTO has been Vice President -- Carrier Networks Division
since 1988 and a Vice President of the Company since 1985. From 1983 to 1985, he
served as Director of Product Development at the Company.
JAMES M. MOORE has been Vice President -- Marketing of the Company since May
1996. From March 1994 to May 1996, Mr. Moore served as Vice President, Business
Market of NYNEX, a telecommunications company, and from May 1992 to March 1994
he served as Managing Director, Business Market of NYNEX. From March 1989 to May
1992, Mr. Moore served as Managing Director, Marketing of New England Telephone
Company.
PAUL G. CASNER, JR. has been a Director of the Company since 1983. Since
April 1994, Mr. Casner has served as President of DRS Electronic Systems Group,
which is comprised of the following entities: Technology Applications & Service
Company ("TAS"), DRS Military Systems, DRS Medical Systems, Inc. and Laurel
Technologies. From March 1991 to September 1993, Mr. Casner served as Chairman
and Chief Executive Officer of TAS.
GARY P. GOLDING has been a Director of the Company since 1991. Since January
1989, Mr. Golding has served as General Partner of CEO Venture Fund, a venture
capital firm. Mr. Golding is a director of Databook, Inc.
GILBERT A. WETZEL has been a Director of the Company since 1992. Mr. Wetzel
has served as Regional Director of Key Executive Services for Right Associates,
an international human resources consulting firm, since 1994. He is the retired
Chairman and Chief Executive Officer of Bell of Pennsylvania and Diamond State
Telephone and founder and retired Chief Executive Officer of Geographic Business
Publishers, Inc.
The directors are divided into three classes, denominated as Class I, Class
II, and Class III, with the terms of office of each Class expiring at the 1997,
1998 and 1999 annual meetings of stockholders, respectively. At each annual
meeting following such initial classification and election, directors elected to
succeed those directors whose terms expire shall be elected for a term to expire
at the third succeeding annual meeting of stockholders after their election,
provided that the stockholders electing new or replacement directors may from
time to time specify a term of less than three years in order to maintain the
number of directors in each class as nearly equal as possible. The directors
have been initially divided into classes as follows: Class I -- Gilbert A.
Wetzel, Class II -- Gary P. Golding and
38
<PAGE>
Paul G. Casner, Jr., Class III -- George T. Jimenez. Officers of the Company
serve at the discretion of the Board of Directors. There are no family
relationships among any of the Company's directors and executive officers.
BOARD COMMITTEES AND COMPENSATION
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee oversees actions taken by the Company's
independent auditors, recommends the engagement of auditors and reviews any
internal audits the Company may perform. The current members of the Audit
Committee are Messrs. Golding, Wetzel and Casner. The Compensation Committee
approves the compensation of executives of the Company, makes recommendations to
the Board of Directors with respect to standards for setting compensation levels
and administers the Company's Amended and Restated Omnibus Stock Plan (the
"Stock Plan"). The current members of the Compensation Committee are Messrs.
Golding, Wetzel and Casner, none of whom is employed by the Company.
Directors are reimbursed for their travel expenses in attending Board and
Committee meetings. Each of the Company's current non-employee directors (other
than Mr. Golding) was granted an option to purchase 5,420 shares of the
Company's Common Stock at an exercise price of $.53 per share on December 9,
1995, pursuant to the Company's Amended Stock Option Plan for Directors (the
"Directors Stock Plan"). Only non-employee directors may participate in the
Directors Stock Plan. The plan authorizes the issuance of up to 100,000 shares
of Common Stock, subject to adjustment to reflect stock splits, recapitalization
and other changes in the outstanding stock. Each eligible director is entitled
under the plan to receive upon his election or reelection as a director an
option for a number of shares equal to 5,420 multiplied by the number of years
in the term for which he is then elected, exercisable at the fair market value
of the Common Stock on the date of grant. The option becomes exercisable in
equal installments of 5,420 shares on each anniversary of the date of grant or,
on such earlier date as the director ceases to be a director other than by
reason of his removal for cause, if such date is 15 days prior to such an
anniversary date and such director has served at least twelve months in office.
Each option expires upon the earlier of five years from the date of grant, the
expiration of six months following death, resignation or removal other than for
cause, or upon removal of a director for cause.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during the fiscal
year ended June 30, 1995, by the following executive officers (the "Named
Executive Officers"): (i) the Company's Chief Executive Officer and (ii) the
Company's other executive officers whose salary and bonus for the fiscal year
exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)(1) COMPENSATION(2)
- --------------------------------------------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C>
George T. Jimenez............................ $ 145,000 $ 22,563 40,244 $ 10,775
President, Treasurer and Director
S. Joseph Dorr............................... $ 112,128 $ 8,000 0 $ 953
Vice President
Thomas V. Russotto........................... $ 106,328 $ 22,563 27,441 $ 1,106
Vice President
</TABLE>
- ------------------------
(1) Options were granted in fiscal year 1996 for fiscal year 1995 performance.
(2) Consists of amounts paid in connection with a life insurance policy for Mr.
Jimenez and disability insurance policies for each Named Executive Officer
as follows: (i) Mr. Jimenez; $6,975 for life insurance and $3,800 for
disability insurance; (ii) Mr. Dorr; $953 for disability insurance; and
(iii) Mr. Russotto; $1,106 for disability insurance.
39
<PAGE>
The following table sets forth information regarding the grant of options to
purchase Common Stock to each of the Named Executive Officers during the fiscal
year ended June 30, 1995.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED FISCAL 1995(1) SHARE(2) DATE 5% 10%
- ---------------------------------------- ----------- --------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
George T. Jimenez....................... 30,623 10.6% $ .69 09/11/99 $ 5,807 $ 12,832
S. Joseph Dorr.......................... 13,501 4.7% $ .69 09/11/99 2,560 5,657
Thomas V. Russotto...................... 56,373 19.6% $ .69 09/11/99 10,690 23,622
</TABLE>
- ------------------------
(1) All of the options were granted under the Company's Stock Plan and were
fully vested and exercisable on the date of grant.
(2) The exercise price per share of the options granted represented the fair
market value of the underlying shares of Common Stock on the dates the
respective options were granted.
(3) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the five year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission (the "Commission") and do not reflect the
Company's estimate of future stock price growth.
The following table sets forth certain information concerning option
exercises during fiscal 1995 by the Named Executive Officers and the number and
value of securities underlying options held by each of the Named Executive
Officers at the end of fiscal 1995.
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES UNDERLYING OPTIONS
UNEXERCISED OPTIONS AT JUNE 30, AT JUNE 30,
1995 1995(1)
SHARES ACQUIRED VALUE -------------------------------- -------------
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- ----------------------------------- ----------------- ------------- ----------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
George T. Jimenez.................. 0 0 213,646 0 $ 2,052,633
S. Joseph Dorr..................... 0 0 165,749 0 1,597,833
Thomas V. Russotto................. 0 0 97,696 0 923,445
<CAPTION>
NAME UNEXERCISABLE
- ----------------------------------- -----------------
<S> <C>
George T. Jimenez.................. $ 0
S. Joseph Dorr..................... 0
Thomas V. Russotto................. 0
</TABLE>
- ------------------------
(1) Value for "in-the-money" options represent the positive spread between the
respective exercise prices of outstanding options and an assumed initial
public offering price of $10.00 per share (the mid-point of the estimated
range of the initial public offering price).
AMENDED AND RESTATED OMNIBUS STOCK PLAN
The Company has adopted, subject to stockholder approval, the ACE*COMM
Corporation Amended and Restated Omnibus Stock Plan (the "Stock Plan"). The
maximum number of shares of Common Stock in respect of which stock-based awards
may be granted under the Stock Plan is 1,500,000. The shares of Common Stock to
be delivered under the plan will be made available from the authorized but
unissued shares of Common Stock.
The Stock Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee"), upon which no director who is an officer
of the Company may serve, and which comprises only Directors who are
"non-employee directors" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and who are "outside
directors"
40
<PAGE>
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). All employees of the Company, including employee
directors, are eligible to participate in the Stock Plan. It is anticipated that
the Committee's determinations of which eligible individuals will be granted
awards and the terms thereof will be based on each individual's present and
potential contribution to the success of the Company.
Stock options may be granted under the Stock Plan at the discretion of the
Committee and subject to such terms and conditions determined by the Committee
and set forth in a grant agreement. Options granted under the Stock Plan may be
either nonqualified options or incentive stock options. The Committee has
discretion to fix the exercise price of such options at a price not less than
100% of the fair market value of the underlying shares of Common Stock at the
time of grant thereof. The Committee has broad discretion as to the terms and
conditions upon which options shall be exercisable, but under no circumstances
will an option have a term exceeding 10 years from date of grant.
The option exercise price may be satisfied in cash or, in the discretion of
the Committee, by exchanging shares of Common Stock owned by the optionee, by a
combination of cash and shares of Common Stock or by such other means and the
Committee may prescribe. The ability to pay the option exercise price in shares
of Common Stock would, if permitted by the Committee, enable an optionee to
engage in a series of successive stock-for-stock exercises of an option
(sometimes referred to as "pyramiding") and thereby fully exercise an option
with little or no cash investment. The Company also may make or guarantee loans
to grantees to assist grantees in exercising stock options.
The terms of an option may provide for the automatic grant of a new award
exercisable for not more than the number of shares tendered when the exercise
price of the option and/or related tax obligation is paid by tendering shares of
Common Stock (sometimes referred to as "reload options"), subject to certain
limitations set forth in the Stock Plan. Incentive stock option awards under the
Stock Plan must comply with Section 422 of the Code, including with respect to
grants made to a grantee who owns more than 10% of the outstanding stock of the
Company, that the exercise price shall be not less than 110% of the fair market
value of the underlying shares on the date of grant and that the aggregate fair
market value of shares of Common Stock with respect to which all incentive stock
options first became exercisable by a grantee in any calendar year shall either
not exceed $100,000 or be treated as non-qualified options.
The Committee also may grant stock appreciation rights. Upon the exercise of
a stock appreciation right with respect to a share of Common Stock, a
participant would be entitled to receive the excess of the fair market value of
such shares over the exercise price of such right. The Committee has the
authority to determine whether the value of a stock appreciation right is paid
in cash or shares of Common Stock or a combination of both.
The Committee also has discretion to make contingent grants of performance
shares which will be earned to the extent performance goals established by the
Committee are achieved over a period of time specified by the Committee. The
Committee will have discretion to determine the value of each performance
shares, to adjust the performance goals as it deems equitable to reflect events
affecting the Company or changes in law or accounting principles or other
factors, and to determine the number of performance share which have been earned
based on performance relative to such performance goals. The value of
performance shares that are earned may, in the discretion of the Committee, be
paid in the form of cash, shares of Common Stock, or a combination of both.
Awards of stock or stock payment units under the Stock Plan will be made at
the discretion of the Committee and will consist of shares of Common Stock or
units denominated in dollars granted to a participant, which may be subject to
forfeiture and restrictions on transfer. In general, a participant who has been
granted restricted stock will from the date of grant have the benefits of
ownership in respect of such shares, including the right to vote such shares and
to receive dividends and other distributions thereon, subject to the
restrictions set forth in the Stock Plan and in the instrument evidencing such
award. The shares of restricted stock will be held by the Company, or by an
escrow agent designated by the Company, during the restricted period and may not
be sold, assigned,
41
<PAGE>
transferred, pledged, or otherwise encumbered until the restrictions have
lapsed. The Committee has authority to determine the duration of the restricted
period and the conditions under with stock and stock payment units may be
forfeited, as well as the other terms and conditions of such awards. Stock
payment units may be paid, in the discretion of the Committee, in cash or shares
of Common Stock or a combination of both.
The Stock Plan also authorizes the Committee to grant to participants awards
of shares of Common Stock and other awards that are valued in whole or in part
by reference to, or are otherwise based on, the value of shares of Common Stock
("Stock Unit Awards"). The Committee has discretion to determine the
participants to whom Stock Unit Awards are to be made, the times at which such
awards are to be made, the size of such awards, and all other conditions of such
awards, including any restrictions, deferral periods, or performance
requirements. The provisions of the Stock Unit Awards will be subject to such
rules and regulations as the Committee shall determine at the time of grant.
Any award under the Stock Plan may provide that the participant has the
right to receive currently or on a deferred basis dividends or dividend
equivalents and/or other cash payments in addition to or in lieu of such award,
all as the Committee shall determine.
If the Committee determines that any stock split, stock dividend or other
distribution (whether in the form of cash, securities, or other property),
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares, issuance of warrants or other
rights to purchase shares at a price below fair market value, or other similar
corporate event affects the Common Stock such that an adjustment is required in
order to preserve the benefits intended under the Stock Plan, then the Committee
has discretion to make (i) equitable adjustments (a) in the number and kind of
shares that may be the subject of future awards under the Stock Plan or (b) the
number and kind of shares (or other securities or property) subject to
outstanding awards and the respective grant of exercise prices thereof and/or,
(ii) if appropriate, to provide for the payment of cash to a participant.
The Committee has broad discretion as to the specific terms and conditions
of each award and any rules applicable thereto, including but not limited to the
effect thereon of the death, retirement, or other termination of employment of
the participant and the effect, if any, of a change in control of the Company.
The terms of each award are to be evidenced by a written instrument delivered to
the participant. The awards authorized under the Stock Plan are subject to
applicable tax withholding by the Company which may be satisfied by the
withholding of shares issuable under the Stock Plan, and may not be assigned or
transferred, except by will or the laws of descent and distribution.
No award may be granted under the Stock Plan after the tenth anniversary of
the effective date of the Stock Plan.
The Stock Plan may be amended or terminated at any time by the Board of
Directors, except that no amendment may be made without stockholder approval if
such approval is necessary to comply with any tax or regulatory requirement,
including any approval requirement which is a prerequisite for exemptive relief
from Section 16 of the Exchange Act.
The Stock Plan is not subject to any provision of ERISA and is not qualified
under Section 401(a) of the Code.
Special rules apply to a participant who is subject to Section 16 of the
Exchange Act. Certain additional special rules apply if the exercise price for
an option is paid in shares of Common Stock previously owned by the optionee
rather than in cash.
Counsel has provided the Company with the following brief summary of the
Federal income tax consequences, under the Code as currently in effect, with
respect to (i) incentive stock options, (ii) non-qualified stock options and
(iii) restricted stock awards:
(i) INCENTIVE STOCK OPTIONS. No taxable income is realized by the optionee
upon the grant or exercise of an incentive stock option. If there were no
disposition of the option shares until more than
42
<PAGE>
two years after the option is granted and more than one year after the option is
exercised, the gain or loss realized by the optionee on the sale of such shares
would be treated as long-term capital gain or loss, and the Company would not be
entitled to any income tax deduction by reason of the grant or exercise of the
option. If the option shares were disposed of in a sale, exchange, gift or other
"disqualifying disposition" prior to the expiration of the
two-years-from-grant/one-year-from-exercise holding period, generally (a) the
optionee would realize taxable ordinary income in the year of such disposition
in an amount equal to the excess (if any) of the fair market value of such
shares at the time of exercise of the option over the option price thereof
(except that, if the disposition is a sale or exchange of the type on which a
loss, if sustained, would be recognized to such optionee, ordinary income would
be realized by such optionee in an amount equal to only the gain realized on
such sale or exchange if such gain is less than such excess) and would realize
capital gain on the balance of the gain, and (b) the Company would be entitled
to a deduction for such year in the amount of the ordinary taxable income to the
optionee.
(ii) NON-QUALIFIED OPTIONS. No taxable income is realized by the optionee
upon the grant of a non-qualified option. On exercise, the excess of the fair
market value of the shares at the time of exercise over the option price of such
shares would be treated as compensation. Any amounts treated as compensation (a)
would be taxable at ordinary income tax rates in the year of exercise, (b) would
be subject to withholding for Federal income tax purposes, and (c) generally
would be an allowable income tax deduction to the Company. The optionee's tax
basis for shares acquired upon exercise of a non-qualified option would be equal
to the option price paid for the shares plus any amounts treated as
compensation. An optionee would generally be entitled to long-term capital gain
treatment on the difference between his tax basis and the sale price of the
shares acquired upon exercise.
(iii) RESTRICTED STOCK AWARDS. No income would be realized by an employee
in connection with the grant of a restricted stock award. When the restrictions
lapse, the employee would be required to include as taxable ordinary income the
fair market value of such shares at the time the restrictions lapse. The Company
would be entitled to a deduction for Federal income tax purposes equal to the
amount so included in such employee's income. An employee may, by making a
Section 83(b) election within 30 days after the transfer of stock, choose to
recognize income upon the grant of a restricted stock award. Any appreciation in
the stock value after the grant date will, if the stock is held long enough, be
eligible for long-term capital gain treatment upon the subsequent sale of the
stock. However, if the stock is forfeited later, the loss deduction allowable is
limited to the price paid for the stock (if any) minus any amounts received upon
such forfeiture.
(iv) PAYMENT OF WITHHOLDING TAXES. The Company may withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy any
federal, state and local withholding tax requirements. The Committee may permit
a participant to satisfy a tax withholding requirement on exercise of an option
by delivery to the Company of shares of its Common Stock owned by the
participant, including shares the participant is entitled to receive upon
exercise of the option.
(v) CODE SECTION 162(M). Section 162(m) of the Code limits the tax
deduction available for compensation paid to the Company's five most
highly-compensated individuals in excess of $1,000,000. To the extent
practicable, awards under the Stock Plan to designated executives will qualify
as "performance-based" compensation which is excluded from the Section 162(m)
cap on deductibility. Stock options issued under the Stock Plan are expected to
be fully deductible as performance-based.
(vi) OTHER. To the extent payments which are contingent on a change in
control are determined to exceed certain Code limitations, they may be subject
to a 20% nondeductible excise tax and the Company's deduction with respect to
the associated compensation expense may be disallowed in whole or in part.
The foregoing discussion summarizes the Federal income tax consequences of
the Stock Plan based on current provisions of the Code which are subject to
change. This summary does not cover any state or local tax consequences of
participation in the Stock Plan.
43
<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company currently has no employment contracts with any of the Named
Executive Officers, and the Company has no compensatory plan or arrangement with
such Named Executive Officers where the amounts to be paid exceed $100,000 and
which are activated upon resignation, termination or retirement of any such
executive officers upon a change in control of the Company.
LIMITATION ON LIABILITY OF DIRECTORS
The Charter provides that a director will not be personally liable for
monetary damages to the Company or its stockholders for breach of fiduciary duty
as a director, except to the extent such exemption for liability or limitation
thereof is not permitted under Maryland law, including liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for paying a dividend or
approving a stock repurchase in violation of Section 2-311 of the Maryland
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
While the Charter provides directors with protection from having to pay
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Charter will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions of the Charter described above
apply to an officer of the Company only if he or she is a director of the
Company and is acting in his capacity as director, and do not apply to officers
of the Company who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Charter provides that the Company shall indemnify its currently acting
and its former officers and directors against any and all liabilities and
expenses incurred in connection with their services in such capacities to the
maximum extent permitted by Maryland law, as from time to time amended. The
Charter further provides that the right to indemnification shall also include
the right to be paid by the Company for expenses incurred in connection with any
proceeding arising out of such service in advance of its final disposition to
the fullest extent permitted by Maryland law.
The Charter further provides that the Company may, by action of its Board of
Directors, provide indemnification to such of the employees and agents of the
Company and such other persons serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise to such extent and to
such effect as is permitted by Maryland law and the Board of Directors shall
determine to be appropriate.
The Company expects to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the Company, or
is or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against any expense, liability, or loss incurred by such person in
any such capacity or arising out of his status as such, whether or not the
Company would have the power to indemnify him against such liability under
Maryland law.
The Charter provides that (i) the Board of Directors may, by by-law,
resolution or agreement, make further provision for indemnification of
directors, officers, employees and agents and (ii) no amendment, modification or
repeal of the Charter, nor the adoption of any additional provision of the
Charter or the By-laws nor, to the fullest extent permitted by Maryland law, any
amendment, modification or repeal of law shall eliminate or reduce the effect of
the provisions in the Charter limiting liability or indemnifying certain persons
or adversely affect any right or protection then existing thereunder in respect
of any acts or omissions occurring prior to such amendment, modification,
repeal, or adoption.
44
<PAGE>
CERTAIN TRANSACTIONS
In connection with the purchase of certain assets by the Company at its
inception, Mr. Jimenez, the Company's President loaned $150,000 to the Company
to assist in financing the acquisition. The note bears interest at the federal
short-term rate established periodically by the U.S. Treasury. Principal is
payable upon demand and interest is paid quarterly. The outstanding loan balance
was $78,572 at March 31, 1996 and will be entirely repaid out of proceeds of
this offering. See "Use of Proceeds."
During fiscal years 1994 and 1995 and the nine months ended March 31, 1996,
the Company purchased voice processing systems totaling approximately
$1,036,000, $62,000, and $73,000, respectively, from Microlog Corporation
("Microlog"), a company whose Board of Directors included Mr. Jimenez, the
Company's President, and Graham Hartwell, a former Director of the Company. Mr.
Jimenez resigned from Microlog's Board of Directors in January 1994. Mr.
Hartwell retired from the Company's Board of Directors in December 1995. The
Company expects to continue to do business with Microlog on terms no less
favorable to the Company than could be obtained from an unaffiliated third
party.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All further transactions, including loans, between
the Company and its officers, directors, principal shareholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors and will
continue to be, in the judgment of such a majority, on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of June 1, 1996, and as adjusted to reflect the
sale of shares offered hereby, by (i) each stockholder known by the Company to
be a beneficial owner of more than five percent of the Common Stock, (ii) the
Selling Stockholder, (iii) each of the Company's directors, (iv) each of the
Named Executive Officers and (v) all directors and executive officers of the
Company as a group. Except as indicated in the footnotes to this table, the
Company believes that the persons and entities named in the table have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
---------------------------- NUMBER OF ----------------------------
NUMBER OF SHARES BEING NUMBER OF
NAME AND ADDRESS (2) SHARES PERCENT OFFERED SHARES PERCENT
- ------------------------------------------------- --------------- ----------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
CEO Venture Fund II.............................. 1,843,944(3) 29.9% 268,203 1,575,741 18.7%
1950 Old Gallows Road
Vienna, Virginia 22182
George T. Jimenez................................ 2,955,179(4) 46.3% 0 2,955,179 34.2%
S. Joseph Dorr................................... 830,626(5) 13.2% 0 830,626 9.7%
Thomas V. Russotto............................... 336,517(6) 5.4% 0 336,517 4.0%
Paul G. Casner, Jr............................... 32,520(7) * 0 32,520 *
Gary P. Golding.................................. 3,165(8) * 0 3,165 *
Gilbert A. Wetzel................................ 21,680(9) * 0 21,680 *
All directors and executive officers as a group
(7 persons)..................................... 4,179,687 62.8% 0 4,179,687 49.7%
</TABLE>
- ------------------------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock outstanding prior to this offering
includes (i) 4,324,499 shares of Common Stock outstanding as of June 1,
1996, (ii) 1,843,944 shares issuable by the Company upon the conversion of
all outstanding shares of Class C Preferred Stock which will occur
automatically upon completion of this offering and (iii) shares issuable by
the Company pursuant to options held by the respective person or group which
may be exercised within 60 days after June 1, 1996. Beneficial ownership is
determined in accordance with the rules of the Commission and generally
includes voting or investment power with respect to securities. All of these
shares are subject to lock-up restrictions until 180 days after the date of
this Prospectus. See "Shares Eligible for Future Sale."
(2) Unless otherwise indicated, the address is c/o ACE*COMM Corporation, 209
Perry Parkway, Gaithersburg, Maryland 20877.
(3) Includes 1,788,053 shares held by CEO Venture Fund II of which 268,203 are
being offered hereby, 26,363 shares held by William R. Newlin, 26,363 shares
held by James Colker and 3,165 shares held by Gary P. Golding. Colker and
Newlin Management Associations II ("CNMA II"), as the general partner of CEO
Venture Fund II, exercises voting and investment power with respect to the
1,788,053 shares held by CEO Venture Fund II. Messrs. Colker and Newlin, as
managing general partners of CNMA II, exercise shared voting and investment
power with respect to these shares and Mr. Golding, E.R. Yost, and G.F.
Chatfield, as general partners of CNMA II, exercise shared investment power
with respect to these shares. CNMA II and Messrs. Colker, Newlin, Golding,
Yost and Chatfield disclaim ownership of the shares held by CEO Venture Fund
II other than to the extent of its or his individual partnership interest.
(4) Includes 220,356 shares issuable upon the exercise of options that are
exercisable within 60 days.
46
<PAGE>
(5) Includes 145,202 shares issuable upon the exercise of options that are
exercisable within 60 days.
(6) Includes 83,815 shares issuable upon the exercise of options that are
exercisable within 60 days.
(7) Includes 21,680 shares issuable upon the exercise of options that are
exercisable within 60 days.
(8) Does not include 1,788,053 shares held by CEO Venture Fund II of which Mr.
Golding is a general partner.
(9) Includes 16,260 shares issuable upon the exercise of options that are
exercisable within 60 days.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, the Company will be authorized to
issue 45,000,000 shares of Common Stock, $.01 par value, and 5,000,000 shares of
undesignated Preferred Stock, $.01 par value.
COMMON STOCK
As of June 1, 1996, there were 6,168,442 shares of Common Stock outstanding
held of record by 26 stockholders. As of May 1, 1996, options to purchase an
aggregate of 1,293,217 shares of Common Stock were also outstanding of which
options to purchase 1,130,617 shares were then exercisable. See "Management --
Amended and Restated Omnibus Stock Plan."
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and have cumulative voting rights with
respect to the election of directors. Subject to the prior rights of holders of
Preferred Stock, if any, the holders of Common Stock are entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefor. Upon
liquidation or dissolution of the Company, the remainder of the assets of the
Company will be distributed ratably among the holders of Common Stock after
payment of liabilities and the liquidation preferences of any outstanding shares
of Preferred Stock. The Common Stock has no preemptive or other subscription
rights and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All of the outstanding shares of Common
Stock are, and the shares to be sold in this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in one
or more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation of
such series, without any further vote or action by the Company's shareholders.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the shareholders and may adversely affect the
market price of, and the voting and other rights of, the holders of Common
Stock. The Company has no current plans to issue any shares of Preferred Stock.
BUSINESS COMBINATIONS
Maryland law prohibits certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and an Interested Stockholder. "Interested Stockholders" are all
persons (a) who beneficially own 10% or more of the voting power of the
corporation's shares or (b) an affiliate or associate of the corporation who, at
any time within the two-year period prior to the date in question, was an
Interested Stockholder or an affiliate or an associate thereof. Such business
47
<PAGE>
combinations are prohibited for five years after the most recent date on which
the Interested Stockholder became an Interested Stockholder. Thereafter, any
such business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by all holders of voting shares of the corporation,
and (b) 66 2/3% of the votes entitled to be cast by all holders of voting shares
of the corporation other than voting shares held by the Interested Stockholder,
or an affiliate or associate of the Interested Stockholder, with whom the
business combination is to be effected, unless, among other things, the
corporation's stockholders receive a minimum price (as defined in Maryland law)
for their shares and the consideration is received in cash or in the same form
as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, unless the corporation's charter or
by-laws provide otherwise, to a corporation that on July 1, 1983 had an existing
Interested Stockholder, unless, at any time thereafter, the Board of Directors
elects to be subject to the law. The Company has adopted such a resolution,
which has the effect of making the law applicable to the Company, except with
respect to certain business combinations involving persons who were Interested
Stockholders as of the date of this Prospectus, or their affiliates, which
include CEO Venture Fund II and George T. Jimenez. These provisions of Maryland
law would not apply, however, to business combinations that are approved or
exempted by the Board of Directors of the corporation prior to the time that any
other Interested Stockholder becomes an Interested Stockholder. A Maryland
corporation may adopt an amendment to its charter electing not to be subject to
the special voting requirements of the foregoing legislation. Any such amendment
would have to be approved by the affirmative vote of at least 80% of the votes
entitled to be cast by all holders of outstanding shares of voting stock and
66 2/3% of the votes entitled to be cast by holders of outstanding shares of
voting stock who are not Interested Stockholders. The Company has not adopted
such an amendment to its Charter.
CONTROL SHARE ACQUISITIONS
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. Control shares are voting shares
of stock which, if aggregated with all other shares of stock previously acquired
by such a person, would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (a) 20%
or more but less than 33 1/3%; (b) 33 1/3% or more but less than a majority; or
(c) a majority of all voting power. Control shares do not include shares of
stock an acquiring person is entitled to vote as a result of having previously
obtained stockholder approval. A control share acquisition means, subject to
certain exceptions, the acquisition of, ownership of, or the power to direct the
exercise of voting power with respect to, control shares.
A person who has made or proposes to make a "control share acquisition,"
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand therefor to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as permitted by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for "control shares" are approved at a stockholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the stock as determined for purposes of such appraisal rights may not
be less than the highest price per share paid in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a "control share acquisition."
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<PAGE>
The control share acquisition statute does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction, or to acquisitions previously approved or exempted by a provision
in the charter or by-laws of the corporation. The Company has adopted a
provision in its Charter exempting acquisitions by George Jimenez and his
respective associates provided any such acquisition does not cause them to
acquire more than 49.9% of the outstanding Common Stock in the aggregate.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is
.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's Charter and by-laws will be amended as of the closing of this
Offering and, as a result of such amendment, will contain several provisions
that may make the acquisition of control of the Company by means of a proxy
fight, open market purchases, tender offer, or otherwise more difficult. The
following is a summary of certain of these provisions. The forms of Charter and
By-laws, as amended, are filed as exhibits to the Registration Statement filed
with the Commission of which this Prospectus is a part, and the following
summary is qualified in its entirety by reference to such documents.
NUMBER OF DIRECTORS
The Charter and By-laws provide that the number of directors shall be fixed
from time to time by resolution adopted by a majority of the entire Board of
Directors, but may not consist of fewer than three or such lesser number of
stockholders, nor more than 11 members. The size of the Board of Directors has
initially been set at five members.
CLASSIFIED BOARD OF DIRECTORS
The Charter divides the Board of Directors into three classes, with one
class having a term of one year, one class having a term of two years, and one
class having a term of three years. Each class is to be as nearly equal in
number as possible. At each annual meeting of stockholders, commencing with the
annual meeting of stockholders to be held in 1997, directors will be elected to
succeed those directors whose terms have expired, and each newly elected
director will serve for a three-year term.
The classification of directors and the provisions in the Charter that limit
the ability of stockholders to increase the size of the Board of Directors,
together with the provisions in the Charter described below that limit the
ability of stockholders to remove directors and that permit the remaining
directors to fill any vacancies on the Board, will have the effect of making it
more difficult for stockholders to change the composition of the Board of
Directors. As a result, at least two annual meetings of stockholders may be
required for the stockholders to change a majority of the directors, whether or
not a change in the Board of Directors would be beneficial to the Company and
its stockholders and whether or not a majority of the Company's stockholders
believes that such a change would be desirable.
REMOVAL OF DIRECTORS AND FILLING VACANCIES
The Charter and By-laws provide that a director may be removed by
stockholders only "for cause" and with the approval of the holders of 80% of the
total voting power of all outstanding securities of the Company then entitled to
vote generally in the election of directors, voting together as a single class
at a special meeting of stockholders called for that purpose. (Article VI of the
Charter; Section 6).
The Charter and By-laws provide that all vacancies on the Board of
Directors, including those resulting from an increase in the number of
directors, may be filled solely by a majority of the remaining directors even if
they do not constitute a quorum. If the vacancy occurs as a result of the
49
<PAGE>
removal of a director, the stockholders may elect a successor at the meeting at
which such removal occurs. If the entire Board becomes vacant, any stockholder
may call a special meeting in order to elect directors. (Article II, Section 7
of the By-laws).
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The By-laws establish advance notice procedures with regard to stockholder
proposals and the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election as directors.
(Sections 11 and 12). These procedures require that a notice of stockholder
proposals and stockholder nominations for the election of directors at any
meeting of stockholders must be in writing, containing certain specified
information and received by the Secretary of the Company not less than 20 nor
more than 30 days prior to the meeting (or if less than 30 days' notice or prior
public disclosure of the date of the meeting is given, the notice of stockholder
proposals or nominations must be in writing and received by the Secretary of the
Company no later than the close of business on the tenth day following the day
on which notice of the meeting was mailed or public disclosure thereof was made,
whichever occurs first). The Company may reject a stockholder proposal or
nomination that is not made in accordance with such procedures.
LIMITATIONS ON CALLING STOCKHOLDER MEETINGS
The Charter and By-laws provide that special meetings of stockholders can be
called only by the Chairman of the Board of Directors, the President, the Board
of Directors, or by the Secretary at the request of holders of at least 25% of
all votes entitled to be cast. (Article I, Section 2 of the By-laws). These
provisions may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting unless a special meeting is called by the
Board of Directors, the Chairman of the Board, the President, or the Secretary
of the Company upon the request of holders of a sufficient number of shares.
AMENDMENT OF CERTAIN PROVISIONS OF THE CHARTER AND BY-LAWS
The Charter of the Company provides that the affirmative vote of the holders
of at least 80% of the aggregate combined voting power of all classes of capital
stock entitled to vote thereon, voting as one class, is required to amend
certain provisions of the Charter, including those provisions relating to the
number, election and term of directors; the removal of Directors; the amendment
of the by-laws; the provision governing applicability of the Maryland Control
Share Act (Section 3-702 of the Maryland General Corporation Law); and the
supermajority voting requirements in the Charter. (Article VII, Section 1). The
Charter further provides that Board of Directors shall have the exclusive right
to make, alter, amend or repeal the By-laws. (Article VII, Section 5). These
requirements will have the effect of making more difficult any amendment by
stockholders, even if a majority of the Company's stockholders believe that such
amendment would be in their best interests.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Sales of substantial shares of Common Stock in the public market
following this offering, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock prevailing from time to
time and could impair the Company's future ability to raise capital through an
offering of its equity securities. See "Risk Factors -- Shares Eligible for
Future Sale."
Upon completion of this offering, the Company will have approximately
8,418,442 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option.) Of these shares, the 2,518,203 shares sold
in this offering will be freely transferable without restriction or registration
under the Securities Act, except for any shares purchased by an existing
"affiliate" of the Company, as that term is defined under the Securities Act (an
"Affiliate"), which shares will be subject to the resale limitations of Rule 144
adopted under the Securities Act. The remaining 5,900,239 outstanding shares of
Common Stock which were issued by the Company in private transactions not
involving a public offering (and any shares issued upon the exercise of stock
options granted pursuant to the Stock Plan and the Directors Stock Plan), are
"restricted securities" for purposes of Rule 144
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<PAGE>
and may not be resold in a public distribution, except in compliance with the
registration requirements of the Securities Act, pursuant to a valid exemption
from registration or pursuant to Rule 144. Of such shares, and without
consideration of the contractual restrictions described below, 350,440 shares
would be available for immediate sale in the public market without restriction
pursuant to Rule 144(k) and 5,153,289 additional shares would be available for
immediate sale subject to compliance with the restrictions of Rule 144.
Beginning 90 days after the date of this Prospectus, and without consideration
of the contractual restrictions described below, 192,708 additional shares would
be eligible for sale without restrictions in reliance upon Rule 701 promulgated
under Securities Act and 111,662 additional shares would be eligible for sale
subject to compliance with the restrictions of Rule 144. The remaining 92,140
restricted shares will not be transferable pursuant to Rule 144 until the
expiration of their respective two year holding periods.
The holders of 5,727,774 shares of Common Stock in the aggregate, including
each officer and director of the Company, have agreed not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Common Stock, for a
period of 180 days after the date of this Prospectus, without the prior written
consent of Furman Selz LLC. Furman Selz LLC may, in its sole discretion and at
any time without notice, waive the lock-up restrictions as to all or a portion
of the securities subject to lock-up agreements. Furman Selz LLC currently has
no plans to grant any such waivers. As a result of these contractual
restrictions and the provisions of Rules 144(k), 144 and 701, the restricted
shares will be available for sale in the public market as follows: (i) 107,424
shares will be eligible for immediate sale on the date of this Prospectus, (ii)
65,041 shares will be eligible for sale 90 days after the date of this
Prospectus, (iii) 5,635,634 shares will be eligible for sale 180 days after the
date of this Prospectus upon expiration of lock-up agreements, and (iv) 92,140
shares will become eligible for sale in the public market pursuant to Rule 144
upon the expiration of their respective two year holding periods.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least two years
(including the holding period of any prior owner except an affiliate of the
Company) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately 84,184
shares immediately after this offering); or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding such sale,
subject to the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an Affiliate
at any time during the 90 days immediately preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Subject to the
contractual restrictions described above, "144(k) shares" may therefore be sold
immediately upon the completion of this offering. Persons deemed to be
Affiliates must always sell pursuant to Rule 144, even after the applicable
holding periods have been satisfied.
The Commission has recently proposed amendments to Rule 144 that would
permit resales of restricted securities after a one-year, rather than a two-year
holding period, subject to compliance with the other provisions of Rule 144, and
would permit resale of restricted securities by non-Affiliates under Rule 144(k)
after a two-year, rather than a three-year holding period. If adopted, such
amendments could result in resales of restricted securities sooner than would be
the case under Rule 144 as currently in effect.
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<PAGE>
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Exchange Act pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after the
date of this Prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than Affiliates subject only to the manner of sale provisions of
Rule 144 and by Affiliates under Rule 144 without compliance with its two-year
minimum holding period requirements.
At June 1, 1996, options to purchase 1,276,957 shares of Common Stock were
outstanding, of which options to purchase approximately 1,114,357 shares were
then vested and exercisable. Shortly after this offering, the Company intends to
file registration statements on Form S-8 under the Securities Act covering
shares of Common Stock reserved for issuance under the Company's stock plans.
See "Management -- Amended and Restated Omnibus Stock Option Plan." Shares of
Common Stock issued upon exercise of options under the Forms S-8 will be
available for sale in the public market, subject to Rule 144 manner of sale and
volume limitations in the case of Affiliates and subject to the contractual
restrictions described above. Beginning 180 days after the Effective Date,
approximately 889,508 shares issuable upon the exercise of vested stock options
will become eligible for sale in the public market, if such options are
exercised.
REGISTRATION RIGHTS
After this offering, the holders of 1,575,740 shares of Common Stock (the
"Registrable Securities") will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. Under the terms of the
agreement between the Company and the holders of such Registrable Securities, if
the Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include shares of such Common Stock therein.
Additionally, beginning six months after the date of this offering, holders of
the Registrable Securities are also entitled to certain demand registration
rights pursuant to which they may require the Company to file a registration
statement under the Securities Act at its expense with respect to their shares
of Common Stock, and the Company is required to use its best efforts to effect
such registration. Further, the holders of the Registrable Securities may
require the Company to file additional registration statements on Form S-3. All
of these registration rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration.
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<PAGE>
UNDERWRITING
Each of the Underwriters named below (the "Underwriters"), for which Furman
Selz LLC, Oppenheimer & Co., Inc. and Rodman & Renshaw, Inc. are acting as
representatives (the "Representatives"), has severally agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Company
and the Selling Stockholder, and the Company and the Selling Stockholder have
agreed to sell to each of the Underwriters, the number of shares of Common Stock
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
Furman Selz LLC............................................................................
Oppenheimer & Co., Inc. ...................................................................
Rodman & Renshaw, Inc. ....................................................................
-----------
Total.................................................................................. 2,518,203
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock listed above are subject to the approval
of certain legal matters by counsel and various other conditions. The
Underwriting Agreement also provides that the Underwriters are committed to
purchase all of the shares of Common Stock offered hereby, if any are purchased
(without consideration of any shares that may be purchased through the
Underwriters' over-allotment option).
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover of this Prospectus
and to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such selected dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the shares, the public offering price and other
selling terms may be changed by the Representatives.
Prior to the offering made hereby, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the Common
Stock will be determined by negotiation among the Company, the Selling
Stockholder and the Representatives. Among the factors to be considered are the
Company's results of operations and current financial condition, estimates of
the business potential and prospects of the Company, the market for the
Company's products, the experience of the Company's management, the economics of
the industry in general, the general condition of the equities market and other
relevant factors. There can be no assurance that any active trading market will
develop for the Common Stock or as to the price at which the Common Stock may
trade in the public market from time to time subsequent to the offering made
hereby.
The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to 377,730
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less underwriting discounts and commissions. To
the extent the Underwriters exercise this option, each Underwriter will have a
firm commitment, subject to certain conditions, to purchase such number of
additional shares of Common Stock as is proportionate to such Underwriter's
initial commitment to purchase shares from the Company. The Underwriters may
exercise such option solely to cover over-allotments, if any, incurred in
connection with the sale of shares of Common Stock offered hereby.
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<PAGE>
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company and the holders of 5,635,634 shares of Common Stock in the
aggregate, including each officer and director of the Company, have agreed,
subject to certain exceptions, not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or securities exchangeable or exercisable
for or convertible into shares of Common Stock (other than, in the case of the
Company, the granting of options pursuant to the Company's Stock Plan and
Directors Stock Plan) for a period of 180 days from the date of the Underwriting
Agreement, without the prior written consent of Furman Selz LLC.
The Representatives have informed the Company and the Selling Stockholder
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "ACEC."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by its counsel, Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Stroock & Stroock & Lavan, New York, New York.
EXPERTS
The financial statements as of June 30, 1995 and 1994, and for each of the
three years in the period ended June 30, 1995, included in the Prospectus have
been so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission, Washington, D.C. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to such Registration Statement, exhibits and schedules. A copy
of the Registration Statement may be inspected by anyone without charge at the
Commission's principal office located at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, the Northeast Regional Office located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and the Midwest Regional
Office located at Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511, and copies of all or any part thereof may be obtained from
the Public Reference Branch of the Commission upon the payment of certain fees
prescribed by the Commission. In addition, the Registration Statement may be
accessed electronically at the Commission's site on the World Wide Web located
at http://www.sec.gov.
The Company currently is not a reporting company. The Company intends to
furnish to its stockholders annual reports containing audited financial
statements and quarterly reports containing unaudited interim financial
information for each of the first three quarters of each fiscal year of the
Company.
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GLOSSARY OF TERMS
<TABLE>
<S> <C>
Asynchronous Transfer Mode
(ATM)............................... A recently commercialized switching and transmission
technology that is one of a general class of packet
technologies that relay traffic by way of an address
contained within the first five bits of a standard
fifty-three bit-long packet or cell. ATM-based packet
transport was specifically developed to allow
switching and transmission of mixed voice, data and
video (sometimes referred to as "multi-media"
information) at varying rates. The ATM format can be
used by many different information systems, including
LANs.
Bandwidth........................... The range of frequencies or bit rates that can be
transmitted by a communications channel, a
transmission facility or a transmission medium.
Broadband........................... Broadband communications systems can transmit large
quantities of voice, data and video by way of digital
or analog signals. Examples of broadband
communication systems include DS-3 fiber optic
systems, which can transmit 672 simultaneous voice
conversations, or a broadcast television station
signal, that transmits high resolution audio and
video signals into the home. Broadband connectivity
is also an essential element for interactive
multimedia applications.
Carrier............................. A company providing telephone services.
Central Office...................... The switching centers or central switching facilities
of the local telephone companies.
CENTREX............................. CENTREX is a service that offers features similar to
those of a Private Branch Exchange (PBX), except the
equipment is located at the carrier's premises and
not at the premises of the customer. These features
include direct dialing within a given phone system,
direct dialing of incoming calls, and automatic
identification of outbound calls. This is a service
that local telephone companies can provide to a wide
range of customers who do not have the size or the
funds to support their own on-site PBX.
Digital............................. A method of storing, processing and transmitting
information through the use of distinct electronic or
optical pulses that represent the binary code digits
0 and 1. Digital transmission and switching
technologies employ a sequence of these pulses to
represent information as opposed to the continuously
variable analog signal. Digital transmission and
switching technologies offer a threefold improvement
in speed and capacity over analog techniques,
allowing much more efficient and cost-effective
transmission of voice, video and data.
Fiberoptic.......................... A technology in which light is used to transport
information from one point to another. Fiber is
immune to electrical interference and environmental
factors that affect copper wiring and satellite
transmission.
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
Frame Relay......................... Frame relay is a high speed data packet switching
service used to transmit data between computers.
Frame relay supports data units of variable lengths
at access speeds ranging from 56 kilobits to 1.5
megabits. This service is appropriate for connecting
LANs, but is not appropriate for voice and video
applications due to the variable delays which can
occur. Frame relay was designed to operate at high
speed on modern fiber optic networks.
Graphical User Interface............ A means of communicating with a computer by
manipulating icons and windows rather than using text
commands.
Hybrid Fiber Coaxial................ A telecommunications network composed of both fiber
and coaxial cable, typically used to deliver video
and/or voice services to residences.
ISO................................. International Standards Organization, an
international standards group that is concerned with
defining standards for data communication and network
management. Committees throughout the world
contribute to the ISO standards set forth.
Internet............................ The global system of networks interconnected by
TCP/IP (and IP-related protocols), which include over
30 million users from the private sector, educational
institutions, government, nonprofits, and
individuals. Internet users gain access to e-mail,
file transfer, remote log-in, gopher, news, World
Wide Web, and other related services.
Local Area Networks (LANs).......... The interconnection of computers for the purpose of
sharing files, programs and various devices such as
work stations, printers and high-speed modems. LANs
may include dedicated computers or file servers that
provide a centralized source of shared files and
programs.
Local Exchange Carrier.............. A company providing local telephone services.
Local Exchange Carrier Lines........ Local Exchange Carrier or local phone company
telephone lines used to supply telephone service to a
location. These lines are needed by all organizations
to handle local telephone traffic.
Object-Oriented..................... A form of software development that models the real
world through representation of "objects" or systems
that contain data as well as instructions that work
upon that data.
Personal Communications Service
(PCS)............................... A type of wireless telephone system that uses light,
inexpensive handheld sets and communicates via low
power antennas.
Protocols........................... A formal set of standards governing the establishment
of a communications link and controlling the format
and timing of transmissions between two devices.
Request for Proposal (RFP).......... The process of compiling a set of specifications for
any procurement (telephone system, telemanagement
system, voice mail, etc.) to clearly define all of
the requirements of
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
said procurement. The RFP is then distributed to all
prospective vendors, so they may respond in detail to
the requirements and provide a quotation for the
project as defined within the RFP. The goal of the
RFP process is to procure the item(s) that are
detailed within the RFP.
Simple Network Management Protocol
(SNMP).............................. A standard protocol that gathers management
information from network devices and provides a means
to set and monitor configuration parameters.
Switch.............................. A computer that accepts instructions from a caller in
the form of a telephone number. Like an address on an
envelope, the numbers tell the switch where to route
the call. The switch opens or closes circuits or
selects the paths or circuits to be used for
transmission of information. Switching is a process
of interconnecting circuits to form a transmission
path between users. Switches allow local carriers to
connect calls directly to their destination, while
providing advanced features and recording connection
information for future billing.
Telecommunications Service
Provider............................ Carriers and operators of networks within
enterprises.
X.25................................ A protocol that defines the connection between a
terminal and the public packet-switching network for
computer to computer communications.
</TABLE>
57
<PAGE>
ACE*COMM CORPORATION
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Balance Sheets at June 30, 1994 and 1995 and at March 31, 1996 (Unaudited)............ F-3
Statements of Operations for the years ended June 30, 1993, 1994 and 1995 and for the
nine months ended March 31, 1995 (Unaudited) and March 31, 1996 (Unaudited).......... F-4
Statements of Stockholders' Equity (Deficit) for the years ended June 30, 1993, 1994
and 1995 and for the nine months ended March 31, 1996 (Unaudited).................... F-5
Statements of Cash Flows for the years ended June 30, 1993, 1994 and 1995 and for the
nine months ended March 31, 1995 (Unaudited) and March 31, 1996 (Unaudited).......... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ACE*COMM Corporation
The recapitalization described in Note 11 to the financial statements has not
been consummated as of June 24, 1996. When it is consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of
ACE*COMM Corporation at June 30, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period
ended June 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above."
PRICE WATERHOUSE LLP
Washington, DC
December 8, 1995
except as to Note 5, which is as of
January 25, 1996
F-2
<PAGE>
ACE*COMM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1994 1995
---------- ----------
MARCH 31,
1996
----------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash.................................................. $ 147,310 $ 189,903 $ 2,407
Accounts receivable, less allowance for doubtful
accounts of $10,000.................................. 4,364,666 4,702,740 4,916,683
Inventories........................................... 798,797 964,501 1,360,289
Prepaid expenses and other............................ 135,135 130,392 248,168
---------- ---------- ----------
Total current assets.................................... 5,445,908 5,987,536 6,527,547
Property and equipment, net............................. 889,817 1,168,648 1,124,403
Capitalized software development costs, net............. 946,318 1,007,910 1,097,480
Other assets............................................ 125,199 129,243 111,766
---------- ---------- ----------
Total assets............................................ $7,407,242 $8,293,337 $8,861,196
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current borrowings.................................... $2,077,787 $4,301,544 $ 41,667
Accounts payable...................................... 1,414,886 1,245,757 2,058,212
Accrued expenses...................................... 100,651 290,905 461,948
Accrued compensation.................................. 481,920 430,596 681,125
Officer loan.......................................... 95,833 95,833 78,572
Deferred revenue...................................... 685,300 997,077 617,810
---------- ---------- ----------
Total current liabilities............................... 4,856,377 7,361,712 3,939,334
---------- ---------- ----------
Noncurrent borrowings................................... 86,117 52,083 3,228,440
---------- ---------- ----------
Total liabilities....................................... 4,942,494 7,413,795 7,167,774
---------- ---------- ----------
Mandatorily redeemable Class C Preferred Stock, $5.14
par value, 340,211 shares authorized, issued and
outstanding............................................ 1,981,839 2,121,733 2,226,654
---------- ---------- ----------
Commitments
Stockholders' equity (deficit):
Class B Preferred Stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding................... 1,000 1,000 1,000
Common stock, $.01 par value, 45,000,000 shares
authorized, 3,927,988, 3,971,348 and 4,230,993 shares
issued and outstanding............................... 39,280 39,713 42,310
Additional paid-in capital............................ 440,121 313,134 348,571
Stock subscriptions receivable........................ -- (5,900) (113,633)
Retained earnings (accumulated deficit)............... 2,508 (1,590,138) (811,480)
---------- ---------- ----------
Total stockholders' equity (deficit).................... 482,909 (1,242,191) (533,232)
---------- ---------- ----------
Total liabilities, mandatorily redeemable preferred
stock and stockholders' equity (deficit)............... $7,407,242 $8,293,337 $8,861,196
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ACE*COMM CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
YEARS ENDED JUNE 30, 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue -- products and
services....................... $11,136,806 $14,522,681 $12,415,331 $ 9,237,692 $13,111,225
----------- ----------- ----------- ----------- -----------
Costs and operating expenses:
Cost of products and
services..................... 5,869,081 7,674,999 6,579,504 4,757,644 6,671,913
Selling, general and
administrative............... 4,065,494 5,472,776 6,048,700 4,675,437 4,744,241
Research and development...... 779,823 572,652 1,044,968 711,547 630,808
----------- ----------- ----------- ----------- -----------
Total costs and operating
expenses....................... 10,714,398 13,720,427 13,673,172 10,144,628 12,046,962
----------- ----------- ----------- ----------- -----------
Income (loss) from operations... 422,408 802,254 (1,257,841) (906,936) 1,064,263
Interest income................. 73,577 3,455 -- -- --
Interest expense................ (126,837) (159,993) (334,805) (228,619) (285,605)
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes and extraordinary item... 369,148 645,716 (1,592,646) (1,135,555) 778,658
Income taxes.................... (151,000) -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item............. 218,148 645,716 (1,592,646) (1,135,555) 778,658
----------- ----------- ----------- ----------- -----------
Extraordinary item -- tax
benefit of net operating loss
carryforwards.................. 151,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)............... $ 369,148 $ 645,716 $(1,592,646) $(1,135,555) $ 778,658
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pro forma (loss) income per
share (unaudited).............. $ (.26) $ 0.12
----------- -----------
----------- -----------
Shares used in computing pro
forma (loss) income per share
(unaudited).................... 6,200,992 6,510,335
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ACE*COMM CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------- RETAINED
COMMON STOCK ADDITIONAL STOCK EARNINGS
CLASS B -------------------- PAID-IN SUBSCRIPTIONS (ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT) TOTAL
----------- --------- --------- --------- ----------- ----------- ----------- ---------
Balance, June 30, 1992..... 1,000 $ 1,000 3,927,988 $ 39,280 $ 673,277 -- ($1,012,356) $(298,799)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accretion of preferred
stock dividends........... -- -- -- -- (93,262) -- -- (93,262)
Net income for the year
ended June 30, 1993....... -- -- -- -- -- -- 369,148 369,148
----- --------- --------- --------- ----------- ----------- ----------- ---------
Balance, June 30, 1993..... 1,000 1,000 3,927,988 39,280 580,015 -- (643,208) (22,913)
Accretion of preferred
stock dividends........... -- -- -- -- (139,894) -- -- (139,894)
Net income for the year
ended June 30, 1994....... -- -- -- -- -- -- 645,716 645,716
----- --------- --------- --------- ----------- ----------- ----------- ---------
Balance, June 30, 1994..... 1,000 1,000 3,927,988 39,280 440,121 -- 2,508 482,909
Accretion of preferred
stock dividends........... -- -- -- -- (139,894) -- -- (139,894)
Issuance of common stock... -- -- 43,360 433 12,907 $ (5,900) -- 7,440
Net loss for the year ended
June 30, 1995............. -- -- -- -- -- -- (1,592,646) (1,592,646)
----- --------- --------- --------- ----------- ----------- ----------- ---------
Balance, June 30, 1995..... 1,000 1,000 3,971,348 39,713 313,134 (5,900) (1,590,138) (1,242,191)
Payment of stock
subscriptions receivable
(unaudited)............... -- -- -- -- -- 5,900 -- 5,900
Accretion of preferred
stock dividends
(unaudited)............... -- -- -- -- (104,921) -- -- (104,921)
Issuance of common stock
(unaudited)............... -- -- 259,645 2,597 140,358 (113,633) -- 29,322
Net income for the nine
months ended March 31,
1996 (unaudited).......... -- -- -- -- -- -- 778,658 778,658
----- --------- --------- --------- ----------- ----------- ----------- ---------
Balance, March 31, 1996
(unaudited)............... 1,000 $ 1,000 4,230,993 $ 42,310 $ 348,571 $(113,633) $(811,480) $(533,232)
----- --------- --------- --------- ----------- ----------- ----------- ---------
----- --------- --------- --------- ----------- ----------- ----------- ---------
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
ACE*COMM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
YEARS ENDED JUNE 30, 31,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 369,148 $ 645,716 $(1,592,646) $(1,135,555) $ 778,658
Adjustments to reconcile net income (loss) to net cash (used
for) provided by operating activities:
Depreciation.............................................. 156,024 186,967 243,245 176,383 204,777
Amortization of capitalized software...................... 522,492 396,636 418,373 182,914 389,766
Changes in operating assets and liabilities
Accounts receivable....................................... (2,306,162) (720,346) (338,074) (65,805) (213,943)
Inventories............................................... 38,168 (426,502) (165,704) (415,539) (395,788)
Other assets.............................................. (60,224) (674) (6,108) (17,949) (100,299)
Accounts payable.......................................... 1,173,797 (429,936) (169,129) (62,625) 812,455
Accrued expenses.......................................... (18,192) 154,651 190,254 (74,340) 171,043
Accrued compensation...................................... 80,244 (12,195) (51,324) (6,448) 250,529
Taxes receivable.......................................... 72,428 -- -- -- --
Deferred revenue.......................................... (535,262) 204,750 311,777 74,200 (379,267)
----------- --------- ----------- ----------- -----------
Net cash (used for) provided by operating activities........ (507,539) (933) (1,159,336) (1,344,764) 1,517,931
----------- --------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (336,134) (280,352) (522,076) (485,001) (160,532)
Additions to capitalized software development costs......... (338,650) (686,033) (473,158) (254,929) (479,336)
Sales of short-term investments............................. 1,115,611 790,623 -- -- --
Purchases of short-term investments......................... (790,623) -- -- -- --
----------- --------- ----------- ----------- -----------
Net cash used for investing activities...................... (349,796) (175,762) (995,234) (739,930) (639,868)
----------- --------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in line of credit.............................. 779,303 336,349 1,465,000 1,400,000 719,626
Other borrowings............................................ 322,715 182,129 1,144,376 1,093,600 105,539
Payments on debt............................................ (234,660) (256,513) (419,653) (326,155) (1,925,946)
Exercise of stock options................................... -- -- 7,440 -- 29,322
Repayment of stock subscriptions receivable................. -- -- -- -- 5,900
----------- --------- ----------- ----------- -----------
Net cash provided by (used for) financing activities........ 867,358 261,965 2,197,163 2,167,445 (1,065,559)
----------- --------- ----------- ----------- -----------
Net increase (decrease) in cash............................. 10,023 85,270 42,593 82,751 (187,496)
Cash at beginning of period................................. 52,017 62,040 147,310 147,310 189,903
----------- --------- ----------- ----------- -----------
Cash at end of period....................................... $ 62,040 $ 147,310 $ 189,903 $ 230,061 $ 2,407
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................... $ 125,090 $ 160,839 $ 329,048 $ 225,919 $ 282,904
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
Supplemental schedule of non cash financing activities:
Accretion of preferred stock dividends...................... $ 139,894 $ 139,894 $ 139,894 $ 104,921 $ 104,921
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
Issuance of common stock.................................... $ 20 $ 350
----------- -----------
----------- -----------
Notes received for exercise of common stock options......... $ 5,900 $ 113,633
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ACE*COMM Corporation ("ACE*COMM" or the "Company") develops, markets and
services operations support systems ("OSS") products for networks deployed by
telecommunications service providers, such as telephone companies, other public
carriers and large enterprises operating data and voice networks using intranets
and the Internet. The Company's products perform such functions as billing data
collection, network surveillance, alarm processing and network management for
some of the largest carriers and enterprises in the world.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The financial statements at March 31, 1996 and for the nine-month periods
ended March 31, 1995 and 1996 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) which management considers
necessary for a fair statement of the financial position at such date and the
operating results and cash flows for those periods. Results for interim periods
are not necessarily indicative of results for the entire year or any future
periods.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
If the offering contemplated by this Prospectus is consummated under the
terms presently anticipated, all of the mandatorily redeemable Class C preferred
stock will convert to common stock. Unaudited pro forma stockholders' equity as
of March 31, 1996, is adjusted for the conversion of the mandatorily redeemable
Class C preferred stock into common stock as follows:
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
MARCH 31, MARCH 31,
1996 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Mandatorily redeemable Class C Preferred Stock, $5.14 par value,
340,211 shares authorized, issued and outstanding................. $2,226,654
----------
Stockholders' (deficit) equity:
Class B Preferred Stock, $1.00 par value, 1,000 shares
authorized, Issued and outstanding.............................. 1,000 $ 1,000
Common stock, $.01 par value, 45,000,000 shares authorized,
4,230,993 shares issued and outstanding......................... 42,310 45,712
Additional paid-in capital....................................... 348,571 2,572,021
Stock subscriptions receivable................................... (113,633) (113,633)
Accumulated deficit.............................................. (811,480) (811,480)
---------- ----------
Total stockholders' (deficit) equity............................. (533,232) 1,693,422
---------- ----------
Total mandatorily redeemable preferred stock and stockholders'
equity.......................................................... $1,693,422 $1,693,422
---------- ----------
---------- ----------
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue principally under long-term contracts
involving significant production, modification or customization of hardware and
software using the percentage-of-completion method, based on performance
milestones specified in the contract where such milestones fairly reflect
progress toward contract completion.
F-7
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from maintenance and other post contract customer support services
is recognized ratably over the term of the related agreements.
SIGNIFICANT CUSTOMERS
The Company extends credit to its customers in the normal course of
business. Three customers in the telecommunications industry represented
approximately 74%, 57% and 59% of revenues during 1993, 1994 and 1995,
respectively. International customers represented approximately 29.8%, 37.1% and
62.9% of revenues during 1993, 1994 and 1995, respectively.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company owns certain propriety rights to computer software systems that
the Company has either developed or purchased and licensed to customers.
Purchased computer software and the related copyrights are capitalized at their
costs.
Research and development costs are expensed as incurred. However, computer
software development costs incurred after technological feasibility of a product
is established and until the product is available for release to customers are
capitalized. Capitalized software and purchased technology costs are amortized
on a product by product basis based on the greater of the ratio of current sales
to estimated total future sales or a straight-line basis over the remaining
estimated economic life of the product (no greater than three years) including
the current year.
INVENTORIES
Inventories, which consists principally of purchased materials to be used in
the production of finished goods, are stated at the lower of cost, determined on
the first-in, first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the related
equipment, fixtures and vehicles of seven years. Leasehold improvements are
amortized on a straight-line method over the shorter of the improvements'
estimated useful lives or related remaining lease terms.
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109) "Accounting for Income Taxes."
Previously, the Company used the deferred method for computing income taxes. The
adoption of SFAS No. 109 did not have a material impact on the Company's
financial position or results of operations.
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of fixed and intangible
assets and revenue recognition for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
PRO FORMA NET (LOSS) INCOME PER SHARE (UNAUDITED)
Historical net (loss) income per share is not considered relevant as it
would differ materially from pro forma net (loss) income per share given the
contemplated changes in the capital structure of the Company. Except as noted
below, pro forma net (loss) income per share is computed using the
F-8
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
weighted average number of shares of common stock, assuming conversion of
mandatorily redeemable preferred Class C stock, and dilutive common stock
equivalent shares from common stock options. Common stock equivalent shares are
calculated using the treasury stock method. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock and common stock
equivalent shares issued by the Company at prices below the public offering
price during the twelve month period prior to the proposed offering date (using
the treasury stock method and an offering price of $10 per share) have been
included in the calculation as if they were outstanding for all of 1995
regardless of whether they are dilutive.
2. ACCOUNTS RECEIVABLE
Accounts receivable net of allowance for doubtful accounts of $10,000
consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Billed............................................. $3,182,718 $3,685,109
Unbilled........................................... 1,181,948 1,017,631
---------- ----------
$4,364,666 $4,702,740
---------- ----------
---------- ----------
</TABLE>
Unbilled receivables include costs and estimated earnings on contracts in
progress which have been recognized as revenue but not yet billed to customers
under the provisions of specific contracts. Substantially all unbilled
receivables are expected to be billed and collected within one year.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Computer equipment................................. $1,139,210 $1,569,618
Furniture and fixtures............................. 206,651 261,761
Vehicles........................................... 42,384 42,384
Leasehold improvements............................. 16,889 19,654
---------- ----------
1,405,134 1,893,417
Less accumulated depreciation and amortization..... (515,317) (724,769)
---------- ----------
$ 889,817 $1,168,648
---------- ----------
---------- ----------
</TABLE>
4. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Capitalized software development costs............ $ 3,169,099 $ 3,642,257
Less accumulated amortization..................... (2,222,781) (2,634,347)
----------- -----------
$ 946,318 $ 1,007,910
----------- -----------
----------- -----------
</TABLE>
Amortization expense of capitalized software amounted to $522,492, $396,636
and $418,373 in 1993, 1994 and 1995, respectively.
F-9
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. BORROWINGS
The Company's borrowings consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Bank line of credit, credit limit up to $2,500,000, due on demand,
renewable November 1995, bearing interest at the bank's prime rate
(9% at June 30, 1995) plus 1/2%, collateralized by accounts
receivable (advances limited to 90% of eligible balance) and
inventory. ....................................................... $1,720,000 $2,500,000
Bank line of credit, credit limit up to $1,350,000, renewable
November 1995, bearing interest at the bank's prime rate (9% at
June 30, 1995) plus 1/2%, collateralized by accounts receivable,
inventory and specific equipment. ................................ -- 1,185,096
Installment demand notes, due in varying monthly installments
through August 1999, bearing interest at the bank's prime rate (9%
at June 30, 1995) plus 1%, collateralized by certain
equipment. ....................................................... 310,014 571,999
Unsecured note payable for the purchase of technology and product
rights, principal due in quarterly installments of $10,417 plus
interest at 8% through April 1997. ............................... 125,000 93,750
Note payable to bank, due in monthly installments of $574 including
interest at 13% through December 1995, collateralized by a
vehicle. ......................................................... 8,890 2,782
---------- ----------
Total borrowings................................................... 2,163,904 4,353,627
Less current portion............................................... (2,077,787) (4,301,544)
---------- ----------
Noncurrent portion................................................. $ 86,117 $ 52,083
---------- ----------
---------- ----------
</TABLE>
Annual maturities of long term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -------------------------------------------------------------------
<S> <C>
1997............................................................... $ 41,667
1998............................................................... 10,416
---------
$ 52,083
---------
---------
</TABLE>
On January 25, 1996, the Company was notified of the bank's intention to
extend their lines of credit facilities to July 1, 1996. In accordance with this
extension, the Company must comply with certain financial covenants, such as a
minimum current ratio, minimum net worth, and minimum total liabilities to net
worth.
6. TRANSACTIONS WITH RELATED PARTIES
In connection with the purchase of certain assets by the Company at its
inception, the Company's president loaned $150,000 to the Company to assist in
financing the acquisition. The note bears interest at the Federal short-term
rate established periodically by the U.S. Treasury (5.6% at June 30, 1995).
Principal and interest is paid quarterly. The outstanding loan balance totaled
$95,833 at June 30, 1994 and 1995.
F-10
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
During 1993, 1994 and 1995, the Company purchased inventories totaling
approximately $631,000, $1,036,000 and $62,000, respectively, from a company
whose Board of Directors included the Company's president and another member of
the Company's Board of Directors. The Company's president retired from the other
company's Board of Directors in January 1994. Accounts payable at June 30, 1994
and 1995 include approximately $381,000 and $125,000, respectively, which is
payable to this company.
7. RETIREMENT PLAN
The Company has a simplified-employee pension plan (SEPP) covering
substantially all employees. Under the SEPP, the Company makes contributions to
the plan subject to Company performance and the maximum contribution allowable
by the IRS. The contribution rate is set annually at the discretion of
management. Contributions made during 1993, 1994 and 1995, were approximately
$45,800, $120,300 and $0, respectively.
On April 1, 1994, the Company established a 401(k) plan. To be eligible,
employees must have completed six months of service and be at least 21 years of
age and be credited with 1,000 hours of service. No employer contributions were
made during 1994 and 1995.
8. INCOME TAXES
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Tax assets:
Costs capitalized to inventory................... $ 54,665 $ 134,572
Accruals not deducted for tax.................... 70,778 55,368
Net operating loss carryforwards................. 741,521 1,203,675
Tax credit carryforwards......................... 251,283 251,283
Copyright and patents............................ 27,625 23,857
Other............................................ 3,900 3,963
---------- ----------
Gross deferred tax assets...................... 1,149,772 1,672,718
---------- ----------
Tax liabilities:
Income on contracts.............................. (457,060) (333,297)
Software costs deducted for tax.................. (369,064) (393,137)
Depreciation..................................... (119,337) (163,829)
Other............................................ (3,900) (3,900)
---------- ----------
Gross deferred tax liabilities................. (949,361) (894,163)
---------- ----------
Net deferred tax asset........................... 200,411 778,555
---------- ----------
Valuation allowance................................ (200,411) (778,555)
---------- ----------
Net deferred tax asset/(liability)................. $ -- $ --
---------- ----------
---------- ----------
</TABLE>
At June 30, 1994 and 1995, a valuation allowance was recorded for the full
value of net deferred tax assets as realization of these benefits cannot be
reasonably assured.
F-11
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
8. INCOME TAXES (CONTINUED)
In 1993, the provision for income taxes contains a charge in lieu of Federal
and state income taxes that would be required to be paid had the Company not
been able to utilize its net operating loss carryforwards. The tax benefit for
1993 of $151,000 resulting from such utilization is shown as an extraordinary
item in the statements of operations. In 1994, the provision for income taxes
was comprised of a Federal and state provision of $258,000, which was offset by
a reduction in the valuation allowance of the same amount. The change during
1995 in the valuation allowance was largely attributable to the increase in net
operating losses.
At June 30, 1995, the Company has available research credit carryforwards of
approximately $251,000 which are available to offset future income tax and
expire in years through 2005. The Company also has net operating loss
carryforwards for income tax purposes of approximately $3,086,000 which expire
in years through 2010. Ownership changes, as defined in the Internal Revenue
Code, may limit the amount of net operating loss carryforwards that can be
utilized annually to offset future taxable income or tax liability.
The total income tax provision (benefit) for each year varied from the
amount computed by applying the statutory U.S. Federal income tax rates to
income before income taxes and extraordinary items as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision/(benefit) at statutory
rate...................................... $ 129,047 $ 219,543 $(541,500)
State income taxes net of Federal
benefit................................... 21,953 32,286 (79,632)
Nondeductible expenses..................... -- -- 30,555
Other...................................... -- 5,981 12,433
Change in valuation allowance.............. -- (257,810) 578,144
--------- --------- ---------
Actual provision....................... $ 151,000 $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. MANDATORILY REDEEMABLE PREFERRED STOCK
On October 31, 1991, in connection with an investment agreement, the Company
sold 340,211 shares of Class C, convertible preferred stock at $5.14 per share.
The Class C shares consist of two series. Series 1 stock (211,727 shares)
provides voting rights equal to the same number of shares of common stock and
Series 2 stock (128,484 shares) provides no voting rights but, if elected by a
majority of the Class C preferred stockholders, will become voting shares on a
one-to-one basis.
Each share of Class C preferred stock may be converted into common stock at
any time by the holder. Additionally, the shares will be converted automatically
upon an underwritten, public offering of the Company's common stock. The number
of shares of common stock into which the preferred stock can be converted is
determined by a conversion price, as defined under the agreement. Currently, the
conversion price is $0.95 per share and if converted now, the shares would be
exchanged on a 5.42 to 1 basis. No dividends are payable with respect to any
converted shares. The Company has reserved 1,843,945 shares of common stock for
the purpose of conversion.
Any shares not converted by designated dates will be redeemed by the Company
as follows: one-third of the shares on September 15, 1995, one-half of the
remaining shares on September 15, 1996, and all the remaining shares on
September 15, 1997. The redemption price is equal to $5.14 per share
F-12
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
9. MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
plus accrued dividends. In the case of redemption, the holders are entitled to
receive accrued dividends, at a semi-annual rate of four percent, from November
1, 1992. The Company also has the right to force redemption, if certain
triggering events occur, at a price of $5.14 per share plus accrued dividends
from November 1, 1992, calculated at an annual rate of twelve percent. As of
June 30, 1995, the Company had no right to force redemption. The holders of the
securities postponed the September 15, 1995 redemption until September 15, 1996.
Activity with respect to mandatorily redeemable preferred stock is as
follows:
<TABLE>
<S> <C>
Balance, June 30, 1992............................. $1,748,683
Accretion of dividends............................. 93,262
----------
Balance, June 30, 1993............................. 1,841,945
Accretion of dividends............................. 139,894
----------
Balance, June 30, 1994............................. 1,981,839
Accretion of dividends............................. 139,894
----------
Balance, June 30, 1995............................. $2,121,733
----------
----------
</TABLE>
10. STOCKHOLDERS' EQUITY
All common shares are subject to restriction upon resale. Shares may only be
offered to the Company for sale, and upon termination, employees holding common
shares are subject to the Company's right or obligation to repurchase all such
shares at a price based on the stock purchase agreement. As of June 30, 1995,
the Company had no obligation to repurchase any shares held by employees.
The Class B preferred stock contains no voting rights, bears no rights to
receive dividends, is nonconvertible, and is redeemable for $308,000 at the
option of the Company, or must be redeemed upon transfer of substantially all
assets or of majority control of the Company.
STOCK OPTIONS
Prior to the establishment of the Company's formal option plan, the Company
granted options to various employees for performance and hiring incentives.
Under this plan, 1,094,840 options were granted and 1,067,740 were exercised or
expired prior to 1993 with an option price of $.14 - $.51. During 1995, the
remaining 27,000 shares were exercised at a price of $.14. The Company no longer
issues options under this plan.
The Company has reserved 2,168,000 common shares in connection with a Board
of Directors approved plan to grant nonqualified stock options to officers and
key employees and 108,400 common shares in connection with a plan to grant
nonqualified stock options to the Company's nonemployee directors. The exercise
price on all options granted are equivalent to the fair market value of the
Company's stock on the date of grant. Options for employees vest immediately and
expire upon the earlier of the employee's termination or 3 to 5 years from the
date of grant. Options for directors vest 1,000 shares each year from the date
of grant and expire the earlier of 5 years from date of grant, 6 months upon
resignation or immediately upon removal for cause. All of the options
outstanding at June 30, 1993, 1994 and 1995 are exercisable. The stock option
plan also provides for the issuance of
F-13
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
restricted stock, stock appreciation rights and phantom stock options. As of
June 30, 1993, 1994 and 1995, no restricted stock, stock appreciation rights or
phantom stock options have been granted. As of June 30, 1995, options available
for granting were 915,731.
Information relating to all the plans is summarized as follows:
<TABLE>
<CAPTION>
SHARES PRICE
----------- -----------
<S> <C> <C>
Options outstanding, June 30, 1992................................. 333,910 $ .14 - .51
Granted............................................................ 315,406 .25
----------- -----------
Options outstanding, June 30, 1993................................. 649,316 .14 - .51
Granted............................................................ 468,402 .34 - .69
----------- -----------
Options outstanding, June 30, 1994................................. 1,117,718 .14 - .69
Granted............................................................ 288,100 .69
Exercised.......................................................... (43,360) .14 - .51
Expired............................................................ (18,049) .14 - .69
----------- -----------
Options outstanding, June 30, 1995................................. 1,344,409 $ .14 - .69
-----------
-----------
</TABLE>
During 1995, the Company issued 10,840 shares of common stock which was
recorded as a subscription receivable.
11. RECAPITALIZATION
On June 23, 1996, the Board of Directors approved a 5.42-for-one stock
split, to be effected in the form of a stock dividend to be distributed on
, to stockholders of record on . In addition,
authorized shares of common stock were increased from 6,292,000 to 45,000,000.
The Board also authorized 5,000,000 shares of undesignated preferred stock. All
references in the financial statements to number of shares, per share amounts
and market prices of the Company's common stock have been retroactively restated
to reflect the increased number of shares of common stock outstanding.
12. COMMITMENTS
OPERATING LEASES
The Company leases its office facilities and certain equipment under
operating leases expiring on July 31, 1996. Future minimum lease payments under
noncancelable operating leases, for the Company's fiscal year ending, are
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -----------------------------------------------------------------
<S> <C>
1996............................................................. $ 246,900
1997............................................................. 20,900
-----------
$ 267,800
-----------
-----------
</TABLE>
Total rental expense was approximately $170,000, $221,500 and $222,800 in
1993, 1994 and 1995, respectively.
13. SUBSEQUENT EVENTS (UNAUDITED)
Effective March 1, 1996, the Company entered into a credit agreement with a
bank to finance inventory for a large foreign contract. The Company can borrow
up to $1,000,000 at 1.25% over the
F-14
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995 AND PERTAINING
TO MARCH 31, 1996 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
13. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
bank's prime rate. The agreement requires the Company to comply with certain
financial covenants. On behalf of the Company, the U.S. Export-Import Bank
guarantees to the bank 90% of the outstanding balance, which is collateralized
by the inventory and the foreign receivables generated by the contract. This
agreement expires on August 31, 1996.
Effective May 29, 1996, the Company entered into new loan agreements with
its bank. The Company's $2,500,000 line of credit was extended to November 30,
1997. The new line bears interest payable monthly, at 0.5% over the bank's prime
rate and the principal is due November 30, 1997. In addition, a second
$1,350,000 line of credit was replaced with a revolving line of credit of
$1,000,000. This facility bears interest at 0.5% over the bank's prime rate,
payable monthly, and the principal is due on November 30, 1997. The Company also
replaced $600,000 of demand notes with a $600,000 promissory note. This note
bears interest at 1.0% over the bank's prime rate, payable monthly, and the
principal is due on November 30, 1997. These new credit facilities are secured
by accounts receivable and inventory certain of which are subordinated to the
security interests of the credit agreement described above, and the agreement
contains certain financial covenants.
In connection with these new agreements, the Company reclassified $2,893,338
of current borrowings at March 31, 1996 to noncurrent borrowings in accordance
with SFAS No. 6, "Classification of Short-Term Obligations Expected to be
Refinanced."
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 25
Management..................................... 38
Certain Transactions........................... 45
Principal and Selling Stockholders............. 46
Description of Capital Stock................... 47
Certain Charter and By-Law Provisions.......... 49
Shares Eligible for Future Sale................ 50
Underwriting................................... 53
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 54
Glossary of Terms.............................. 55
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,518,203 SHARES
ACE*COMM CORPORATION
COMMON STOCK
------------------
FURMAN SELZ
OPPENHEIMER & CO., INC.
RODMAN & RENSHAW, INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee, the NASD filing fee
and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $10,984.66
NASD Filing Fee................................................ 3,686.00
Nasdaq National Market Listing Fee............................. *
Blue Sky Fees and Expenses (including legal fees).............. *
Transfer Agent and Registrar Fees.............................. *
Accounting Fees and Expenses................................... *
Legal Fees and Expenses........................................ *
Printing, Engraving and Mailing Expenses....................... *
Miscellaneous.................................................. *
----------
Total...................................................... $ *
----------
----------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Section 2-418 of the Corporations and Associations Article of the
Annotated Code of Maryland permits a corporation to indemnify its present and
former directors, among others, against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their services in
those or other capacities, unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to such
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty; or (b) the director or officer actually received an
improper personal benefit in money, property, or services; or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. Maryland law permits a corporation to
indemnify a present and former officer to the same extent as a director, and to
provide additional indemnification to an officer who is not also a director. In
addition, Section 2-418(f) of the Corporations and Associations Article of the
Annotated Code of Maryland permits a corporation to pay or reimburse, in advance
of the final disposition of a proceeding, reasonable expenses (including
attorney's fees) incurred by a present or former director or officer made a
party to the proceeding by reason of his service in that capacity, provided that
the corporation shall have received (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the corporation; and (b) a written undertaking
by or on his behalf to repay the amount paid or reimbursed by the corporation if
it shall ultimately be determined that the standard of conduct was not met.
The Registrant has provided for indemnification of directors, officers,
employees, and agents in Article VIII of its charter, as amended. This provision
reads as follows:
Section 1. Mandatory Indemnification.
The Corporation shall indemnify its currently acting and its former
directors and officers against any and all liabilities and expenses
incurred in connection with their services in such capacities to the
maximum extent permitted by the Maryland General Corporation Law, as
from time to time amended.
Section 2. Discretionary Indemnification.
II-1
<PAGE>
If approved by the Board of Directors, the Corporation may indemnify
its employees, agents and persons who serve and have served, at its
request as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture or other enterprise or
employee benefit plan to the extent determined to be appropriate by the
Board of Directors.
Section 3. Advancing Expenses Prior to a Decision.
The Corporation shall advance expenses to its directors and officers
entitled to mandatory indemnification to the maximum extent permitted by
the Maryland General Corporation Law, as from time to time amended, and
may in the discretion of the Board of Directors advance expenses to
employees, agents and others who may be granted indemnification.
Section 4. Other Provisions for Indemnification.
The Board of Directors may, by bylaw, resolution or agreement, make
further provision for indemnification of directors, officers, employees
and agents.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Under Maryland law, a corporation is permitted to limit by provision in its
charter the liability of directors and officers, so that no director or officer
of the corporation shall be liable to the corporation or to any stockholder for
money damages except to the extent that (i) the director or officer actually
received an improper benefit in money, property, or services, for the amount of
the benefit or profit in money, property or services actually received, or (ii)
a judgment or other final adjudication adverse to the director or officer is
entered in a proceeding based on a finding in the proceeding that the director's
or officer's action, or failure to act, was the result or active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
The Registrant has limited the liability of its directors and officers for
money damages in Article VIII of its charter, as amended. This provision reads
as follows:
Section 5. Limitation of Liability of Directors and Officers.
To the fullest extent that limitations on the liability of directors and
officers are permitted by the Maryland General Corporation Law, no director or
officer of the Company shall have any liability to the Company or its
stockholders for damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the Company,
whether or not such person is serving as such at the time of any proceeding in
which liability is asserted.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information regarding sales of, and other
transactions with respect to, securities of the Company issued within the past
three years, which sales and other transactions were not registered pursuant to
the Securities Act of 1933, as amended (the "Securities Act"). All of such sales
and transactions were exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or as otherwise indicated
herein.
II-2
<PAGE>
On September 15, 1993, the Company granted options to purchase an aggregate
of 343,742 shares of Common Stock of the Company to certain employees of the
Company under the Company's Omnibus Stock Plan. The exercise price of these
options was $0.34 per share.
On October 30, 1993, the Company granted to each of Messrs. Casner, Hartwell
and Wetzel, three non-employee members of the Board of Directors, options to
purchase 5,420 shares of Common Stock of the Company under the Company's Stock
Option Plan for Directors. The exercise price of these options was $0.34 per
share.
On June 1, 1994, the Company granted options to purchase an aggregate of
108,400 shares of Common Stock of the Company to an employee of the Company
under the Company's Omnibus Stock Plan. The exercise price of these options was
$0.64 per share.
On September 12, 1994, the Company granted options to purchase an aggregate
of 261,000 shares of Common Stock of the Company to certain employees of the
Company under the Company's Omnibus Stock Plan. The exercise price of these
options was $0.69 per share.
On November 5, 1994, the Company granted to each of Messrs. Casner, Hartwell
and Wetzel, three non-employee members of the Board of Directors, options to
purchase 5,420 shares of Common Stock of the Company under the Company's Stock
Option Plan for Directors. The exercise price of these options was $0.69 per
share.
On March 27, 1995 the Company granted options to purchase an aggregate of
10,840 shares of Common Stock of the Company to an employee of the Company under
the Company's Omnibus Stock Plan. The exercise price of these options was $0.69
per share.
On December 9, 1995, the Company granted to each of Messrs. Casner and
Wetzel, two non-employee members of the Board of Directors, options to purchase
5,420 shares of Common Stock of the Company under the Company's Amended Stock
Option Plan for Directors. The exercise price of these options was $0.53 per
share.
On March 20, 1996 the Company granted options to purchase an aggregate of
132,123 shares of Common Stock of the Company to certain employees of the
Company under the Company's Omnibus Stock Plan. The exercise price of these
options was $0.53 per share.
Between July 15, 1994 and March 20, 1996, the Company issued 303,005 shares
of its Common Stock to certain directors and employees of the Company upon the
exercise of options at exercise prices ranging from $0.14 to $0.69.
Except as set forth above, no underwriters were engaged in connection with
any of the foregoing sales of securities. The securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration Statement:
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Form of Charter of the Company.
3.2** Form of By-Laws of the Company.
4.1** Form of Specimen of Common Stock Certificate.
5.1** Opinion of Venable, Baetjer and Howard, LLP re: legality of securities being
registered.
10.1* Supplier Agreement dated December 16, 1992 between the Registrant and AT&T
World Services, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.2*+ Marketing Agreement dated June 18, 1990 between the Registrant and AT&T World
Services, Inc.
10.3*+ Subcontract Agreement dated February 24, 1994 between Registrant and AT&T
Corporation, Government Integrated Solutions.
10.4*+ Authorized Distributor Agreement dated July 23, 1991 between the Registrant
and AmerInd, Inc.
10.5* Supply Contract dated August 17, 1994 between the Registrant and Teleglobe
Canada, Inc.
10.6*+ License Agreement dated August 1, 1995 between the Registrant and Teleglobe
Canada, Inc.
10.7* Subcontract No. 95-1350-01 dated November 8, 1995 between the Registrant and
ANSTEC, Inc.
10.8** Agreement of Subcontract dated April 24, 1994 between the Registrant and the
Communications Systems Division of GTE Government Systems Corporation.
10.9*+ Agreement to Purchase Hardware, Render Services and License and Sublicense the
Use of Software dated October 11, 1995 between the Registrant and Telefonos
de Mexico, S.A. de C.V.
10.10** 1994 Amended Stock Option Plan for Directors.
10.11** Amended and Restated Omnibus Stock Option Plan.
11.1 * Computation of Pro Forma Earnings Per Share.
23.1 * Consent of Price Waterhouse LLP.
23.2 ** Consent of Venable, Baetjer and Howard, LLP (included in their opinion filed
as Exhibit 5.1).
24.1 * Powers of Attorney (included in Part II of this Registration Statement).
27.1 * Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Articles of Amendment and
Restatement of the Registrant and the laws of the State of Maryland, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared to be effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Gaithersburg, Maryland, on this 24th day of June, 1996.
ACE*COMM CORPORATION
By: /s/ George T. Jimenez
-----------------------------------
George T. Jimenez
PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George T. Jimenez and James M. Moore, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and all documents relating thereto
and any registration statement relating to any offering made pursuant to this
registration statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
NAME TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
/s/ George T. Jimenez President, Treasurer and Director
------------------------------------------- (PRINCIPAL EXECUTIVE OFFICER AND June 24, 1996
George T. Jimenez PRINCIPAL FINANCIAL OFFICER)
/s/ Jeffrey C. Johnson
------------------------------------------- Accounting Manager June 24, 1996
Jeffrey C. Johnson (PRINCIPAL ACCOUNTING OFFICER)
/s/ Paul G. Casner, Jr.
------------------------------------------- Director June 24, 1996
Paul G. Casner, Jr.
/s/ Gary P. Golding
------------------------------------------- Director June 24, 1996
Gary P. Golding
/s/ Gilbert A. Wetzel
------------------------------------------- Director June 24, 1996
Gilbert A. Wetzel
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------- ------------------------------------------------------------------------------------------------
<C> <S>
1.1 * Form of Underwriting Agreement.
3.1 ** Form of Charter of the Company.
3.2 ** Form of By-Laws of the Company.
4.1 ** Form of Specimen of Common Stock Certificate.
5.1 ** Opinion of Venable, Baetjer and Howard, LLP re: legality of securities being registered.
10.1 * Supplier Agreement dated December 16, 1992 between the Registrant and AT&T World Services, Inc.
10.2 *+ Marketing Agreement dated June 18, 1990 between the Registrant and AT&T World Services, Inc.
10.3 *+ Subcontract Agreement dated February 24, 1994 between Registrant and AT&T Corporation,
Government Integrated Solutions.
10.4 *+ Authorized Distributor Agreement dated July 23, 1991 between the Registrant and AmerInd, Inc.
10.5 * Supply Contract dated August 17, 1994 between the Registrant and Teleglobe Canada, Inc.
10.6 *+ License Agreement dated August 1, 1995 between the Registrant and Teleglobe Canada, Inc.
10.7 * Subcontract No. 95-1350-01 dated November 8, 1995 between the Registrant and ANSTEC, Inc.
10.8 ** Agreement of Subcontract dated April 24, 1994 between the Registrant and the Communications
Systems Division of GTE Government Systems Corporation.
10.9 *+ Agreement to Purchase Hardware, Render Services and License and Sublicense the Use of Software
dated October 11, 1995 between the Registrant and Telefonos de Mexico, S.A. de C.V.
10.10** 1994 Amended Stock Option Plan for Directors.
10.11** Amended and Restated Omnibus Stock Option Plan.
11.1 * Computation of Pro Forma Earnings Per Share.
23.1 * Consent of Price Waterhouse LLP.
23.2 ** Consent of Venable, Baetjer and Howard, LLP (included in their opinion filed as Exhibit 5.1).
24.1 * Powers of Attorney (included in Part II of this Registration Statement).
27.1 * Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE>
Exhibit 1.1
[Draft - 6/24/96]
2,518,203 SHARES
ACE*COMM CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
________________, 1996
FURMAN SELZ LLC
OPPENHEIMER & CO., INC.
RODMAN & RENSHAW, INC.,
As Representatives of the
several Underwriters
c/o Furman Selz LLC
230 Park Avenue
New York, New York 10169
Dear Sirs:
1. INTRODUCTION. Ace*Comm Corporation, a Maryland corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters"), for which Furman Selz LLC, Oppenheimer & Co., Inc.
and Rodman & Renshaw, Inc. are acting as representatives (the
"Representatives"), an aggregate of 2,250,000 shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock"). CEO Venture Fund II (the
"Selling Stockholder") proposes to sell to the several Underwriters an aggregate
of 268,203 outstanding shares of Common Stock. The 2,250,000 shares of Common
Stock to be sold by the Company and the 268,203 shares of Common Stock to be
sold by the Selling Stockholder are referred to herein as the "Firm Shares."
The Company also proposes to issue and sell to the several Underwriters an
aggregate of not more than 377,730 additional shares of Common Stock (the
"Additional Shares"), if requested by the Underwriters in accordance with
Section 9 hereof. The Firm Shares and the Additional Shares are collectively
referred to herein as the "Shares." The words "you" and "your" refer to the
Representatives of the Underwriters.
<PAGE>
The Company and the Selling Stockholder hereby severally agree with the several
Underwriters as follows:
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-________)
under the Securities Act of 1933, as amended (the "Act"), with respect to
the Shares, including a form of prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Act and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder (the "Rules and Regulations"). Such registration
statement has been filed with the Commission under the Act, and one or more
amendments to such registration statement may also have been so filed.
After the execution of this Agreement, the Company shall file with the
Commission either (A) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act,
either (1) if the Company relies on Rule 434 under the Act, a Term Sheet
(as hereinafter defined) relating to the Shares, that shall identify the
Preliminary Prospectus (as hereinafter defined) that it supplements and
containing such information as is required by Rules 434 and 430A under the
Act or permitted by Rule 424(b) under the Act or (2) if the Company does
not rely on Rule 434 under the Act, a prospectus in the form most recently
included in an amendment to such registration statement filed with the
Commission (or, if no such amendment shall have been filed, in such
registration statement), with such insertions and changes as are required
by Rule 430A under the Act or permitted by Rule 424(b) under the Act, and
in the case of either clause (A)(1) or (A)(2) of this sentence as shall
have been provided to and approved by the Representatives prior to the
filing thereof, or (B) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Act, an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Representatives prior to the filing thereof. As used in this
Agreement, the term "Registration Statement" means such registration
statement, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto; the Registration
Statement shall be deemed to include any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each
prospectus subject to completion contained in such registration statement
or any amendment thereto (including the prospectus subject to completion,
if any, included in the Registration Statement or any amendment thereto or
filed pursuant to Rule 424(a) under the Act at the time it was or is
declared effective); the term "Prospectus" means: (A) if the Company
relies on Rule 434 under the Act, the Term Sheet relating to the Shares
that is first filed pursuant to Rule 424(b)(7) under the Act, together with
the Preliminary Prospectus identified therein that such Term Sheet
-2-
<PAGE>
supplements; (B) if the Company does not rely on Rule 434 under the Act,
the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act; or (C) if the Company does not rely on Rule 434 under the
Act and if no prospectus is required to be filed pursuant to Rule 424(b)
under the Act, the prospectus included in the Registration Statement; and
the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference to the "date" of a Prospectus
that contains a Term Sheet shall mean the date of such Term Sheet. To the
extent the Company relies on Rule 462(b) under the Act ("Rule 462(b)") to
increase the maximum aggregate offering price, the Company shall have made
in a timely manner any filing required under Rule 462(b) and such filing
shall be in compliance with such Rule.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus and has not instituted or
threatened to institute any proceedings with respect to such an order.
When any Preliminary Prospectus was filed with the Commission it (A)
contained all statements required to be stated therein in accordance with,
and complied in all material respects with the requirements of, the Act and
the Rules and Regulations and (B) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (A) contained or will
contain all statements required to be stated therein in accordance with,
and complied or will comply in all material respects with the requirements
of, the Act and the Rules and Regulations and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading.
When the Prospectus or any Term Sheet that is a part thereof and when any
amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement and when any
amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and at all times subsequent thereto up to and
including the Closing Date (as defined in Section 3 hereof) and the Option
Closing Date (as defined in Section 9 hereof), the Prospectus, as amended
or supplemented at any such time, including any amendment or supplement
effected by a Term Sheet (A) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the Act and the
Rules and Regulations and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing provisions of
this paragraph (ii) shall not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon,
and in conformity with, information furnished in writing to the Company by
or on behalf of the Underwriters through the Representatives expressly for
use therein.
-3-
<PAGE>
(iii) The Company (A) is a duly organized and validly
existing corporation in good standing under the laws of its jurisdiction of
incorporation, with full power and authority (corporate and other) to own
or lease its properties and to conduct its business as described in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus); and (B) is duly
qualified to do business as a foreign corporation and is in good standing
in each jurisdiction (x) in which the conduct of its business requires such
qualification (except for those jurisdictions in which the failure so to
qualify has not had and will not have a Material Adverse Effect (as
hereinafter defined)) and (y) in which it owns or leases property. Except
for American Communications, Inc., a wholly-owned subsidiary organized
under the laws of Barbados, which is currently inactive and has no
substantial assets or liabilities, the Company has no subsidiaries.
"Material Adverse Effect" means, when used in connection with the Company,
any development, change or effect that is materially adverse to the
business, properties, assets, net worth, condition (financial or other),
results of operations or prospects of the Company.
(iv) The Company has the duly authorized and validly
outstanding capitalization set forth under the caption "Capitalization" in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, based on the
assumptions set forth therein. As of the Closing Date and after giving
effect to the amendments to the Company's charter referred to in Section
7(o), the securities of the Company will conform to the descriptions
thereof contained in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). The outstanding shares
of Common Stock have been duly authorized and validly issued by the Company
and are fully paid and nonassessable. Except as created hereby or referred
to in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), there are no outstanding options, warrants,
rights or other arrangements requiring the Company at any time to issue any
capital stock. No holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to subscribe
for any of the Shares and neither the filing of the registration statement
nor the offering or sale of the Shares as contemplated by this Agreement
gives rise to any rights, other than those which have been waived or
satisfied, for or relating to, the registration of any securities of the
Company. The Shares have been duly authorized; on the Closing Date or the
Option Closing Date (as the case may be), after payment therefor in
accordance with the terms of this Agreement, (A) the Firm Shares and the
Additional Shares to be sold by the Company hereunder will be validly
issued, fully paid and nonassessable, and (B) good and marketable title to
the Shares will pass to the Underwriters on the Closing Date or the Option
Closing Date (as the case may be) free and clear of any lien, encumbrance,
security interest, claim or other restriction whatsoever. The Company has
received, subject to notice of issuance, approval to have the Shares listed
on the Nasdaq National Market (the "NNM") and the Company knows of no
reason or set of facts which is likely to adversely affect such approval.
-4-
<PAGE>
(v) The financial statements and the related notes and schedules
thereto included in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly present the financial condition, results of operations,
stockholders' equity and cash flows of the Company at the respective dates
and for the respective periods specified therein. Such financial
statements and the related notes and schedules thereto have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved (except as otherwise noted therein)
and such financial statements as are audited have been examined by Price
Waterhouse LLP, who are independent public accountants within the meaning
of the Act and the Rules and Regulations, as indicated in their reports
filed therewith. The selected financial information and statistical data
set forth under the captions "Prospectus Summary--Summary Financial Data,"
"Capitalization," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) fairly present, on the basis stated in the
Prospectus (or such Preliminary Prospectus), the information included
therein and have been properly derived from the financial statements and
other operating records of the Company.
(vi) The Company has filed all necessary foreign, federal,
state and local income, franchise and other material tax returns and has
paid all taxes shown as due thereunder, and the Company has no knowledge of
any tax deficiency which might be assessed against the Company which, if so
assessed, would be reasonably expected to have a Material Adverse Effect.
(vii) The Company maintains insurance of the types and in
amounts which it reasonably believes to be adequate for its business in
such amounts and with such deductibles as are customary for companies in
the same or similar business, all of which insurance is in full force and
effect.
(viii) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there is no pending action, suit, proceeding or investigation or threatened
action, suit, proceeding or investigation before or by any court,
regulatory body or administrative agency or any other governmental agency
or body, domestic or foreign, which (A) questions the validity of the
capital stock of the Company or this Agreement or of any action taken or to
be taken by the Company pursuant to or in connection with this Agreement,
(B) is required to be disclosed in the Registration Statement which is not
so disclosed (and such proceedings, if any, as are summarized in the
Registration Statement are accurately summarized in all respects), or (C)
may have a Material Adverse Effect.
(ix) The Company has full legal right, power and authority
to enter into this Agreement and to consummate the transactions provided
for herein. This Agreement has been duly authorized, executed and
delivered by the Company and,
-5-
<PAGE>
assuming it is a binding agreement of yours, constitutes a legal, valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles relating to
the availability of remedies and except as rights to indemnity or
contribution may be limited by federal or state securities laws and the
public policy underlying such laws), and none of the Company's execution or
delivery of this Agreement, its performance hereunder, its consummation of
the transactions contemplated herein, its application of the net proceeds
of the offering in the manner set forth under the caption "Use of Proceeds"
or the conduct of its business as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
conflicts or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a default under, causes or will cause (or permits or will
permit) the maturation or acceleration of any liability or obligation or
the termination of any right under, or result in the creation or imposition
of any lien, charge, or encumbrance upon, any property or assets of the
Company pursuant to the terms of (A) the charter or by-laws of the Company,
as will have been amended, as of the Closing Date, (B) any indenture,
mortgage, deed of trust, voting trust agreement, stockholders' agreement,
note agreement or other agreement or instrument to which the Company is a
party or by which it is or may be bound or to which any of its property is
or may be subject, except such as would not singly or in the aggregate
be reasonably expected to have a Material Adverse Effect, or (C) any
statute, judgment, decree, order, rule or regulation applicable to the
Company of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its activities
or properties.
(x) All executed agreements or copies of executed agreements
filed as exhibits to the Registration Statement to which the Company is a
party or by which it is or may be bound or to which any of its assets,
properties or businesses is or may be subject have been duly and validly
authorized, executed and delivered by the Company and constitute the legal,
valid and binding agreements of the Company, enforceable against it in
accordance with their respective terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws relating to enforcement of creditors' rights generally, and
general equitable principles relating to the availability of remedies, and
except as rights to indemnity or contribution may be limited by federal or
state securities laws and the public policy underlying such laws). The
descriptions in the Registration Statement of contracts and other documents
are accurate and fairly present the information required to be shown with
respect thereto by the Act and the Rules and Regulations, and there are no
contracts or other documents which are required by the Act or the Rules and
Regulations to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
-6-
<PAGE>
(xi) Subsequent to the most recent respective dates as of
which information is given in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), and except as
expressly described therein, the Company has not incurred, other than in
the ordinary course of its business, any material liabilities or
obligations, direct or contingent, purchased any of its outstanding capital
stock, paid or declared any dividends or other distributions on its capital
stock or entered into any material transactions not in the ordinary course
of business, and there has been no material change in capital stock or debt
or any material adverse change in the business, properties, assets, net
worth, condition (financial or other), results of operations or prospects
of the Company. The Company (and the manner in which it conducts its
business) is not in breach or violation of, or in default under, any term
or provision of (A) its charter or by-laws, as will have been amended as of
the Closing Date, (B) any indenture, mortgage, deed of trust, voting trust
agreement, stockholders' agreement, note agreement or other agreement or
instrument to which it is a party or by which it is or may be bound or to
which any of its property is or may be subject, or any indebtedness, the
effect of which breach or default singly or in the aggregate may have a
Material Adverse Effect, or (C) any statute, judgment, decree, order, rule
or regulation applicable to the Company or of any arbitrator, court,
regulatory body, administrative agency or any other governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of
its activities or properties and the effect of which breach or default
singly or in the aggregate may have a Material Adverse Effect.
(xii) No labor disturbance by, or labor dispute with, the
employees of the Company exists or is threatened or imminent which may have
a Material Adverse Effect.
(xiii) Since its inception, the Company has not incurred any
material liability arising under or as a result of the application of the
provisions of the Act.
(xiv) The Company owns, or is licensed or otherwise has
sufficient right to use, the proprietary knowledge, inventions, patents,
trademarks, service marks, trade names, logo marks and copyrights used in
or necessary for the conduct of its business (collectively "Rights") as
described in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). No claims have been asserted against
the Company by any person with respect to the use of any such Rights or
challenging or questioning the validity or effectiveness of any such
Rights. The use, in connection with the business and operations of the
Company of such Rights does not, to the Company's best knowledge, infringe
on the rights of any person.
(xv) No consent, approval, authorization or order of or
filing with any court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, is required for the
performance of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in
-7-
<PAGE>
connection with the Underwriters' purchase and distribution of the Shares
or such approval as may be required from the NNM or such filings as may be
required to effect certain amendments to the Company's charter that are
described in the Prospectus, all of which will be obtained or made prior to
the Closing Date.
(xvi) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities under the
Registration Statement (other than those that have been disclosed in the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), that have not been waived with respect to the
Registration Statement.
(xvii) Neither the Company nor any of its officers, directors
or affiliates (within the meaning of the Rules and Regulations) has taken,
directly or indirectly, any action designed to stabilize or manipulate the
price of any security of the Company, or which has constituted or which
might in the future reasonably be expected to, cause or result in,
stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of the Shares or otherwise.
(xviii) The Company has good and marketable title to, or valid
and enforceable leasehold interests in, all properties and assets owned or
leased by it, free and clear of all liens, encumbrances, security
interests, claims, restrictions, equities, claims and defects, except (A)
such as are described in the Registration Statement and Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus), or such as do not materially adversely affect the value of any
of such properties or assets taken as a whole and do not materially
interfere with the use made and proposed to be made of any of such
properties or assets, and (B) liens for taxes not yet due and payable as to
which appropriate reserves have been established and reflected in the
financial statements included in the Registration Statement. The Company
owns or leases all such properties as are necessary to its operations as
now conducted, and as proposed to be conducted as set forth in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus); and the properties and
business of the Company conform in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). All the material leases and subleases of the
Company, and under which the Company holds properties or assets as lessee
or sublessee, constitute valid leasehold interests of the Company free and
clear of any lien, encumbrance, security interest, restriction, equity,
claim or defect, are in full force and effect, and the Company is not in
default in respect of any of the material terms or provisions of any such
material leases or subleases, and the Company does not have notice of any
claim which has been asserted by anyone adverse to the Company's rights as
lessee or sublessee under either the material lease or sublease, or
affecting or questioning the Company's right to the continued possession of
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the leased or subleased premises under any such material lease or sublease,
which may have a Material Adverse Effect.
(xix) The Company has not violated any applicable
environmental, safety, health or similar law applicable to the business of
the Company, nor any federal or state law relating to discrimination in the
hiring, promotion or pay of employees, nor any applicable federal or state
wages and hours law, nor any provisions of the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations promulgated
thereunder, the consequences of which violation would reasonably be
expected to have a Material Adverse Effect.
(xx) The Company holds all franchises, licenses, permits,
approvals, certificates and other authorizations from federal, state and
other governmental or regulatory authorities necessary to the ownership,
leasing and operation of its properties or required for the present conduct
of its business, and such franchises, licenses, permits, approvals,
certificates and other governmental authorizations are in full force and
effect and the Company is in compliance therewith in all material respects
except where the failure so to obtain, maintain or comply with would not
have a Material Adverse Effect.
(xxi) The books, records and accounts and systems of internal
accounting controls of the Company currently comply with the requirements
of Section 13(b)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(b) The Selling Stockholder represents and warrants to, and agrees with,
the several Underwriters that:
(i) The Selling Stockholder has full legal right, power and
authority to enter into this Agreement. This Agreement has been duly
executed and delivered by the Selling Stockholder, and (assuming this
Agreement is a binding agreement of yours) constitutes the valid and
binding agreement of the Selling Stockholder, enforceable against the
Selling Stockholder in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to
or affecting the enforcement of creditor's rights and the application of
equitable principles relating to the availability of remedies, and except
as rights to indemnity or contribution may be limited by federal or state
securities law and the public policy underlying such laws).
(ii) None of the execution, delivery or performance of this
Agreement and the consummation of the transactions herein contemplated,
will conflict with or result in a breach of, or default under, any
indenture, mortgage, deed of trust, voting trust agreement, stockholders'
agreement, note agreement, or other agreement or instrument to which the
Selling Stockholder is a party or by which the Selling Stockholder is or
may be bound or to which any of its property is or may be subject, or any
statute, judgment, decree, order, rule or regulation applicable to the
Selling Stock-
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<PAGE>
holder of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic or
foreign, having jurisdiction over the Selling Stockholder or any of its
activities or properties.
(iii) At the date hereof the Selling Stockholder has, and at
the time of delivery of the Shares to be sold by the Selling Stockholder to
the several Underwriters, the Selling Stockholder will have, full right,
power and authority to sell, assign, transfer and deliver the Shares to be
sold by the Selling Stockholder hereunder. At the date hereof the Selling
Stockholder is, and at the time of delivery of the Shares to be sold by the
Selling Stockholder, the Selling Stockholder will be, the lawful owner of
and has and will have, good and marketable title to such Shares free and
clear of any liens, encumbrances, security interests, claims, community
property rights, restrictions on transfer or other defects in title. Upon
delivery of and payment for the Shares to be sold by the Selling
Stockholder hereunder, good and marketable title to such Shares will pass
to the Underwriters, free and clear of any liens, encumbrances, security
interests, claims, community property rights, restrictions on transfer or
other defects in title. Except as described in the Registration Statement
and the Prospectus (or, if there is no Prospectus, the most recent
Preliminary Prospectus) or created hereby, there are no outstanding
options, warrants, rights, or other agreements or arrangements requiring
the Selling Stockholder at any time to transfer any Common Stock to be sold
hereunder by the Selling Stockholder.
(iv) At the time when the Registration Statement becomes or
became effective, and at all times subsequent thereto up to and including
the Closing Date and the Option Closing Date, the Registration Statement
and any amendments thereto will not contain any untrue statement of a
material fact regarding the Selling Stockholder or omit to state a material
fact regarding the Selling Stockholder required to be stated therein or
necessary in order to make the statements therein regarding the Selling
Stockholder not misleading, and the Prospectus (and any supplements
thereto) (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) will not contain any untrue statement of a material
fact regarding the Selling Stockholder or omit to state a material fact
regarding the Selling Stockholder required to be stated therein or
necessary in order to make the statements therein regarding the Selling
Stockholder, in the light of the circumstances under which they were made,
not misleading, and the Selling Stockholder is unaware of any material
misstatement in or omission from the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or of any material adverse information regarding
the business or operations of the Company which is not set forth in the
Registration Statement and the Prospectus (or, if the Prospectus is not
then in existence, in the most recent Preliminary Prospectus).
(v) The Selling Stockholder has not taken, directly or
indirectly, any action designed to stabilize or manipulate the price of any
security of the Company, or which has constituted or which might in the
future reasonably be expected to cause or
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result in stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of the Shares or otherwise.
(vi) Nothing has come to the attention of the Selling
Stockholder to cause the Selling Stockholder to believe that the Company's
representations and warranties contained in this Agreement are not
accurate.
(vii) There is not pending or threatened against the Selling
Stockholder any action, suit or proceeding which (A) questions the validity
of this Agreement or of any action taken or to be taken by the Selling
Stockholder pursuant to or in connection with this Agreement or (B) is
required to be disclosed in the Registration Statement which is not so
disclosed, and such actions, suits or proceedings as are summarized in the
Registration Statement, if any, are accurately summarized.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, (A) the Company agrees to
sell to each Underwriter and each Underwriter, severally and not jointly, agrees
to purchase from the Company at a purchase price of $______________ per Share,
the number of Firm Shares set forth opposite the name of such Underwriter in
Column (1) of Schedule I hereto and (B) the Selling Stockholder agrees to sell
to each Underwriter, and each Underwriter, severally and not jointly, agrees to
purchase from the Selling Stockholder at a purchase price of $____________ per
Share, the number of Firm Shares set forth opposite the name of such Underwriter
in Column (2) of Schedule I hereto.
Delivery of certificates, and payment of the purchase price, for the Firm
Shares shall be made at the offices of Furman Selz LLC at 230 Park Avenue, New
York, New York 10169, or such other location as shall be agreed upon by the
Company and the Representatives. Such delivery and payment shall be made at
10:00 a.m., New York time, on ____________, 1996 or at such other time and date
not more than ten business days thereafter as shall be agreed upon by the
Representatives and the Company. The time and date of such delivery and payment
are herein called the "Closing Date." Delivery of the certificates for the Firm
Shares shall be made to the Representatives for the respective accounts of the
several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price for the Firm Shares by certified or
official bank checks in New York Clearing House (next day) funds drawn to the
order of the Company in the case of the Firm Shares sold by it and CEO Venture
Fund II in the case of the Firm Shares sold by the Selling Stockholder. The
certificates for the Shares to be so delivered will be in definitive, fully
registered form, will bear no restrictive legends and will be in such
denominations and registered in such names as the Representatives shall request,
not less than two full business days prior to the Closing Date. The
certificates for the Firm Shares will be made available to the Representatives
at such office or such other place as the Representatives may designate for
inspection, checking and packaging not later than 9:30 a.m., New York time, on
the business day prior to the Closing Date.
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<PAGE>
4. PUBLIC OFFERING OF THE SHARES. It is understood that the Underwriters
propose to make a public offering of the Shares at the price and upon the other
terms set forth in the Prospectus.
5. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
(a) The Company covenants and agrees with each of the Underwriters
that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
practicable. If required, the Company will file the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement
thereto with the Commission in the manner and within the time period
required by Rules 424(b) and 434 under the Act. During any time when a
prospectus relating to the Shares is required to be delivered under the
Act, the Company (A) will comply with all requirements imposed upon it by
the Act and the Rules and Regulations to the extent necessary to permit the
continuance of sales of or dealings in the Shares in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented,
and (B) will not file with the Commission the prospectus, Term Sheet or the
amendment referred to in the third sentence of Section 2(a)(i) hereof, any
amendment or supplement to such prospectus, Term Sheet or any amendment to
the Registration Statement of which the Representatives shall not
previously have been advised and furnished with a copy a reasonable period
of time prior to the proposed filing and as to which filing the
Representatives shall not have given their consent. In the event that the
Registration Statement is effective at the time of execution of this
Agreement but the total number of Shares subject to this Agreement exceeds
the number of Shares covered by the Registration Statement, the Company
will promptly file with the Commission on the date hereof a registration
statement pursuant to Rule 462(b) in accordance with the requirements of
such Rule and will make payment of the filing fee therefor in accordance
with the requirements of Rule 111(b) under the Act.
(ii) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives (A) when the
Registration Statement, as amended, has become effective; if the provisions
of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective,
(B) of any request made by the Commission for amending the Registration
Statement, for supplementing any Preliminary Prospectus or the Prospectus
or for additional information or (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or the institution or threat of any
investigation or proceeding for that purpose, and will use its best efforts
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<PAGE>
to prevent the issuance of any such order and, if issued, to obtain the
lifting thereof as soon as possible.
(iii) The Company will (A) use its best efforts to arrange
for the qualification of the Shares for offer and sale under the state
securities or blue sky laws of such jurisdictions as the Representatives
may designate, (B) continue such qualifications in effect for as long as
may be necessary to complete the distribution of the Shares, and (C) make
such applications, file such documents and furnish such information as may
be required for the purposes set forth in clauses (A) and (B); PROVIDED,
HOWEVER, that the Company shall not be required to qualify as a foreign
corporation or file a general or unlimited consent to service of process in
any such jurisdiction.
(iv) The Company consents to the use of the Prospectus (and
any amendment or supplement thereto) by the Underwriters and all dealers to
whom the Shares may be sold, in connection with the offering or sale of the
Shares and for such period of time thereafter as the Prospectus is required
by law to be delivered in connection therewith. If, at any time when a
prospectus relating to the Shares is required to be delivered under the
Act, any event occurs as a result of which the Prospectus, as then amended
or supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading, or if it becomes necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the
Company promptly will so notify the Representatives and, subject to Section
5(a)(i) hereof, will prepare and file with the Commission an amendment to
the Registration Statement or an amendment or supplement to the Prospectus
which will correct such statement or omission or effect such compliance,
each such amendment or supplement to be reasonably satisfactory to counsel
to the Underwriters.
(v) As soon as practicable, but in any event not later than
45 days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (90 days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company
will make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representatives, an earnings statement which will be in the detail required
by, and will otherwise comply with, the provisions of Section 11(a) of the
Act and Rule 158(a) of the Rules and Regulations, which statement need not
be audited unless required by the Act or the Rules and Regulations,
covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(vi) During a period of five years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable,
annual reports (including financial statements audited by independent
public accountants) and unaudited quarterly reports of earnings, and will
deliver to the Representatives:
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(A) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the Company's
principal financial or accounting officer;
(B) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity,
and cash flows of the Company for such fiscal year, accompanied by a copy
of the report thereon of independent public accountants;
(C) as soon as they are available, copies of all information
(financial or other) mailed to stockholders;
(D) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
National Association of Securities Dealers, Inc. ("NASD") or any securities
exchange;
(E) every press release and every material news item or article
of interest to the financial community in respect of the Company or its
affairs which was released or prepared by the Company; and
(F) any additional information of a public nature concerning the
Company or its business which the Representatives may reasonably request.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(vii) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its
Common Stock.
(viii) The Company will furnish, without charge, to the
Representatives or on the Representatives' order, at such place as the
Representatives may designate, copies of the each Preliminary Prospectus,
the Registration Statement and any pre-effective or post-effective
amendments thereto, and any registration statement filed pursuant to Rule
462(b) (two of which copies will be signed and will include all financial
statements and exhibits) and the Prospectus, and all amendments and
supplements thereto, including any Term Sheet, in each case as soon as
available and in such quantities as the Representatives may reasonably
request. The Company will provide or cause to be provided to the
Representatives and upon request to each Underwriter, a
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<PAGE>
copy of the report on Form SR filed by the Company as required by Rule 463
under the Act.
(ix) The Company will not, directly or indirectly, without
the prior written consent of the Furman Selz LLC, on behalf of the
Underwriters, issue, offer, sell, offer to sell, contract to sell, grant
any option to purchase, pledge or otherwise dispose (or announce any
issuance, offer, sale, offer of sale, contract of sale, grant of any option
to purchase, pledge or other disposition) of any shares of Common Stock or
any securities convertible into, or exchangeable or exercisable for, shares
of Common Stock for a period of 180 days after the date hereof, except
pursuant to this Agreement, except for issuances pursuant to the exercise
of stock options outstanding on or granted subsequent to the date hereof,
pursuant to a stock option or other employee benefit plan in existence on
the date hereof and except as described in the Prospectus.
(x) The Company will cause the Shares to be duly approved
for listing on the NNM prior to the Closing Date.
(xi) Neither the Company nor any of its officers or
directors, nor affiliates of any of them (within the meaning of the Rules
and Regulations) will take, directly or indirectly, any action designed to,
or which might in the future reasonably be expected to, cause or result in,
or which will constitute, stabilization or manipulation of the price of any
securities of the Company.
(xii) The Company will apply the net proceeds of the offering
received by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
(xiii) The Company will timely file all such reports, forms or
other documents as may be required from time to time, under the Act, the
Rules and Regulations, the Exchange Act and the rules and regulations
thereunder, and all such reports, forms and documents filed will comply as
to form and substance with the applicable requirements under the Act, the
Rules and Regulations, the Exchange Act and the rules and regulations
thereunder.
(b) The Selling Stockholder covenants and agrees with each of the
Underwriters that:
(i) The Selling Stockholder will not, will not, directly or
indirectly, without the prior written consent of the Furman Selz LLC, on
behalf of the Underwriters, issue, offer, sell, offer to sell, contract to
sell, grant any option to purchase, pledge or otherwise dispose (or
announce any issuance, offer, sale, offer of sale, contract of sale, grant
of any option to purchase, pledge or other disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 180 days after the
date hereof, and will not take, directly or indirectly, any action designed
to, or which might in the
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foreseeable future reasonably be expected to cause or result in,
stabilization of manipulation of the price of any securities of the
Company.
(ii) The Selling Stockholder consents to the use of the
Prospectus and any amendment or supplement thereto by the Underwriters and
all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for such period of time thereafter as
the Prospectus is required by law to be delivered in connection therewith.
6. EXPENSES.
(a) Regardless of whether the transactions contemplated in this
Agreement are consummated, and regardless of whether for any reason this
Agreement is terminated, the Company will pay, and hereby agrees to indemnify
each Underwriter against, all fees and expenses incident to the performance of
the obligations of the Company and the Selling Stockholder under this Agreement,
including, but not limited to, (i) fees and expenses of accountants and counsel
for the Company and the Selling Stockholder, (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing, filing,
delivery and shipping of copies of the Registration Statement and any pre-
effective or post-effective amendments thereto, any registration statement filed
pursuant to Rule 462(b), any Preliminary Prospectus and the Prospectus and any
amendments or supplements thereto (including postage costs related to the
delivery by the Underwriters of any Preliminary Prospectus or Prospectus, or any
amendment or supplement thereto), this Agreement, the Agreement Among
Underwriters, any Selected Dealer Agreement, Underwriters' Questionnaire,
Underwriters' Power of Attorney and all other documents in connection with the
transactions contemplated herein, including the cost of all copies thereof,
(iii) fees and expenses relating to qualification of the Shares under state
securities or blue sky laws, including the cost of preparing and mailing the
preliminary and final blue sky memoranda and filing fees and disbursements and
fees of counsel and other related expenses, if any, in connection therewith,
(iv) filing fees of the Commission and the NASD relating to the Shares, (v) any
fees and expenses in connection with the listing of the Shares on the NNM, (vi)
costs and expenses incident to the preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees and any applicable transfer taxes incurred in
connection with the delivery to the Underwriters of the Shares to be sold by the
Company and the Selling Stockholder pursuant to this Agreement and (vii) costs
and expenses incident to any meetings with prospective investors in the Shares
(other than as shall have been specifically approved by the Representatives to
be paid for by the Underwriters).
(b) If the purchase of the Shares as herein contemplated is not
consummated for any reason other than the Underwriters' default under this
Agreement or other than by reason of Section 11(a), the Company shall reimburse
the several Underwriters for their out-of-pocket expenses (including reasonable
counsel fees and disbursements) in connection with any investigation made by
them, and any preparation made by them in respect of marketing of the Shares or
in contemplation of the performance by them of their obligations hereunder.
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7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of each
Underwriter to purchase and pay for the Shares set forth opposite the name of
such Underwriter in Schedule I is subject to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholder herein
as of the date hereof and as of the Closing Date as if they had been made on and
as of the Closing Date; the accuracy on and as of the Closing Date of the
statements of officers of the Company and the Selling Stockholder made pursuant
to the provisions hereof; the performance by the Company and the Selling
Stockholder on and as of the Closing Date of their respective covenants and
agreements hereunder; and the following additional conditions:
(a) If the Company has elected to rely on Rule 430A under the Act,
the Registration Statement shall have been declared effective, and the
Prospectus (containing the information omitted pursuant to Rule 430A) shall have
been filed with the Commission not later than the Commission's close of business
on the second business day following the date hereof or such later time and date
to which the Representatives shall have consented; if the Company does not elect
to rely on Rule 430A, the Registration Statement shall have been declared
effective not later than 11:00 a.m., New York time, on the date hereof or such
later time and date to which the Representatives shall have consented; if
required, in the case of any changes in or amendments or supplements to the
Prospectus in addition to those contemplated above, the Company shall have filed
such Prospectus or any Term Sheet that constitutes a part thereof as amended or
supplemented with the Commission in the manner and within the time period
required by Rules 424(b) and 434 under the Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from counsel to the Underwriters, such opinion or opinions with respect
to the issuance and sale of the Firm Shares, the Registration Statement and the
Prospectus and such other related matters as the Representatives reasonably may
request and such counsel shall have received such documents and other
information as they request to enable them to pass upon such matters.
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(d) On the Closing Date the Underwriters shall have received the
opinion, dated the Closing Date, of Venable, Baetjer and Howard, LLP, counsel to
the Company, to the effect set forth below:
(i) The Company (A) is a duly organized and validly
existing corporation in good standing under the laws of its jurisdiction of
incorporation with full power and authority (corporate and other) to own or
lease its properties and to conduct its business as described in the
Prospectus, and (B) is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which it owns
or leases property;
(ii) The Company has authorized capital stock as set forth
in the Prospectus; the securities of the Company conform in all material
respects to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock have been duly authorized and validly
issued by the Company, are fully paid and nonassessable, and are free of
any preemptive or other rights to subscribe for any of the Shares pursuant
to the Company's charter or by-laws or any agreement known to such counsel
after reasonable investigation and due inquiry; the Company has duly
authorized the issuance and sale of the Shares to be sold by it hereunder;
such Shares, when issued by the Company and paid for in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and will
conform in all material respects to the description thereof contained in
the Prospectus and will not be subject to any preemptive, subscription or
other similar rights pursuant to the Company's charter or by-laws or any
agreement known to such counsel after reasonable investigation and due
inquiry; and the Shares have been duly approved for listing on the NNM;
(iii) The Registration Statement is effective under the Act;
any required filing of a registration statement pursuant to Rule 462(b) has
been in the manner and within the time period required by Rule 462(b); any
required filing of the Prospectus or any Term Sheet that constitutes a part
thereof pursuant to Rules 424(b) and 434 has been made in the manner and
within the time periods required by Rules 424(b) and 434; and no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the best knowledge of such counsel, are
threatened or contemplated under the Act; the registration statement
originally filed with respect to the Shares and each amendment thereto and
the Prospectus and, if any, each amendment and supplement thereto (except
for the financial statements, schedules and other financial data included
therein, as to which such counsel need not express any opinion), complied
as to form in all material respects with the requirements of the Act and
the Rules and Regulations; the descriptions contained and summarized in the
Registration Statement and the Prospectus of contracts and other documents,
are accurate and fairly represent in all material respects the information
required to be shown by the Act and the Rules and Regulations; to the best
knowledge of such counsel, there are no contracts or documents which are
required by the Act to be described in the Registration Statement or the
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Prospectus or to be filed as exhibits to the Registration Statement which
are not described or filed as required by the Act and the Rules and
Regulations; to the best knowledge of such counsel, there is not pending or
threatened against the Company any action, suit, proceeding or
investigation before or by any court, regulatory body, or administrative
agency or any other governmental agency or body, domestic or foreign, of a
character required to be disclosed in the Registration Statement or the
Prospectus which is not so disclosed therein; and the statements set forth
under the captions "Management," "Certain Transactions," "Description of
Capital Stock," "Certain Charter and By-Law Provisions" and "Shares
Eligible for Future Sale" in the Prospectus, insofar as such statements
constitute a summary of the legal matters, documents or proceedings
referred to therein, provide a summary of such legal matters, documents and
proceedings which is accurate in all material respects;
(iv) The Company has full legal right, power, and authority
to enter into this Agreement and to consummate the transactions provided
for herein; this Agreement has been duly authorized, executed and delivered
by the Company; and this Agreement, assuming due authorization, execution
and delivery by each other party hereto, is a valid and binding agreement
of the Company, enforceable in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws now or hereafter in effect relating to or affecting creditors' rights
generally or by general principles of equity relating to the availability
of remedies and except as rights to indemnity and contribution may be
limited by federal or state securities laws or the public policy underlying
such laws. None of the Company's execution or delivery of this Agreement,
its performance hereof, its consummation of the transactions contemplated
herein or its application of the net proceeds of the offering in the manner
set forth under the caption "Use of Proceeds" in the Prospectus, conflicts
or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon, any property or assets of the Company pursuant to the terms of the
charter or by-laws of the Company; the terms of any indenture, mortgage,
deed of trust, voting trust agreement, stockholder's agreement, note
agreement or other agreement or instrument known to such counsel after
reasonable investigation to which the Company is a party or by which it is
or may be bound or to which any of its properties may be subject; any
statute, rule or regulation of any regulatory body or administrative agency
or other governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its activities or properties; or
any judgment, decree or order, known to such counsel after reasonable
investigation, of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic or
foreign, having such jurisdiction; and no consent, approval, authorization
or order of any court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, has been or is required
for the Company's performance of this Agreement or the consummation of the
transactions contemplated hereby, except such as have been
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obtained under the Act or may be required under state securities or blue
sky laws in connection with the purchase and distribution by the
Underwriters of the Shares;
(v) To the best of such counsel's knowledge, the conduct of
the businesses of the Company is not in violation of any federal, state or
local statute, administrative regulation or other law, which violation is
likely to have a Material Adverse Effect; and the Company has obtained all
licenses, permits, franchises, certificates and other authorizations from
state, federal and other regulatory authorities as are necessary or
required for the ownership, leasing and operation of its properties and the
conduct of its business as presently conducted and as contemplated in the
Prospectus; and
(vi) The Company owns, or is licensed or otherwise has
sufficient rights to use, the Rights used in, or necessary for, the conduct
of its business as described in the Prospectus. To the best of such
counsel's knowledge, except as described in the Prospectus, no claims have
been asserted against the Company by any person to the use of any such
Rights or challenging or questioning the validity or effectiveness of any
such Rights. The use, in connection with the business and operations of
the Company of such Rights does not, to the best of such counsel's
knowledge, infringe on the rights of any person.
In addition, such counsel shall state that in the course of the
preparation of the Registration Statement and the Prospectus, such counsel has
participated in conferences with officers and representatives of the Company and
with the Company's independent public accountants, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Registration Statement and the Prospectus and
(without taking any further action to verify independently the statements made
in the Registration Statement and the Prospectus and, except as stated in the
foregoing opinion, without assuming responsibility for the accuracy,
completeness or fairness of such statements) nothing has come to such counsel's
attention that causes such counsel to believe that either the Registration
Statement as of the date it is declared effective and as of the Closing Date
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or the Prospectus as of the date
thereof and as of the Closing Date contained or contains any untrue statement of
a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need not express any belief with respect to the financial
statements, schedules and other financial data included in the Registration
Statement or the Prospectus).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, or as to intellectual property (to
the extent satisfactory in form and scope to counsel for the Underwriters) such
counsel may rely upon or substitute the opinion of Rothwell, Figg, Ernst & Kurz.
The foregoing opinion shall also state that the Underwriters are justified in
relying upon such opinion of Rothwell,
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Figg, Ernst & Kurz, and copies of such opinion shall be delivered to the
Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (d) shall include any amendment or supplement thereto at the date of
such opinion.
(e) On or prior to the Closing Date, counsel to the Underwriters
shall have been furnished such documents, certificates and opinions as they may
reasonably require in order to evidence the accuracy, completeness or
satisfaction of any of the representations or warranties of the Company or the
Selling Stockholder, or conditions herein contained.
(f) At the time that this Agreement is executed by the Company the
Underwriters shall have received from Price Waterhouse LLP a letter as of the
date this Agreement is executed by the Company in form and substance
satisfactory to you (the "Original Letter"), and on the Closing Date the
Underwriters shall have received from such firm a letter dated the Closing Date
stating that, as of a specified date not earlier than five days prior to the
Closing Date, nothing has come to the attention of such firm to suggest that the
statements made in the Original Letter are not true and correct.
(g) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that each
of such persons has carefully examined the Registration Statement and the
Prospectus and any amendments or supplements thereto and this Agreement, and
that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing
Date, and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best knowledge of each of
such persons, are contemplated or threatened under the Act and any and all
filings required by Rule 424, Rule 430A, Rule 434 and Rule 462(b) have been
timely made;
(iii) The Registration Statement and Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and neither the Registration
Statement nor any amendment thereto includes any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
neither the Prospectus (or any supplement thereto) or any Preliminary
Prospectus
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includes or included any untrue statement of a material fact or omits or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus up to
and including the Closing Date, the Company has not incurred, other than in
the ordinary course of its business or as described in the Prospectus or in
an amended or supplemented Prospectus, any material liabilities or
obligations, direct or contingent; the Company has not purchased any of its
outstanding capital stock or paid or declared any dividends or other
distributions on its capital stock; the Company has not entered into any
transactions not in the ordinary course of business; and there has not been
any change in the capital stock or long-term debt or any increase in the
short-term borrowings (other than any increase in short-term borrowings in
the ordinary course of business) of the Company or any material adverse
change to the business, properties, assets, net worth, condition (financial
or other), results of operations or prospects of the Company; the Company
has not sustained any material loss or damage to its property or assets,
whether or not insured; there is no litigation which is pending or
threatened against the Company which is required under the Act or the Rules
and Regulations to be set forth in an amended or supplemented Prospectus
which has not been set forth; and there has not occurred any event required
to be set forth in an amended or supplemented Prospectus which has not been
set forth.
References to the Registration Statement and the Prospectus in
this paragraph (g) are to such documents as amended and supplemented at the
date of the certificate.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and including the
Closing Date there has not been (i) any change or decrease specified in the
letter or letters referred to in paragraph (f) of this Section 7 or (ii) any
change, or any development involving a prospective change, in the business or
properties of the Company which change or decrease in the case of clause (i) or
change or development in the case of clause (ii) makes it impractical or
inadvisable in the Representatives' judgment to proceed with the public offering
or the delivery of the Shares as contemplated by the Prospectus.
(i) No order suspending the sale of the Shares in any jurisdiction
designated by you pursuant to Section 5(a)(iii)(A) hereof has been issued on or
prior to the Closing Date and no proceedings for that purpose have been
instituted or, to your knowledge or that of the Company, have been or are
contemplated.
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(j) On the Closing Date, the Underwriters shall have received the
opinion, dated the Closing Date, of Buchanan Ingersoll PC, in its capacity as
counsel for the Selling Stockholder, to the effect set forth below:
(i) The Selling Stockholder has full legal right, power and
authority to enter into this Agreement and to sell, assign, transfer and
deliver in the manner provided herein the Shares sold by the Selling
Stockholder; this Agreement has been duly executed and delivered by the
Selling Stockholder; and this Agreement, assuming due authorization,
execution and delivery by each other party hereto and further assuming it
is a valid and binding agreement of each of the Underwriters, is a valid
and binding agreement of the Selling Stockholder, enforceable against the
Selling Stockholder in accordance with its terms (except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws now or hereafter in effect relating to or affecting creditors' rights
generally and by general principles of equity relating to the availability
of remedies and except as rights to indemnity and contribution may be
limited by federal or state securities laws and the public policy
underlying such laws);
(ii) None of the execution, delivery or performance of this
Agreement by the Selling Stockholder and the consummation by the Selling
Stockholder of the transactions herein contemplated, conflict with or
result in a breach of, or default under, any indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note agreement or
other agreement or other instrument known to such counsel to which the
Selling Stockholder is a party or by which the Selling Stockholder is bound
or to which any of the property of the Selling Stockholder is subject, and
nothing has come to such counsel's attention which causes such counsel to
believe that such actions will result in any violation of any law, rule,
administrative regulation or court decree applicable to such Selling
Stockholder (other than state securities or blue sky laws or regulations,
as to which such counsel need not express any opinion); and
(iii) Upon the delivery of the Shares to be sold hereunder by
the Selling Stockholder and payment therefor in accordance with the terms
of this Agreement and assuming that each of the Underwriters which has
severally purchased such Shares acquires such Shares without notice of any
adverse claim (within the meaning of the Uniform Commercial Code), such
Underwriter will have acquired all of the rights of the Selling Stockholder
to the Shares sold by the Selling Stockholder hereunder, and in addition
will have acquired title to such Shares free and clear of any adverse
claim.
References to the Registration Statement and the Prospectus in
this paragraph (j) shall include any amendment or supplement thereto at the date
of such opinion.
(k) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, from the Selling Stockholder to the effect
that the Selling Stockholder has carefully examined the Registration Statement
and the Prospectus and any amendments or supplements thereto and this Agreement,
and that:
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(i) The representations and warranties of the Selling
Stockholder in this Agreement are true and correct, as if made at and as of
the Closing Date, and the Selling Stockholder has complied with all the
agreements and satisfied all the conditions to be performed or satisfied by
the Selling Stockholder at or prior to the Closing Date; and
(ii) The Registration Statement and Prospectus and, if any,
each amendment and each supplement thereto, contain all statements required
to be included therein regarding the Selling Stockholder, and none of the
Registration Statement nor any amendment thereto includes any untrue
statement of a material fact regarding the Selling Stockholder or omits to
state any material fact regarding the Selling Stockholder required to be
stated therein or necessary to make the statements therein regarding the
Selling Stockholder not misleading, and neither the Prospectus (and any
supplements thereto) or any Preliminary Prospectus includes or included any
untrue statement of a material fact regarding the Selling Stockholder or
omits or omitted to state a material fact regarding the Selling Stockholder
required to be stated therein or necessary in order to make the statements
therein regarding the Selling Stockholder, in the light of the
circumstances under which they were made, not misleading.
(l) The Representatives shall have received from each person who is a
director or officer of the Company or who owns more than 1% of the outstanding
shares of Common Stock on a fully diluted basis an agreement to the effect that
such person will not, directly or indirectly, without the prior written consent
of Furman Selz LLC, on behalf of the Underwriters, offer, sell, offer to sell,
contract to sell, grant any option to purchase, pledge or otherwise dispose (or
announce any offer, sale, offer of sale, contract of sale, grant of an option to
purchase, pledge or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 180 days after the date of this Agreement.
(m) The Company and the Selling Stockholder shall have furnished the
Underwriters with such further opinions, letters, certificates or documents as
you or counsel for the Underwriters may reasonably request. All opinions,
certificates, letters and documents to be furnished by the Company and the
Selling Stockholder will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and to
counsel for the Underwriters. The Company and the Selling Stockholder shall
furnish the Underwriters with conformed copies of such opinions, certificates,
letters and documents in such quantities as you reasonably request. The
certificates delivered under this Section 7 shall constitute representations,
warranties and agreements of the Company and the Selling Stockholder, as the
case may be, as to all matters set forth therein as fully and effectively as if
such matters had been set forth in Section 2 of this Agreement.
(n) The Shares shall have been duly authorized for listing on the
NNM.
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(o) The Company shall have made all filings necessary to effect the
amendments to its charter as described in the Prospectus.
8. INDEMNIFICATION.
(a) The Company and the Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls such Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, against any and all losses, claims, damages or
liabilities, joint or several (and actions in respect thereof), to which such
Underwriter or such controlling person may become subject, under the Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or any blue sky
application or other document executed by the Company specifically for the
purpose of qualifying, or based upon written information furnished by the
Company or the Selling Stockholder filed in any state or other jurisdiction in
order to qualify, any or all of the Shares under the securities or blue sky laws
thereof (any such application, document or information being hereinafter called
a "Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements not misleading and will reimburse, as
incurred, such Underwriter or such controlling persons for any legal or other
expenses incurred by such Underwriter or such controlling persons in connection
with investigating, defending or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the obligations of the Selling Stockholder pursuant to this
Section 8(a) shall apply only with respect to information provided by the
Selling Stockholder for inclusion in such documents, and PROVIDED, FURTHER, that
the Company and the Selling Stockholder will not be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any of such documents in reliance upon and in
conformity with information furnished in writing to the Company on behalf of
such Underwriter through the Representatives expressly for use therein, and
PROVIDED, FURTHER, that such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) from whom the person asserting any
such loss, claim, damage, liability or action purchased Shares which are the
subject thereof to the extent that any such loss, claim, damage, liability or
action (i) results from the fact that such Underwriter failed to send or give a
copy of the Prospectus (as amended or supplemented) to such person at or prior
to the confirmation of the sale of such Shares to such person in any case where
such delivery is required by the Act and (ii) arises out of or is based upon an
untrue statement or omission of a material fact contained in such Preliminary
Prospectus that was corrected in the Prospectus (as amended and supplemented),
unless such failure resulted from non-compliance by the Company with Section
5(a)(viii) hereof.
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The indemnity agreement in this paragraph (a) shall be in addition to
any liability which the Company and the Selling Stockholder may otherwise have.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act and the Selling Stockholder against any and all losses,
claims, damages or liabilities (and actions in respect thereof) to which the
Company or the Selling Stockholder, any such director, officer, or controlling
person may become subject, under the Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto or in any Blue Sky Application, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with information furnished in writing by
that Underwriter through the Representatives to the Company expressly for use
therein; and will reimburse, as incurred, all legal or other expenses reasonably
incurred by the Company or the Selling Stockholder, any such director, officer,
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action. The Company and the Selling Stockholder
acknowledge that the statements with respect to the public offering of the
Shares set forth in the third and the penultimate paragraphs under the caption
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters to the Company expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus.
The indemnity agreement contained in this paragraph (b) shall be in
addition to any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 8, notify such indemnifying party or parties of the
commencement thereof; but the failure so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under paragraph (a) or (b) of this Section 8 or to the extent
that the indemnifying party was not adversely affected by such omission. In
case any such action is brought against an indemnified party and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties against which a claim is to be made will be entitled to
participate therein and, to the extent that it or they may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
PROVIDED, HOWEVER, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party has
reasonably concluded that there may be legal
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defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and otherwise to participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses (other than the reasonable costs of
investigation) subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party has employed such
counsel in connection with the assumption of such different or additional legal
defenses in accordance with the proviso to the immediately preceding sentence,
(ii) the indemnifying party has not employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying party
has authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) (i) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified, on the other hand, from the offering of
the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. In any case where the Company and/or
the Selling Stockholder are contributing parties and the Underwriters are the
indemnified party, the relative benefits received by the Company and/or the
Selling Stockholder on the one hand, and the Underwriters, on the other, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the cover page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholder or by the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this paragraph (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this paragraph (d), the Underwriters shall not
be required to
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contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by the Underwriters hereunder. The Underwriters' obligations
to contribute pursuant to this paragraph (d) are several in proportion to their
respective underwriting obligations, and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), (i) each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter and (ii) each director of the Company, each
officer of the Company who has signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act and the Selling Stockholder shall have the
same rights to contribution as the Company, subject in each case to this
paragraph (d). Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect to which a claim for contribution may be made against another party
or parties under this paragraph (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any other obligation (x) it or they may have hereunder or otherwise than under
this paragraph (d) or (y) to the extent that such party or parties were not
adversely affected by such omission. The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying party may
otherwise have.
9. RIGHT TO INCREASE OFFERING. At anytime during a period of 30 days
from the date of the Prospectus, the Underwriters, by no less than two business
days' prior notice to the Company may designate a closing (which may be
concurrent with, and part of, the closing on the Closing Date with respect to
the Firm Shares or may be a second closing held on a date subsequent to the
Closing Date, in either case such date shall be referred to herein as the
"Option Closing Date") at which the Underwriters may purchase all or less than
all of the Additional Shares in accordance with the provisions of this Section 9
at the purchase price per share to be paid for the Firm Shares. In no event
shall the Option Closing Date be later than 10 business days after written
notice of election to purchase Additional Shares is given.
The Company agrees to sell to the several Underwriters on the Option
Closing Date the number of Additional Shares specified in such notice and the
Underwriters agree severally and not jointly, to purchase such Additional Shares
on the Option Closing Date. Such Additional Shares shall be purchased for the
account of each Underwriter in the same proportion as the number of Firm Shares
set forth opposite the name of such Underwriter in Column (3) of Schedule I
bears to the total number of Firm Shares (subject to adjustment by you to
eliminate fractions) and may be purchased by the Underwriters only for the
purpose of covering over-allotments made in connection with the sale of the Firm
Shares.
No Additional Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Additional
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Shares or any portion thereof may be surrendered and terminated at any time upon
notice by you to the Company.
Except to the extent modified by this Section 9, all provisions of
this Agreement relating to the transactions contemplated to occur on the Closing
Date for the sale of the Firm Shares shall apply, MUTATIS MUTANDIS, to the
Option Closing Date for the sale of the Additional Shares.
10. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers, the Selling Stockholder and
the Underwriters, respectively, set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of the Underwriters, and will survive delivery of and payment for the
Shares. Any successors to the Underwriters shall be entitled to the indemnity,
contribution and reimbursement agreements contained in this Agreement.
11. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at 11:00 a.m., New York
time, on the first business day following the date hereof, or at such earlier
time after the Registration Statement becomes effective as the Representatives,
in their sole discretion, shall release the Shares for the sale to the public
unless prior to such time the Representatives shall have received written notice
from the Company that it elects that this Agreement shall not become effective,
or the Representatives shall have given written notice to the Company that the
Representatives on behalf of the Underwriters elect that this Agreement shall
not become effective; PROVIDED, HOWEVER, that the provisions of this Section 11
and of Section 6 and Section 8 hereof shall at all times be effective. For
purposes of this Section 11(a), the Shares to be purchased hereunder shall be
deemed to have been so released upon the earlier of notification by the
Representatives to securities dealers releasing such Shares for offering or the
release by the Representatives for publication of the first newspaper
advertisement which is subsequently published relating to the Shares.
(b) This Agreement (except for the provisions of Sections 6 and 8
hereof) may be terminated by the Representatives by notice to the Company and
the Selling Stockholder in the event that the Company or the Selling Stockholder
have failed to comply in any respect with any of the provisions of this
Agreement required on their respective parts to be performed at or prior to the
Closing Date or the Option Closing Date, or if any of the representations or
warranties of the Company or the Selling Stockholder are not accurate in any
respect or if the covenants, agreements or conditions of, or applicable to the
Company or the Selling Stockholder herein contained have not been complied with
in any respect or satisfied within the time specified on the Closing Date or the
Option Closing Date, respectively, or if prior to the Closing Date or the Option
Closing Date:
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<PAGE>
(i) the Company shall have sustained a loss by strike, fire,
flood, accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss was insured;
(ii) trading in the Common Stock shall have been suspended by
the Commission or the NNM or trading in securities generally on the New
York Stock Exchange or the NNM shall have been suspended or a material
limitation on such trading shall have been imposed or minimum or maximum
prices shall have been established on either such exchange or market;
(iii) a banking moratorium shall have been declared by New York
or United States authorities;
(iv) there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed conflict involving the
United States; or
(v) there shall have been a material adverse change in (A)
general economic, political or financial conditions or (B) the present or
prospective business or condition (financial or other) of the Company that,
in each case, in the Representatives' judgment makes it impracticable or
inadvisable to make or consummate the public offering, sale or delivery of
the Company's Shares on the terms and in the manner contemplated in the
Prospectus and the Registration Statement.
(c) Termination of this Agreement under this Section 11 or Section 12
after the Firm Shares have been purchased by the Underwriters hereunder shall be
applicable only to the Additional Shares. Termination of this Agreement shall
be without liability of any party to any other party other than as provided in
Sections 6 and 8 hereof.
12. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or 11 hereof) to
purchase and pay for (a) in the case of the Closing Date, the number of Firm
Shares agreed to be purchased by such Underwriter or Underwriters upon tender to
you of such Firm Shares in accordance with the terms hereof or (b) in the case
of the Option Closing Date, the number of Additional Shares agreed to be
purchased by such Underwriter or Underwriters upon tender to you of such
Additional Shares in accordance with the terms hereof, and the number of such
Shares shall not exceed 10% of the Firm Shares or Additional Shares required to
be purchased on the Closing Date or the Option Closing Date, as the case may be,
then, each of the non-defaulting Underwriters shall purchase and pay for (in
addition to the number of such Shares which it has severally agreed to purchase
hereunder) that proportion of the number of Shares which the defaulting
Underwriter or Underwriters shall have so failed or refused to purchase on such
Closing Date or Option Closing Date, as the case may be, which the number of
Shares agreed to be purchased by such non-defaulting Underwriter
-30-
<PAGE>
bears to the aggregate number of Shares so agreed to be purchased by all such
non-defaulting Underwriters on such Closing Date or Option Closing Date, as the
case may be. In such case, you shall have the right to postpone the Closing
Date or the Option Closing Date, as the case may be, to a date not exceeding
seven full business days after the date originally fixed as such Closing Date or
the Option Closing Date, as the case may be, pursuant to the terms hereof in
order that any necessary changes in the Registration Statement, the Prospectus
or any other documents or arrangements may be made.
If one or more of the Underwriters shall fail or refuse (otherwise than for
a reason sufficient to justify the termination of this Agreement under the
provisions of Section 7 or 11 hereof) to purchase and pay for (a) in the case of
the Closing Date, the number of Firm Shares agreed to be purchased by such
Underwriter or Underwriters upon tender to you of such Firm Shares in accordance
with the terms hereof or (b) in the case of the Option Closing Date, the number
of Additional Shares agreed to be purchased by such Underwriter or Underwriters
upon tender to you of such Additional Shares in accordance with the terms
hereof, and the number of such Shares shall exceed 10% of the Firm Shares or
Additional Shares required to be purchased by all the Underwriters on the
Closing Date or the Option Closing Date, as the case may be, then (unless within
48 hours after such default arrangements to your satisfaction shall have been
made for the purchase of the defaulted Shares by an Underwriter or Underwriters)
and subject to the provisions of Section 11(b) hereof, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or on
the part of the Company or the Selling Stockholder except as otherwise provided
in Sections 6 and 8 hereof. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this paragraph.
Nothing in this Section 12, and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
13. NOTICES. All communications hereunder shall be in writing and if sent
to the Representatives shall be mailed or delivered or sent by facsimile
transmission and confirmed by letter to c/o Furman Selz LLC at 230 Park Avenue,
New York, New York 10169, Attention: Syndicate Department (facsimile number:
(212) ___-____) or, if sent to the Company, shall be mailed or delivered or sent
by facsimile transmission and confirmed by letter to the Company at 209 Perry
Parkway, Gaithersburg, Maryland 20877, Attention: ___________________ (facsimile
number: (301) 258-6234), or, if sent to the Selling Stockholder, shall be mailed
or delivered or telegraphed and confirmed by letter or telecopied and confirmed
by letter to CEO Venture Fund II at 1950 Old Gallows Road, Suite 440, Vienna,
Virginia 22182-3933, Attention: Gary P. Golding (facsimile number: (703) 506-
8817).
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Company, the Selling Stockholder, and each Underwriter and the
Company's, the Selling Stockholder's and each Underwriter's respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof
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<PAGE>
being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person, except that the representations,
warranties, indemnities and contribution agreements of the Company and the
Selling Stockholder contained in this Agreement shall also be for the benefit of
any person or persons, if any, who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and except that the
Underwriters' indemnity and contribution agreements shall also be for the
benefit of the directors of the Company, the officers of the Company who have
signed the Registration Statement, any person or persons, if any, who control
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and the Selling Stockholder. No purchaser of Shares from the
Underwriters will be deemed a successor because of such purchase.
15. APPLICABLE LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the choice of law or conflict of law principles thereof. Each party
hereto consents to the jurisdiction of each court in which any action is
commenced seeking indemnity or contribution pursuant to Section 8 above and
agrees to accept, either directly or through an agent, service of process of
each such court.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
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<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
the Underwriters' acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
ACE*COMM CORPORATION
By:___________________________
Name:
Title:
CEO VENTURE FUND II
By:___________________________
Name:
Title:
Accepted as of the date first
above written:
FURMAN SELZ LLC
OPPENHEIMER & CO., INC.
RODMAN & RENSHAW, INC.
By: FURMAN SELZ LLC
Acting on its own behalf and as
one of the Representatives of
the several Underwriters
referred to in the foregoing
Agreement
By:______________________________
Name:
Title:
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<PAGE>
SCHEDULE I
UNDERWRITERS
Underwriting Agreement dated ______________, 1996
(1) (2) (3)
Number of Firm Number of Firm Aggregate
Shares to be Shares to be Number of
Purchased from Purchased from Firm Shares
the Company the Selling to be
-------------- Stockholder Purchased
---------------- ---------
Name Of Underwriter
- -------------------
Furman Selz LLC......... ____________ ______________ __________
Oppenheimer & Co., Inc.. ____________ ______________ __________
Rodman & Renshaw, Inc... ____________ ______________ __________
Total................. 2,250,000 268,203 2,518,203
------------ -------------- ----------
------------ -------------- ----------
<PAGE>
EXHIBIT 10.1
AMERICAN COMPUTER
AND ELECTRONICS CORPORATION
AND
AT&T-WORLD SERVICES
SUPPLIER AGREEMENT
<PAGE>
CONTENTS
1. "INTERPRETATION"............................................
Headings.................................................
Schedules................................................
Applicable Law...........................................
2. "TERM"......................................................
3. "SCOPE".....................................................
4. "FEES"......................................................
5. "RESPONSIBILITIES"..........................................
6. "TECHNICAL COMPATIBILITY"...................................
7. "WARRANTY SUPPORT"..........................................
8. "RIGHTS IN INFORMATION".....................................
9. "CONFIDENTIAL INFORMATION"..................................
10. "ADVERTISING"...............................................
11. "TRADEMARKS"................................................
12. "EXPORT CONTROL"............................................
13. "LIMITATION OF LIABILITY"...................................
14. "FORCE MAJEURE".............................................
15. "DEFAULT/TERMINATION".......................................
"Default"................................................
"Termination"............................................
16. "ARBITRATION"...............................................
17. "ASSIGNMENT"................................................
18. "WAIVER"....................................................
19. "SEVERABILITY"..............................................
20. "NOTICE"....................................................
21. "ENTIRE AGREEMENT AND VARIATION"............................
22. "SURVIVAL"..................................................
23. "SIGNATURES"................................................
<PAGE>
AGREEMENT made this SIXTEENTH day of DECEMBER 1992
BETWEEN
AT&T WORLD SERVICES, INC. (hereinafter called ("AT&T-WORLD SERVICES") a
corporation organized under the laws of the State of Delaware, U.S.A., having
an office at 111 Madison Avenue, 3rd Floor, Morristown, NJ 07960, U.S.A.)
AND
AMERICAN COMPUTER and ELECTRONICS CORPORATION, a corporation organized under
the laws of the State of Maryland, U.S.A., having its principal office at 209
Perry Parkway, Gaithersburg, Maryland 20877 (hereinafter called. "AMERICAN
COMPUTER").
WHEREAS
AT&T WORLD SERVICES and AMERICAN COMPUTER have entered into a Marketing
Agreement ("Marketing Agreement") effective June 18, 1990 and this Marketing
Agreement specifies the conditions for the international marketing and sales
of AMERICAN COMPUTER'S products and services by AT&T WORLD SERVICES.
NOW, THEREFORE,
The parties wish to establish the terms, conditions, and obligations of the
parties under which the delivery, support, and warranty of products and
services provided to customers of AT&T WORLD SERVICES under the Marketing
Agreement may from time to time occur.
AT&T-WORLD SERVICES
AND
AMERICAN COMPUTER
AGREE AS FOLLOWS:
1. "INTERPRETATION"
In this Agreement:
"AMERICAN COMPUTER" means the AMERICAN COMPUTER and ELECTRONICS CORPORATION,
209 Perry Parkway, Gaithersburg, Maryland 20877, U.S.A.
<PAGE>
"Application Software" means software in object code and source code format
and its related documentation to be provided to Customers under Contract.
"AT&T" means AT&T World Services Inc. and American Telephone and Telegraph
Company, and its affiliates and subsidiaries.
"Contract" means an agreement entered into between AT&T World Services Inc.
and its international Customer for delivery, installation and support of
products and services covered by the Marketing Agreement.
"Customer" means an organization/entity that has Contracted with AT&T WORLD
SERVICES for acquisition of AMERICAN COMPUTER'S products and/or services
under the terms of the Marketing Agreement.
"Day" or "days" means business days unless specifically stated otherwise.
"DCMS-TM-" means the Distributed Call Measurement System of AMERICAN COMPUTER.
"Delivery" means the delivery of Products/Services to Customer's designated
sites.
"Delivery Dates" means those dates for Delivery as set out in Customer
Contracts.
"Products/Services" means any item of hardware or related service supplied by
AMERICAN COMPUTER under this Agreement including equipment, equipment
features, model conversions, machine elements and accessories.
"Licensed Programs" means those computer programs required for the operation
of Products/Services and offered in object code format only.
"Month" or "months" means calendar months unless specifically stated
otherwise.
"Opportunity" means the given end user requirement of a particular customer
for the Products/Services offered under this Agreement.
"Software" means computer programs and associated documentation including,
but not limited to, Application Software and Licensed Programs as supplied
under this Agreement.
"UPS-32-TM-" means the Universal Polling System of AMERICAN COMPUTER.
HEADINGS
The headings and captions in this Agreement are for convenience only and are
not intended to have any Contractual effect
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<PAGE>
SCHEDULES
All documents and papers attached to this Agreement as Schedules are hereby
incorporated into and made a part of this agreement If there is any conflict
between any provision contained in the Schedules and the main body, the
Schedules will prevail in the order of priority as listed below. The
Schedules to this Agreement are:
SCHEDULE 1: CUSTOMER MANAGEMENT PLAN
APPLICABLE LAW
This agreement shall be governed by and construed in accordance with the laws
of New Jersey.
2. "TERM"
This Agreement shall run concurrently with the AMERICAN COMPUTER/AT&T WORLD
SERVICES Marketing Agreement, commencing on the date of signing of this
Agreement with automatic renewal for successive one (1) year periods unless
either Party gives written notice of the intention not to renew at least
thirty (30) days prior to the expiration of the initial term or any renewal
terms. The terms and conditions of this Agreement will take effect with the
first new Contract or Agreement for equipment or software following the
signing of this contract. The contract will terminate coincident with the
aforementioned marketing agreement.
3. "SCOPE"
The parties are establishing this supplier agreement for their mutual benefit
and agree that they will cooperate in the delivery of products and services
to Customers of AT&T WORLD SERVICES.
AMERICAN COMPUTER agrees to provide to AT&T WORLD SERVICES in accordance with
the Contract, the delivery, installation and commissioning and warranty of
the Products/Services through the provision of hardware, software, technical
and engineering services, warranty support and documentation.
4. "FEES"
AMERICAN COMPUTER and AT&T WORLD SERVICES may establish fees for the
provision of services by AMERICAN COMPUTER in delivery and support of
Contracts. Such fees will be set during the Contract negotiation phase and
will be agreed to by the parties in writing. Both parties recognize that
changes to the scope of a contract, technical and cost, are likely to occur
during the phases of the project. These changes will be discussed and agreed
to in writing between both parties' Project Managers. These
3
<PAGE>
changes will also likely have a schedule impact that will be discussed and
agreed to, in writing, among the Customer, AT&T and AMERICAN COMPUTER.
5. "RESPONSIBILITIES"
Each party shall assign its technically qualified Project Manager responsible
for providing leadership and direction to the delivery of products and
services under this Agreement to AT&T WORLD SERVICES customers. Each such
Project Manager shall be provided with a copy of this Agreement and shall be
responsible for the day to day implementation of the relationship herein
established.
The Project Managers will be responsible for establishing project schedules
and cost controls to assure that Contract implementation occurs within cost
and time expectations as set forth in AT&T WORLD SERVICES project plan for
each Contract.
Each party will cooperate to assure a best effort attempt to identify
customer requirements as early as possible in the customer Contract
negotiation process. In those instances where a customer provides erroneous
or inaccurate data that affects the ultimate product delivery capability
regarding price or delivery time, AT&T WORLD SERVICES will be responsible,
with the cooperation of AMERICAN COMPUTER, to re-negotiate an upscope to
correct the customer's misinformation.
If changes are required due to mutual misunderstanding or misinterpretation
of legitimate customer requirements or specifications, such changes will be
accommodated at the expense of the party responsible for the misunderstanding
of the activities in question.
If there is disagreement between the Project Managers regarding this
Agreement the matter shall be referred by the Project Managers to the
Director, TCS Division for AMERICAN COMPUTER and to the BASE PRODUCT MANAGER
for AT&T WORLD SERVICES who shall attempt to mediate the difference.
The services to be provided by AMERICAN COMPUTER under this Agreement shall
proceed with promptness and diligence and shall be executed with the highest
professional standards in the field, to AT&T WORLD SERVICES satisfaction.
The acceptance of the work product by AT&T WORLD SERVICES' client shall not
prevent AT&T WORLD SERVICES from subsequently objecting to its quality and
stating claims accordingly.
AMERICAN COMPUTER will be responsible to assure that all required information
and specifications pertaining to a customer's requirement for delivery of
covered products and services are gathered and verified. AMERICAN COMPUTER
will provide written recommendations based upon its survey of the customer
requirements for equipment sizing and will take special care to assure that
switch call record volume estimates accurately reflect the customers
operating environment. AMERICAN COMPUTER will obtain written estimates of
the switch call record volumes from the customer and will be
4
<PAGE>
responsible that all equipment and software supplied by AMERICAN COMPUTER
will accommodate the customer's written call record volume requirements.
AMERICAN COMPUTER will be responsible to determine the network/line
conditions required for implementation of each Contract and to advise the
customer of these requirements. AMERICAN COMPUTER will establish testing
criteria to assure the suitability of the customer's transmission facilities
and will at the time of installation of products provided under Contracts
perform its standard tests and advise the customer and AT&T WORLD SERVICES in
writing of its findings and recommended corrective actions, if any are
required.
AT&T WORLD SERVICES will promptly refer and review all sales initiatives and
provide in writing all orders, special requests, project impacting decisions.
AT&T WORLD SERVICES will provide access to AMERICAN COMPUTER of customer
trouble data gathered by its CHANGE/TROUBLE TRACKING system.
6. "TECHNICAL COMPATIBILITY"
AMERICAN COMPUTER will cooperate with AT&T WORLD SERVICES to assure that its
products are and remain technically compatible with AT&T's network and
computer hardware/software products.
AMERICAN COMPUTER will cooperate with AT&T WORLD SERVICES to assure that AT&T
BASE product standards with regard to customer presentation screens and
documentation are incorporated in products provided hereunder.
AMERICAN COMPUTER will, at its own expense, perform bench marking activities
to support technical requirements of AT&T WORLD SERVICES customers.
If a customer of AT&T WORLD SERVICES specifies implementation of products on
switches and or computers not previously known to AMERICAN COMPUTER, AMERICAN
COMPUTER will advise AT&T WORLD SERVICES during the customer negotiation
phase of its cost, if any, to modify its products to accommodate the customer
requirements.
7. "WARRANTY SUPPORT"
AMERICAN COMPUTER grants to AT&T WORLD SERVICES the right to incorporate into
those product offerings that include the products/services of AMERICAN
COMPUTER and to thereby pass its standard, published equipment warranty to
customers under this Agreement. If an extension of the warranty period is
required, not to exceed three (3) additional months of warranty, due to
customer acceptance delay in the acceptance of the integrated AT&T WORLD
5
<PAGE>
SERVICES/AMERICAN COMPUTER product set, such extension will be automatically
granted at no additional expense to AT&T WORLD SERVICES or its customer.
8. "RIGHTS IN INFORMATION"
AMERICAN COMPUTER and AT&T WORLD SERVICES agree that they will not use any
information of a proprietary or confidential nature belonging to any other
company or individual in the performance of this Agreement
Information including, but not limited to data, business information,
technical information, specifications, drawings, records, and computer
programs and documentation (hereafter "Information"), originated or prepared
by or for AT&T WORLD SERVICES or its customer in contemplation of, or in the
course of, or as a result of, work done hereunder. which Information is
incorporated into or becomes a part of a Covered System shall be promptly
furnished to AT&T WORLD SERVICES.
All such Information shall remain the exclusive property of AMERICAN COMPUTER
however AT&T - WORLD SERVICES shall acquire a perpetual, fee free right to
use such information in support of the Contract. No such information will
ever be provided to competitors of AMERICAN COMPUTER even in support of a
Contract without the express written permission of AMERICAN COMPUTER,
9. "CONFIDENTIAL INFORMATION"
In this Agreement, "Confidential Information" means information regarding a
party, its business, personnel, technical or statistical data, or financial
information that:
is not generally known to the public or to other persons who are not
bound by the obligations to maintain its confidentiality-, and/or,
derives economic or strategic value, actual or potential. from not
being generally known; or has a character such that the party has a
legitimate interest in preserving its confidential nature.
As a consequence of entering this Agreement or performing the obligations
herein, the parties may have disclosed to them, or they may otherwise have
access to, or learn of, Confidential Information of the other. Each party
agrees to hold in strict confidence all Confidential Information of the other
that it learns of, or is provided with, and to use such Confidential
Information only for the purpose of this Agreement. Neither party will use,
copy, or disclose to third parties any Confidential Information of the other
party except as contemplated herein. The parties shall ensure that all third
parties to whom it has to disclose Confidential Information to perform its
obligations under this Agreement acknowledge its confidential nature and
agree to be bound by the provisions of this Clause in a written undertaking.
6
<PAGE>
10. "ADVERTISING"
Each party agrees that it shall not cause any publicity relating to the
acceptance of any proposal or supply of the Products/Services under this
Agreement to be published in any newspaper, journal or any other medium
without the other party's prior written approval, such approval shall not be
unreasonably with held.
11. "TRADEMARKS"
Either party will not, without the other party's express written permission
except as provided for in this Agreement in the preparation and delivery of
Customer proposals, responses and jointly developed marketing material, use
in advertising, publicity, or otherwise, any trade name, trademark, trade
device, service mark, symbol, code or specification or any abbreviation,
Contraction, or simulation thereof of the other, nor shall the other party
claim any ownership therein.
12. "EXPORT CONTROL"
Each party assures the other that it does not intend to and will not
knowingly, without the prior written consent of the other and the Office of
Export Administration of the United States Department of Commerce, PO Box
273, Washington, DC 20044, U.S.A., transmit directly or indirectly.
any technical information or SOFTWARE furnished under this Agreement;
or, any immediate product (including processes, materials and/or
services), if any, produced directly by the use of the technical
information or SOFTWARE, or is a plant capable of producing a commodity
or is a major component of such a plant furnished under this Agreement;
to Afghanistan, The People's Republic of China, or any Group Q, S, W, Y, or Z
country (or any national or resident thereof or others that may be designated
in Supplement No. 1 to Section 770 of the Export Administration Regulations
issued by the U.S. Department of Commerce.
13. "LIMITATION OF LIABILITY"
Nothing in this Agreement shall be considered to create the relationship of
employer and employee between the parties hereto. AMERICAN COMPUTER and AT&T
WORLD SERVICES shall at all times be deemed to be independent Contractors.
Each shall be solely responsible for the payment of all applicable United
States and foreign taxes for itself and its employees.
The liability of AT&T and AMERICAN COMPUTER for any claim arising from any
cause whatsoever (excepting personal injury and/or death and claims of
infringement), regardless of the cause of action, whether in Contract, tort
or otherwise, shall in no event
7
<PAGE>
exceed the lesser of the direct damages actually proven or $10,000. In no
event shall either AT&T or AMERICAN COMPUTER be liable to the other for
incidental, special, consequential or any other direct loss or damage of any
kind whatsoever, including lost profits or revenues arising out of this
Agreement.
Each party shall defend, indemnify and hold harmless the other party from any
and all claims, suits, actions, demands, costs, settlements, losses, damages,
expenses and all other liabilities, including attorneys' fees, arising out of
or resulting from the intentional or negligent acts or omissions on the part
of any party, its employees, officers, agents or independent Contractors in
the performance of or failure to perform the activities contemplated by this
Agreement.
For purposes of this section, AT&T shall mean AT&T World Services Inc.,
American Telephone and Telegraph Company, its affiliates and subsidiaries,
its officers, employees and agents.
14. "FORCE MAJEURE"
Neither party shall be liable for any delays and/or non-performance of
Contractual obligations hereunder caused by any event beyond the party's
reasonable control (a "Force Majeure'), including but not limited to wars,
riots, the act or failure to act or order of any civil or military authority,
fires, flood and other acts of God, labor disputes, accidents. and other such
events, and all applicable deadlines and milestones will be extended by a
period of time equal to the duration of each such event. Regardless of the
foregoing, a party that is delayed or prevented from performing its
obligations as a consequence of a Force Majeure will exert diligent efforts
to counter the Force Majeure or otherwise mitigate the effects of the Force
Majeure.
15. "DEFAULT/TERMINATION"
"DEFAULT"
Each of the following events shall constitute a default under this Agreement
on the part of the party who commits or is responsible for the same:
any failure by a party to perform or observe any of its material
obligations under this Agreement and the defaulting party failing to
correct the default in all material respects within ninety (90) days
after receiving a written notice from the non-defaulting party
requesting that the default be corrected.
if a party is wound-up, or liquidated, or becomes insolvent, or if a
custodian, receiver, or a receiver-manager is appointed for its
business or any of its property, or if the party makes an assignment,
proposal or arrangement for the benefit of creditors, or if it files or
has filed against it a petition in bankruptcy that it has not dismissed
within ninety (90) days, or if the party discontinues its business.
8
<PAGE>
"TERMINATION"
If either party commits a default under this Agreement, then, the
non-defaulting party shall be entitled to terminate this Agreement by giving
the defaulting party written notice of termination, which shall be effective
upon receipt by the defaulting party.
If this Agreement is terminated by AMERICAN COMPUTER under as a result of
AT&T WORLD SERVICES' default, AT&T WORLD SERVICES' right to market the
Products/Services hereunder shall be terminated forthwith.
Licenses granted to Customers and Warranty obligations of all Customer Supply
Agreements outstanding prior to the termination of this Agreement shall not
be diminished or abridged by the termination of this Agreement and each party
shall endeavor to provide all warranty maintenance work for licenses granted
if such warranty maintenance had been granted to the Customer.
16. "ARBITRATION"
All differences between the parties arising out of, or relating to the
interpretation, application, administration, alleged violation, termination
or invalidity of the Agreement shall be finally settled by arbitration in
accordance with the Arbitration Act 1908 or any statutory modification or
re-enactment thereof for the time being in force.
Any such dispute, doubt or question shall be referred to arbitration in New
Jersey of a single arbitrator in case the parties can agree upon one and
failing such an agreement to two (2) arbitrators, one to be appointed by
AMERICAN COMPUTER and one to be appointed by AT&T WORLD SERVICES, or in a
case of disagreement to an umpire to be appointed by the arbitrators before
entering upon the reference. Any such arbitration shall be conducted in New
Jersey.
17. "ASSIGNMENT"
Neither this Agreement nor the rights and obligations of either party under
this Agreement may be assigned or transferred without the prior written
consent of the other party, such consent shall not be unreasonably withheld.
18. "WAIVER"
No term or provision of this Agreement shall be deemed to be waived and no
breach excused, unless such waiver or consent shall be in writing and signed
by the party claimed to have waived or consented. Any consent by any party
to, or waiver of, a breach by the other, whether express or implied, shall
not constitute a consent to, waiver of, or excuse for any other, different or
subsequent breach.
9
<PAGE>
19. "SEVERABILITY"
If any part or parts e. this Agreement shall be -held illegal or null and
void by any court or administrative body of competent jurisdiction, such
determination shall not affect the remaining parts of this Agreement that
shall remain in full force and effect as if part or parts held to be illegal
or void had not been included in the Agreement provided that the principal
obligations of the parties are maintained.
20. "NOTICE"
Any notice, request, or information shall be deemed to be sufficiently given
when sent by registered mail, courier express or by facsimile (confirmed by
registered mail), to the other party at the following addresses:
AT&T WORLD SERVICES, INC.
Room 3S2
111 Madison Avenue
Morristown, NJ 07960
U.S.A.
Attention: Mr. John Jepsen, Managing Director
AMERICAN COMPUTER and ELECTRONICS CORPORATION
209 PERRY PARKWAY
GAITHERSBURG, MD 20877
U.SA
Attention: Dr. Thomas V. Russotto, Vice President
Notices by post shall be sufficiently given if sent by registered mail to
AMERICAN COMPUTER'S or AT&T-WORLD SERVICES' address as the case may be. They
shall be deemed received by the addressee, ten days following the date of
mailing.
Notice by facsimile shall be deemed received by the addressee (so long as the
correct answer back or acknowledgment is received by the sender) on the
business day following the day on which such facsimile is sent
21. "ENTIRE AGREEMENT AND VARIATION"
This Agreement constitutes the complete and exclusive statement of the
Agreement between the parties, which supersedes all proposals or prior
agreements, oral or written, and all communications between the parties
relating to the subject of this Agreement.
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No amendment to this Agreement shall be effective unless in writing in a
format similar to the format of this Agreement and signed by duly authorized
representatives of both parties.
22. "SURVIVAL"
The obligations of the parties under this Agreement which by their nature
would continue beyond the expiration, termination or cancellation of this
Agreement, including without limitation, the obligations in the Articles
entitled TRADEMARKS, CONFIDENTIAL INFORMATION, SOFTWARE LICENSES, WARRANTY
SUPPORT, EXPORT CONTROL and ESCROW shall survive the expiration or
termination of this Agreement.
23. "SIGNATURES"
IN WITNESS WHEREOF these presents have been executed the day and the year
first herein before written:
SIGNED for and on behalf of
AMERICAN COMPUTER by
/s/ Thomas V. Russotto
- ----------------------------------
in the presence of:
/s/ Brenda L. Roundsy
- ----------------------------------
SIGNED for and on behalf of
AT&T WORLD SERVICES INCORPORATED by
/s/ Donald Dippel
- ----------------------------------
in the presence of:
/s/ Alice Allaners
- ----------------------------------
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EXHIBIT 10.2
MARKETING AGREEMENT
AGREEMENT, made this 6th day of December, 1990.
BETWEEN
AT&T WORLD SERVICES, INC. (hereinafter called "AT&T-WORLD SERVICES") a
corporation organized under the laws of the State of Delaware, U.S.A., having
its principal office at 412 Mt. Kemble Plaza, Morristown, NJ 07960, U.S.A.
AND,
AMERICAN COMPUTER and ELECTRONICS CORPORATION, a corporation organized under the
laws of the State of Maryland, U.S.A., having its principal office at 209 Perry
Parkway, Gaithersburg, Maryland 20877 (hereinafter called "AMERICAN COMPUTER").
WHEREAS
1. AT&T-WORLD SERVICES and AMERICAN COMPUTER having entered into a MEMORANDUM
OF UNDERSTANDING dated the 18th day of June, 1990; and,
2. Paragraph 18 of that MEMORANDUM OF UNDERSTANDING specifying that the
parties intend to enter into a worldwide (excluding the domestic US market)
marketing agreement for certain of AMERICAN COMPUTER'S products and
services to be marketed and distributed by AT&T-WORLD SERVICES in the
international (non-US domestic) market;
NOW, THEREFORE, AT&T-WORLD SERVICES and AMERICAN COMPUTER agree as follows:
1. INTERPRETATION
1. In this Agreement:
"Agent" means an in-country business entity required by the business
customs, culture or law of a particular customer country and acceptable to
both parties.
"AMERICAN COMPUTER" means the American Computer and Electronics
Corporation, 209 Perry Parkway, Gaithersburg, Maryland 20877, U.S.A.
"Custom Software" means software in object code and source code format and
its related documentation to be provided to Customers under this Agreement.
"AT&T" means AT&T World Services Inc. and American Telephone and Telegraph
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Company, and its affiliates and subsidiaries.
"Customer" means an organization/entity acceptable to both AT&T-WORLD
SERVICES and AMERICAN COMPUTER for their own business purposes to whom the
Products/Services will be proposed and provided.
"day" or "days" means business days unless specifically stated otherwise.
"DCMS-TM-" means the Distributed Call Measurement System of AMERICAN
COMPUTER.
"Delivery" means the delivery of Products/Services to Customer's designated
sites.
"Delivery Dates" means those dates for Delivery as set out in Customer
proposals.
"Products/Services" means any item of hardware or related service supplied
by AMERICAN COMPUTER under this Agreement including equipment, equipment
features, model conversions, machine elements and accessories.
"Licensed Programs" means those computer programs required for the
operation of Products/Services and offered in object code format only.
"month" or "months" means calendar months unless specifically stated
otherwise.
"Opportunity" means the given end user requirement of a particular customer
for the Products/Services offered under this Agreement.
"Software" means computer programs and associated documentation including,
but not limited to, Custom Software and Licensed Program as supplied under
this Agreement.
"UPS-32-TM-" means the Universal Polling System of AMERICAN COMPUTER.
2. Headings
The headings and captions in this Agreement are for convenience only and
are not intended to have any contractual effect.
3. Schedules
All documents and papers attached to this Agreement as Schedules are hereby
incorporated into and made a part of this Agreement. In the event of any
conflict between any provision contained in the Schedules and the main
body, the Schedules will prevail in the order of priority as listed below.
The Schedules to this Agreement are:
Schedule 1: PRODUCTS/SERVICES
Schedule 2: PRODUCT/SERVICE PRICES
Schedule 3: FORMAT OF CUSTOM SOFTWARE AGREEMENT
Schedule 4: ESCROW AGREEMENT
4. Applicable Law
This agreement shall be governed by and construed in accordance with the
laws of New Jersey.
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2. TERM
The term of this Agreement shall be for a period of five (5) years commencing on
June 18, 1990 with automatic renewal for successive one (1) year periods unless
either Party gives written notice of the intention not to renew at least thirty
(30) days prior to the expiration of the initial term or any renewal terms.
3. SCOPE
1. The parties are establishing this marketing arrangement for their mutual
benefit and agree that AT&T-WORLD SERVICES has the exclusive right as set
forth in Section 4-EXCLUSIVE RIGHT OF FIRST REFUSAL, to market and
distribute the Products/Services of AMERICAN COMPUTER set forth in
Schedule 1 outside the United States, its territories and possessions.
2. The parties agree to identify and pursue marketing opportunities in the
international arena. Based upon mutual agreement, AT&T-WORLD SERVICES will
propose the Products/Services of AMERICAN COMPUTER and AMERICAN COMPUTER
agrees to provide these Products/Services. The parties agree to execute
any documents necessary in order to prepare and submit such proposals.
AMERICAN COMPUTER will diligently assist AT&T-WORLD SERVICES in the
analysis, development and review of Customer proposals, tender responses,
requests for proposal, etc. Such assistance shall be provided at no charge
to AT&T-WORLD SERVICES during the first five (5) days, or as otherwise
agreed, for each identified opportunity and thereafter at a fee to be
developed between the parties on a case-by-case basis. In the event that a
sale of PRODUCTS/SERVICES results from such assistance provided, AMERICAN
COMPUTER will reimburse AT&T-WORLD SERVICES for such fees received by
AMERICAN COMPUTER from its share of the proceeds resulting from that
particular opportunity.
AT&T-WORLD SERVICES will review final proposals and Customer supply
agreements with AMERICAN COMPUTER prior to submission to Customer and will
receive written concurrence from AMERICAN COMPUTER of its acknowledgment to
the obligations imposed upon AMERICAN COMPUTER by the proposals and/or
Customer supply agreement.
3. In the event that a Customer accepts a proposal provided under this
Agreement, AT&T WORLD SERVICES agrees to contract with AMERICAN COMPUTER
for the Products/Services, and AMERICAN COMPUTER agrees to provide the
Products/Services in accordance with the Terms and Conditions of this
Agreement and those which were specified in the proposal submitted to the
customer. AMERICAN COMPUTER further agrees to perform with AT&T-WORLD
SERVICES in accordance with the proposal, the delivery, installation and
commissioning of the Products/Services through the provision of hardware,
software, technical and engineering services, warranty support and
documentation.
4. The parties agree that one tenth percent (0.1%) of the total project price,
contributed equally from the proceeds of each party, from each sale that
may result from this Agreement will be set aside in an account to be
jointly administered for the development of international marketing
materials (i.e., brochures, trade show presentations, seminars, on-site
presentations and the like) for the Products/Services under this agreement.
The initial level of funding in
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this account will not exceed one hundred thousand dollars ($100,000.00) and
the parties may from time to time change the dollar limitation for this
account.
5. Nothing in this Agreement shall be taken as an obligation by AT&T-WORLD
SERVICES to purchase any or a particular quantity of Products/Services
notwithstanding any estimate that may be given at any time and AT&T-WORLD
SERVICES shall have no liability to AMERICAN COMPUTER whether in contract,
tort or otherwise with respect to any such estimate.
4. EXCLUSIVE RIGHT OF FIRST REFUSAL
AMERICAN COMPUTER shall promptly advise AT&T-WORLD SERVICES in writing of all
inquiries, marketing contacts, requests for information, requests for proposal
and the like related to international opportunities which AMERICAN COMPUTER may
from time to time receive from all sources, including parties with whom AMERICAN
COMPUTER may be contractually associated, (except for AMERICAN COMPUTER's
contractual relationships with respect to cellular telephone technology) during
the life of this Agreement.
AMERICAN COMPUTER will refrain from providing pricing information, other than
the published list price, or from entering into dialogue with a potential
customer or other parties pending the acceptance or rejection of the opportunity
by AT&T-WORLD SERVICES under the following conditions:
a. AT&T-WORLD SERVICES upon receipt of such notice from AMERICAN COMPUTER
shall, within fifteen (15) business days, advise AMERICAN COMPUTER in
writing of its interest in responding to such request and decide with
AMERICAN COMPUTER the Products/Services and obligations of each party to
the response.
b. In the event AT&T-WORLD SERVICES fails to respond to AMERICAN COMPUTER
within fifteen (15) business days, advises AMERICAN COMPUTER of its intent
not to participate with AMERICAN COMPUTER under this Agreement, or the
parties are unable to agree on the obligations of each party to the
response, each party may then proceed without further commitment or
obligation to the other with regard to the opportunity.
c. In the event AT&T-WORLD SERVICES and AMERICAN COMPUTER agree to proceed
with a response, AT&T-WORLD SERVICES agrees to sub-contract per the terms
of this Agreement to AMERICAN COMPUTER any Products/Services opportunity
which results from the response.
d. In the event that the parties agree to proceed with a response and multiple
sources (i.e., agents) wish to respond to the opportunity, each such source
shall be considered by the parties as related to the opportunity. The
parties shall jointly decide whether or not to proceed with each source and
in the event that the parties are not able to agree or the parties agree
not to proceed with a particular source, neither party will proceed
independently in response to the opportunity with the rejected source.
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5. PRICING
1. In recognition of the international marketing costs to be borne by
AT&T-WORLD SERVICES, AMERICAN COMPUTER, unless otherwise agreed in writing,
sets out the price of the Products/Services to be shown on Schedule 2-
PRODUCT/SERVICE PRICES on a preferential discounted basis to AT&T-WORLD
SERVICES for the purposes of this Agreement. Such discount shall be based
on the volume of the opportunity and shall be at least ten (10%) percent of
AMERICAN COMPUTER's current List Price and will be at least as favorable as
any other discount which AMERICAN COMPUTER may offer to any other parties,
except the Government of the United States, its agencies and branches.
2. AMERICAN COMPUTER will provide AT&T-WORLD SERVICES with any change in its
Price List at least 30 days prior to the price change becoming effective.
No price change will affect any proposals submitted by AT&T-WORLD SERVICES
before receipt of notice of change and AMERICAN COMPUTER agrees to provide
Products/Services in accordance with such proposals.
3. The prices shown in Schedule 2-PRODUCT/SERVICE PRICES at the signing of
this Agreement shall remain in effect at least through December 31, 1991.
6. PAYMENT
For each opportunity the parties will agree on terms of payment. AT&T-WORLD
SERVICES shall make its best effort to accommodate the payment requirements of
AMERICAN COMPUTER as shown on Schedule 2-PRODUCT/SERVICE PRICES.
7. TITLE
7.1 TITLE IN EQUIPMENT
Upon award AT&T-WORLD SERVICES and AMERICAN COMPUTER will enter into a contract
for the Product/Services as jointly proposed to and accepted by the customer.
AMERICAN COMPUTER represents that at the time of sale, title to equipment shall
be free from any liens, encumbrances or security interest.
7.2 TITLE TO CUSTOM SOFTWARE
All Software that AMERICAN COMPUTER supplies, acquires and/or develops in
connection with the Products/Services, including code recorded in firmware,
systems software, routines, subroutines, and the like, will be and remain the
property of AMERICAN COMPUTER or its suppliers, both before and after payment of
the Products/Services Price.
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AMERICAN COMPUTER grants to AT&T-WORLD SERVICES the right to issue Custom
Software Licenses under this Agreement for certain of AMERICAN COMPUTER'S
software by means of a License in a format based on that of Schedule 3-Custom
Software Agreement.
8. LICENSE OF LICENSED PROGRAMS
8.1 GRANT OF LICENSES
Non-transferable and non-exclusive licenses are to be provided to Customers by
AT&T-WORLD SERVICES in a format to be provided by AMERICAN COMPUTER for the
Licensed Programs necessary for the proper operation of the Products/Services
("the Licensed Programs") subject to the following terms and conditions,
provided, however, that if Customer is required to do so it shall execute
software license agreements with the appropriate supplier in terms consistent
with those in this Agreement.
8.2 USE OF LICENSED PROGRAMS
a. Each license provided under this Agreement authorizes Customer to:
- use the Licensed Program materials in machine readable form on the
Products/Services, within the limits of the sizing considerations
detailed in Schedule 2, and in conjunction therewith to store the
licensed Program materials in, transmit them through or display them on
units associated with such designated Products/Services;
- utilize the Licensed Program materials, in printed form in support of the
use of the Licensed Programs; and/or,
b. Customer shall not use, print, copy or translate the Licensed Program in
whole or in part, unless expressly authorized in this Agreement.
c. Customer shall not reverse assemble or reverse compile the Licensed
Programs in whole or in part.
d. Customer is authorized to use Licensed Programs on:
- backup Products/Services when the designated Products/Services or an
associated unit required for the use of the Licensed Program is
temporarily inoperable until operable status is restored and processing
on the backup equipment is completed; or,
- other Products/Services for assembly or compilation of Licensed Program
materials if the designated Products/Services and its associated units do
not provide the configuration required for assembly or compilation. Such
usage shall not expand the authorized use of the licensed programs.
9. AVAILABILITY OF SPARE PARTS
AMERICAN COMPUTER warrants the availability of necessary spare parts for
Products/Services for a period of at least ten (10) years, or as otherwise
agreed in writing, after Acceptance of the Products/Services by Customer.
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AMERICAN COMPUTER reserves the right to substitute components of like quality
and functionality during this period in order to maintain Products/Services
system functionality per published specification.
10. INFRINGEMENT OF PATENTS
AMERICAN COMPUTER shall indemnify and save AT&T-WORLD SERVICES harmless from any
claims, losses, suits, demands or liens arising from any act of infringement of
any patent, trademark, or copyright or any unauthorised use of any trade secret
or other proprietary interest by any Product/Service of AMERICAN COMPUTER;
provided that AT&T-WORLD SERVICES:
a. shall give AMERICAN COMPUTER immediate written notice of all claims of such
infringement and suits and full opportunity and authority to assume the
sole defense of, and to settle, such suits;
b. shall furnish to AMERICAN COMPUTER, on request, all information and
assistance available to AMERICAN COMPUTER for such defence; and shall
abstain from making any admissions to claimant regarding the claim.
If said item is held to constitute infringement of any patent and its use is
enjoined, AMERICAN COMPUTER shall have the options to:
a. Replace the item with a non-infringing one;
b. Procure for Customer the right to continue using said item;
c. Modify the item so that it becomes non-infringing.
AT&T-WORLD SERVICES agrees to indemnify and save harmless AMERICAN COMPUTER from
all costs, expenses, liabilities and claims for infringement arising from:
a. Adherence to specifications or drawings which AMERICAN COMPUTER was
directed by AT&T-WORLD SERVICES to follow; or,
b. The manufacture, sale or use of a product furnished hereunder in
combination with another item not furnished by AMERICAN COMPUTER.
11. CONFIDENTIAL INFORMATION
In this Agreement, "Confidential Information" means information regarding a
party, its business, personnel, technical or statistical data, or financial
information that:
a. is not generally known to the public or to other persons who are not bound
by the obligations to maintain its confidentiality; and/or,
b. derives economic or strategic value, actual or potential, from not being
generally known, or has a character such that the party has a legitimate
interest in preserving its confidential nature.
As a consequence of entering this Agreement or performing the obligations
herein, the parties may
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have disclosed to them, or they may otherwise have access to, or learn of,
Confidential Information of the other.
Each party agrees to hold in strict confidence all Confidential Information of
the other that it learns of, or is provided with, and to use such Confidential
Information only for the purpose of this Agreement. Neither party will use,
copy, or disclose to third parties any Confidential Information of the other
party except as contemplated herein. The parties shall ensure that all third
parties to whom it has to disclose Confidential Information to perform its
obligations under this Agreement acknowledge its confidential nature and agree
to be bound by the provisions of this Clause in a written undertaking.
12. ADVERTISING
Each party agrees that it shall not cause any publicity relating to the
acceptance of any proposal or supply of the Products/Services under this
Agreement to be published in any newspaper, journal or any other medium without
the other party's prior written approval, such approval shall not be
unreasonably with held.
13. TRADEMARKS
Either party will not, without the other party's express written permission
except as provided for in this Agreement the preparation and delivery of
Customer proposals, responses and jointly developed marketing material, use in
advertising, publicity, or otherwise, any tradename, trademark, trade device,
service mark, symbol, code or specification or any abbreviation, contraction, or
simulation thereof of the other, nor shall the other party claim any ownership
therein.
14. EXPORT CONTROL
Each party assures the other that it does not intend to and will not knowingly,
without the prior written consent of the other and the Office of Export
Administration of the United States Department of Commerce, PO Box 273,
Washington, D.C., 20044, U.S.A., transmit directly or indirectly:
a. any technical information or software furnished under this Agreement; or,
b. any immediate product (including processes, materials and/or services), if
any, produced directly by the use of the technical information or software,
or is a plant capable of producing a commodity or is a major component of
such a plant furnished under this Agreement;
to Afghanistan, The People's Republic of China, or any Group Q, S, W, Y, or Z
country (or any national or resident thereof) or others that may be designated
in Supplement No. 1 to Section 770 of the Export Administration Regulations
issued by the U.S. Department of Commerce.
15. LIMITATION OF LIABILITY
1. The liability of AT&T and AMERICAN COMPUTER for any claim arising from any
cause whatsoever (excepting personal injury and/or death and claims of
infringement), regardless of the cause of action, whether in contract, tort
or otherwise, shall in no event exceed the lesser of the direct damages
actually proven or $10,000. In no event shall either
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AT&T or AMERICAN COMPUTER be liable to the other for incidental, special,
consequential or any other direct loss or damage of any kind whatsoever,
including lost profits or revenues arising out of this Agreement.
2. Each party shall defend, indemnify and hold harmless the other party from
any and all claims, suits, actions, demands, costs, settlements, losses,
damages, expenses and all other liabilities, including attorneys' fees,
arising out of or resulting from the intentional or negligent acts or
omissions on the part of any party, its employees, officers, agents or
independent contractors in the performance of or failure to perform the
activities contemplated by this Agreement.
3. For purposes of this section, AT&T shall mean AT&T World Services Inc.,
American Telephone and Telegraph Company, its affiliates and subsidiaries,
its officers, employees and agents.
16. FORCE MAJEURE
Neither party shall be liable for any delays and/or non-performance of
contractual obligations hereunder caused by any event beyond the party's
reasonable control (a "Force Majeure"), including but not limited to wars,
riots, the act or failure to act or order of any civil or military authority,
fires, flood and other acts of God, labor disputes, accidents, and other such
events, and all applicable deadlines and milestones will be extended by a period
of time equal to the duration of each such event. Regardless of the foregoing,
a party that is delayed or prevented from performing its obligations as a
consequence of a Force Majeure will exert diligent efforts to counter the Force
Majeure or otherwise mitigate the effects of the Force Majeure.
17. ESCROW
AMERICAN COMPUTER shall deliver to an Escrow Agent to be selected by AT&T-WORLD
SERVICES, the Application Source Code and the engineering documentation for all
Products/Services, as well as the source code of any customized software
developed under this Agreement.
Delivery of the Source Code and documentation shall begin upon execution of this
Agreement and be completed within one hundred and twenty (120) days thereafter.
The Escrow Agent's fee and related costs of providing and maintaining the Escrow
arrangement shall be borne by AT&T-WORLD SERVICES
18. DEFAULT/TERMINATION
18.1 DEFAULT
Each of the following events shall constitute a default under this Agreement on
the part of the party who commits or is responsible for the same:
1. any failure by a party to perform or observe any of its material
obligations under this Agreement and the defaulting party failing to
correct the default in all material respects
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within 30 days after receiving a written notice from the non-defaulting
party requesting that the default be corrected.
2. if a party is wound-up, or liquidated, or becomes insolvent, or if a
custodian, receiver, or a receiver-manager is appointed for its business or
any of its property, or if the party makes an assignment, proposal or
arrangement for the benefit of creditors, or if it files or has filed
against it a petition in bankruptcy that it has not dismissed within 30
days, or if the party discontinues its business.
18.2 TERMINATION
If either party commits a default under this Agreement, then, the non-defaulting
party shall be entitled to terminate this Agreement by giving the defaulting
party written notice of termination, which shall be effective upon receipt by
the defaulting party.
If this Agreement is terminated by AMERICAN COMPUTER under Section 18.1 (2) as
a result of AT&T-WORLD SERVICES's default, AT&T-WORLD SERVICES's right to
market the Products/Services hereunder shall be terminated forthwith.
If this Agreement is terminated by AT&T-WORLD SERVICES under Section 18.1 (2) as
a result of AMERICAN COMPUTER's default, AT&T-WORLD SERVICES shall, in addition
to any other rights or remedies hereof, be entitled to obtain the release of
the Custom Source Code and Engineering documentation for the Products/Services
from an Escrow Agent to be selected and administered per Clause 17.
The Escrow Agent shall be directed to release the escrowed materials only in the
event of AMERICAN COMPUTER's default and the resultant termination of this
Agreement.
AT&T-WORLD SERVICES's obligation will be to use these materials only in the on-
going support and maintenance of customer's with whom AT&T-WORLD SERVICES and
AMERICAN COMPUTER have jointly agreed for the provision of Products/Services
under Clause 3.3 of this Agreement.
AT&T-WORLD SERVICES shall not be entitled to use or distribute these materials
in any manner for any other purpose.
Licenses granted to Customers and Warranty obligations of all Customer supply
agreements outstanding prior to the termination of this Agreement shall not be
diminished or abridged by the termination of this Agreement and each party shall
endeavor to provide all warranty maintenance work for licenses granted if such
warranty maintenance had been granted to the Customer.
19. ARBITRATION
All differences between the parties arising out of, or relating to the
interpretation, application, administration, alleged violation, termination or
invalidity of the Agreement shall be finally settled by arbitration in
accordance with the Arbitration Act 1908 or any statutory modification or
reenactment thereof for the time being in force.
Any such dispute, doubt or question shall be referred to arbitration in New
Jersey of a single arbitrator in case the parties can agree upon one and failing
such an agreement to two (2) arbitrators, one to be appointed by AMERICAN
COMPUTER and one to be appointed by AT&T-WORLD SERVICES, or in a case of
disagreement to an umpire to be appointed by the
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arbitrators before entering upon the reference. Any such arbitration shall be
conducted in New Jersey.
20. ASSIGNMENT
Neither this Agreement nor the rights and obligations of either party under this
Agreement may be assigned or transferred without the prior written consent of
the other party, such consent shall not be unreasonably withheld.
21. NON-WAIVER
No term or provision of this Agreement shall be deemed to be waived and no
breach excused, unless such waiver or consent shall be in writing and signed by
the party claimed to have waived or consented. Any consent by any party to, or
waiver of, a breach by the other, whether express or implied, shall not
constitute a consent to, waiver of, or excuse for any other, different or
subsequent breach.
22. SEVERABILITY
In the event that any part or parts of this Agreement shall be held illegal or
null and void by any court or administrative body of competent jurisdiction,
such determination shall not affect the remaining parts of this Agreement which
shall remain in full force and effect as if part or parts held to be illegal or
void had not been included in the Agreement provided that the principal
obligations of the parties are maintained.
23. NOTICE
Any notice, request, or information shall be deemed to be sufficiently given
when sent by registered mail, courier express or by facsimile (confirmed by
registered mail), to the other party, at the following addresses:
AT&T WORLD SERVICES, INC.
ROOM C117
412 Mt. Kemble Plaza
Morristown, NJ 07960
U.S.A.
Attention: Mr. John Jepsen, Managing Director
AMERICAN COMPUTER & ELECTRONICS CORPORATION
209 PERRY PARKWAY
GAITHERSBURG, MD 20877
U.S.A.
Attention: Mr. Thomas V. Russotto, Vice President
Notices by post shall be sufficiently given if sent by registered mail to
AMERICAN COMPUTER'S or AT&T-WORLD SERVICES' address as the case may be. They
shall be deemed received by the addressee, ten days following the date of
mailing.
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Notice by facsimile shall be deemed received by the addressee (so long as the
correct answer back or acknowledgment is received by the sender) on the same
business day, as the day on which such facsimile is sent.
24. ENTIRE AGREEMENT AND VARIATION
This Agreement constitutes the complete and exclusive statement of the Agreement
between the parties, which supersedes all proposals or prior agreements, oral or
written, and all communications between the parties relating to the subject of
this Agreement.
No amendment to this Agreement shall be effective unless in writing in a format
similar to the format of this Agreement and signed by duly authorized
representatives of both parties.
25. SURVIVAL
The obligations of the parties under this Agreement which by their nature would
continue beyond the expiration, termination or cancellation of this Agreement,
including without limitation, the obligations in the Articles entitled
TRADEMARKS, CONFIDENTIAL INFORMATION, SOFTWARE LICENSES, WARRANTY SUPPORT,
EXPORT CONTROL and ESCROW shall survive the expiration or termination of this
Agreement.
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IN WITNESS WHEREOF these presents have been executed the day and the year first
hereinbefore written:
SIGNED for and on behalf of
AMERICAN COMPUTER by
/s/ George T. Jimenez
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George T. Jimenez, President
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IN THE PRESENCE OF:
/s/ Thomas V. Russotto
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SIGNED FOR AND ON BEHALF OF
AT&T WORLD SERVICES INCORPORATED BY
/s/ T. R. Luciano
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T.R. Luciano, Vice President
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in the presence of:
/s/ John N. Jepsen
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SCHEDULE 1: PRODUCTS/SERVICES
1. DISTRIBUTED CALL MEASUREMENT SYSTEM (DCMS-TM-)
The Distributed Call Measurement System (DCMS-TM-) is a state-of-the-art
microprocessor based system which is employed at telephone company switching
centers to collect data in real-time, process the data to reduce the workload on
downstream processes and transmit the data to a central polling and processing
center. The DCMS is designed for the central office environment and is capable
of operating in commercial offices with remote administration capabilities. The
DCMS is compatible with most modern switching devices and is designed to
collect, store and process call accounting data (AMA, LAMA, CAMA, LMS, WATS).
These Products/Services do not include those intended for the cellular telephone
market.
DCMS product number ordering information is attached hereto.
DCMS Configurations:
BASIC REDUNDANT DCMS UNIT
Processor (68000) with 256 KByte ROM & 2 MByte DRAM -2
Power converter - 48 volt DC -2
Multiple slot chassis -2
Output port (RS-232) -2
Control port (RS-232 with modem) -2
Console interface (RS-232 display terminal port) -2
System monitor/alarm panel -2
Communications interface (modem) -2
Disk interface and controller -2
Disk drive -2
Switch interfaces -4
OS/DCMS licensed program
DCMS utility firmware
Store and forward software with access security
Switch specific record processing
Administrative software
Maintenance diagnostics
Automatic alarm recording and reporting
Duplex hardware/software
Documentation
Cable and accessories
BASIC SIMPLEX DCMS UNIT
Processor (68000) with 256 KByte ROM & 2 MByte DRAM
Power converter - 48 volt DC
Multiple slot chassis
Output port (RS-232)
Control port (RS-232 with modem)
Console interface (RS-232 display terminal port)
System monitor/alarm panel
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Communications interface (modem)
Disk interface and controller
Disk drive
Switch interfaces -2
OS/DCMS licensed program
DCMS utility firmware
Store and forward software with access security
Switch specific record processing
Administrative software
Maintenance diagnostics
Automatic alarm recording and reporting
Documentation
Cables and accessories
BASIC SIMPLEX MIRRORED DISK DCMS UNIT
Processor (68000) with 256 KByte ROM & 2 MByte DRAM
Power converter - 48 volt DC
Multiple slot chassis
Output port (RS-232)
Control port (RS-232 with modem)
Console interface (RS-232 display terminal port)
System monitor/alarm panel
Communications interface (modem)
Disk interface and controller -2
Disk drive -2
Switch interfaces -2
OS/DCMS licensed program
DCMS utility firmware
Store and forward software with access security
Switch specific record processing
Administrative software
Maintenance diagnostics
Automatic alarm recording and reporting
Documentation
Cables and accessories
DCMS RECOMMENDED SPARES
Processor (68000) with 256 KByte ROM & 2 MByte DRAM
Power converter - 48 volt DC
Serial card (control and output ports)
System monitor/alarm panel
Disk interface and controller
Disk drive
Switch interface
- 2 -
<PAGE>
2. UNIVERSAL POLLING SYSTEM (UPS-32-TM-)
The American Computer UPS-32 is a polling and collection system with the ability
to poll American Computer's DCMS, as well as call data collectors supplied by
other manufacturers. The UPS-32 can collect data from DCMS units using a
blocked asynchronous protocol at up to 19,200 bits per second (bps) over
dedicated facilities and 9,600 bps over the switched telephone network (19,200
with data compression).
The UPS-32 polling software, a licensed program, uses a point-to-point blocked
asynchronous polling protocol that has been optimized for file transfer from the
DCMS to the polling system. Although the DCMS and UPS-32 can use other
protocols, such as X.25, the blocked asynchronous point-to-point interface has
been found to be the most cost effective for the large file transfers that
characterize billing systems.
The UPS-32 can reformat the received data into a format suitable to a billing
system and even rate the calls (local and toll) which can significantly reduce
the computing load on the billing system. When used with a DCMS, the UPS-32 can
perform network management functions, and download software updates, rate tables
and V&H table updates, and other system parameters to the DCMS. The UPS-32 can
also collect other information from the DCMS including traffic, maintenance and
alarm data.
3. UNIVERSAL TRAFFIC SYSTEM (UTS-TM-)
The UTS operates on traffic data collected at the switch site by the DCMS. The
UTS has been designed to provide traffic engineering reports for many different
switch types. It would require customization to meet specific Telephone company
requirements.
4. TELECOMMUNICATIONS MANAGEMENT AND REPORTING SYSTEM
(TELMARS-TM-)
The TELMARS is a group of integrated licensed program products meeting all
the management information needs of private, voice and data telephone
installations. The system reduces costs and increases internal control of
usage accounting, station equipment management, traffic management, network
maintenance and operator services. The specific TELMARS modules offered are:
LICENSED PROGRAM MODULE NAME
Administrative Billing System ABS
Cable/Facilities Management System CMS
Directory Assistance System IV DAS-IV
Directory Management System DMS
Rate Schedule System RSS
TELMARS Query Language TQL
Telephone Call Accounting System TCAS
Telephone Service Requests TSR
Toll Rating System TRS
Toll Services System TSS
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<PAGE>
5. NETWORK CONTROL SYSTEM (NETCON-TM-)
The NETCON is American Computer's real-time network control and switch
maintenance function. It provides the Switch Maintenance Operator (SMO) control
over the operations of each switch in the telecommunications network. The
NETCON System comprises three sub-functions MAP Transparency Mode, Traffic
Collection and Network Alarm Processing, that interactively provide status
information and control via the host computer system under password security.
The specific module offered is:
LICENSED PROGRAM MODULE NAME
Network Control Alarm Processing NETCON-APS
6. LOCAL/TOLL BILLING SYSTEM INTERFACE (LTBS)
The LTBS interface is used to provide detailed call record billing in
conjunction with the DCMS for electro-mechanical exchanges which are not
inherently capable of providing the necessary call records. The LTBS is an
"inboard" design where call records are generated at a point of concentration
within the exchange. The interface is made up of a group of basic building
blocks and is configured for each exchange type and set of customer
requirements.
7. SYSTEM TRAINING
American Computer supports the DCMS, the UPS-32, TELMARS and LTBS by developing
and providing training courses to train personnel in those functions identified
as essential to the effective and efficient operation of the product. The
functional areas include:
a. System Overview/Appreciation
b. Engineering applications
c. Installation
d. System administration
e. User training
8. SYSTEM SUPPORT
American Computer makes available support for all its systems on a yearly
contract basis after the system warranty has expired. The support is offered in
three levels.
Level I Technical Support provides technical support for all systems software,
licensed programs and hardware included with or closely associated with the DCMS
without additional charges. The technical support includes a Customer Telephone
Support Service during the normal workday hours; trouble shooting and correction
of interface, polling, documentation, software are or hardware problems; and
replacement of any failed component of the DCMS.
- 4 -
<PAGE>
Level II Technical Support provides all the same services provided under Level I
Technical Support except the replacement of failed DCMS components. Level II
Technical Support is designed to satisfy the support requirements of the
Customer who maintains a complete set of DCMS spare parts. If a part is
determined to be malfunctioning, the part is replaced from the Customer's spares
inventory and the defective part returned for a replacement at the return and
repair price.
Level III Technical Support is designed to satisfy Customers who want to
maintain their own DCMS network. These Customers would normally have a large
number of similarly configured DCMS sites, a full set of spare parts and a staff
that has been trained in the maintenance of the DCMS. If a part is determined
to be malfunctioning, the part is replaced from the Customer's spares inventory
and the defective part returned for a replacement at the return and repair
price.
Customers selecting Level I or II Technical Support may choose a 24 hour
Telephone Service option. This service enables customers to report
incidents/problems at any time of the day, each day of the year.
Customers selecting the 24 Hour Telephone Service Option may also choose to
exercise and Emergency Service Request Option. This option may be requested
during any off-hours service call with a Customer identifying a problem as an
Emergency that requires immediate service.
[Schedule 2 is confidential and omitted and filed separately with the
Commission]
- 5 -
<PAGE>
SCHEDULE 3: FORMAT OF CUSTOM SOFTWARE AGREEMENT
1. PURPOSE
It is expressly understood between the parties hereto that this Custom Software
Agreement forms part of and is incorporated into the Supply Agreement for the
same date hereof (hereinafter called "the Main Agreement") and except as
expressly varied herein the provisions of the Main Agreement shall apply to this
Custom Software Agreement.
2. GRANT OF RIGHT
1. Subject to the provisions of the Main Agreement, AT&T-WORLD SERVICES grants
to ___________________________ a royalty free, perpetual, irrevocable,
transferable, exclusive right to use the Custom Software in object code
format solely for ___________________________'s internal business purposes.
Such right to use includes the right to adapt, modify and enhance the
Custom Software in accordance with Clause 2.2 hereof.
2. ________________ may make those copies of the Custom Software in object
code format necessary for the use by ______________ for which rights are
granted hereunder, provided that each such copy contains any copyright or
proprietary notice appearing on or in the Custom Software.
3. SUPPLY OF SOURCE CODE
1. AT&T-WORLD SERVICES shall furnish to ______________________the software
including both source and object code for the Custom Software on Acceptance
of the ________________________ system.
2. No ownership interest in the Custom Software will be transferred to
______________. _______________________'s interest in any adaptations,
modifications and enhancements made by _______________________ under the
terms of this Agreement is limited to ____________________'s interest in
such adaptations, modifications and enhancements. Nothing herein requires
______________ to supply any such adaptations, modifications or
enhancements to AT&T-WORLD SERVICES or its supplier but the parties may by
mutual agreement include such adaptations, modifications or enhancements in
future releases of the Custom Software.
4. USE OF SOURCE CODE DURING WARRANTY PERIOD
1. As soon as practicable after Acceptance of the __________________ system,
AT&T-WORLD SERVICES shall prepare and deliver to ____________________ a
good quality copy of the Source Code for the Custom Software in machine
readable format together with related documentation current with all
versions of the object code then released to _____________________ for its
use.
2. _____________________ will hold the material provided under Clause 3.1
hereof (collectively called "the Source Code") in trust on the terms and
conditions set out herein for the duration of the Warranty Period.
- 1 -
<PAGE>
3. _______________________ will store the Source Code in safekeeping that
provides every reasonable protection against deterioration caused by
environmental factors and unauthorized access and use.
4. Subject to Clause 3.5 hereof for the duration of the Warranty Period
_______________will not access, adapt, modify, enhance or otherwise use the
Source Code except on the express instruction of AT&T-WORLD SERVICES.
Should the Source Code be accessed, adapted, modified or enhanced by any
person other that AT&T-WORLD SERVICES or its duly authorised representative
during the Warranty Period then the Warranty provided under the provisions
of the Main Agreement shall not apply and the Warranty Period shall be
deemed to have completed.
5. If AT&T-WORLD SERVICES does not take steps to correct or replace any
defective Custom Software under the provisions of the Main Agreement, then
____________________ may take such steps as necessary to adapt, modify or
enhance the Custom Software to ensure that the _________________ system
is free from defects and performs in accordance with the Specification
(Schedule 5) of the Main Agreement. Any adaptation, modification or
enhancement under this Clause 3.5 shall not bring the Warranty Period to an
end provided however that ____________________ shall have given AT&T-WORLD
SERVICES written notice of its intention to correct such defect at least
fourteen days prior to making any such adaptation, modification or
enhancement.
5. PERMISSION TO MODIFY
Subject to the provisions of Clause 3 hereof ________________________ may adapt,
modify, enhance the Custom Software to form an updated version of the Custom
Software for its own use.
- 2 -
<PAGE>
SCHEDULE 4: ESCROW AGREEMENT
This Agreement ("ESCROW AGREEMENT") is executed as of___________________between
American Computer and Electronics Corporation, a Maryland corporation ("AMERICAN
COMPUTER"), and AT&T World Services Inc. ("AT&T-WORLD SERVICES").
WHEREAS,
AMERICAN COMPUTER and AT&T-WORLD SERVICES have entered into a Marketing
Agreement pursuant to which AMERICAN COMPUTER has agreed to grant AT&T-WORLD
SERVICES the right to market Products/Services of AMERICAN COMPUTER, being
described with particularity in SCHEDULE 1: PRODUCTS/SERVICES of the Marketing
Agreement; and
continuous availability of the PRODUCTS/SERVICES are critical to AT&T-WORLD
SERVICES in the conduct of its business with regard to the Marketing Agreement;
and
AMERICAN COMPUTER wishes to ensure that AT&T-WORLD SERVICES has access to the
PRODUCTS/SERVICES and will be able to maintain the PRODUCTS/SERVICES in the
event AMERICAN COMPUTER fails to fulfill its obligations as set forth in the
Marketing Agreement or in the event AMERICAN COMPUTER does not remain in
business; and
an Escrow Agent shall be appointed to act as custodian of the PRODUCTS/SERVICES
material including software source code and related documentation under the
terms and conditions specified herein;
NOW, THEREFORE, in consideration of the promises and mutual covenants contained
herein, and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
1. DEPOSIT OF ESCROW ITEMS
The subject materials shall be deposited with the following Escrow Agent:
2. STORAGE AND SECURITY
a. Agent shall act as custodian of the Escrow Items until this escrow is
terminated pursuant to Section 4 of this Escrow Agreement.
b. Agent shall establish, under its sole control, a secure facility and
receptacle for the purpose of storing the Escrow Items and appropriate to
the media provided.
- 1 -
<PAGE>
c. The Escrow Items deposited by AMERICAN COMPUTER shall remain the exclusive
property of AMERICAN COMPUTER, except as otherwise provided in Section 5.
d. Except as provided in this Escrow Agreement, Agent is responsible for the
following:
1. it shall not divulge, disclose or otherwise make available to any
person other than the authorized representative of AMERICAN COMPUTER,
or make any use whatsoever of the Escrowed Items;
2. it shall not permit any person to access the Escrowed Items, except as
may be necessary for Agent's authorized representatives to perform
their functions under this Escrow Agreement;
3. access to the Escrow Items by AMERICAN COMPUTER shall be granted by
Agent only to those persons duly authorized in writing by a competent
officer of AMERICAN COMPUTER;
4. access to the Escrow Items shall not be granted without compliance to
all security and identification procedures instituted by Agent;
5. Agent shall have no obligation or responsibility to verify or determine
that the Escrow Items deposited with Agent by AMERICAN COMPUTER does,
in fact, consist of those items which AMERICAN COMPUTER is obligated to
deliver under this or any other agreement, and Agent shall bear no
responsibility whatsoever to determine the existence, relevance,
completeness, currency, or accuracy of the Escrow Items.
6. Agent's sole responsibility shall be to accept, store and deliver the
Escrow Items deposited with it by AMERICAN COMPUTER, in accordance with
the terms and conditions of this Escrow Agreement.
7. If any of the Escrow Items held in Escrow by Agent shall be attached,
garnished, or levied upon pursuant to an order of a court, or the
delivery thereof shall be stayed or enjoined by an order of court, or
any other order, judgement or decree shall be made or entered by any
court affecting the Escrow Items or any part thereof or any act of
Agent, Agent is hereby expressly authorised in its sole discretion to
obey and comply with all orders, judgements or decrees so entered or
issued by any court, without the necessity of inquiring whether such
court has jurisdiction, and in the case Agent obeys or complies with
any such order, judgement or decree, Agent shall not be liable to AT&T-
WORLD SERVICES, AMERICAN COMPUTER or any third party by reason of
compliance, notwithstanding that such order, judgement or decree may
subsequently be reversed, modified or vacated.
3. INSPECTION
AT&T-WORLD SERVICES shall have the right to inspect a listing produced of the
media at AMERICAN COMPUTER's site and verify that Escrow Items have been
deposited by AMERICAN COMPUTER at any time, including after the initial deposit
and subsequent deposits of revised source code or other materials.
4. TERMINATION
This Escrow Agreement shall terminate:
a. upon expiration or termination of the Marketing Agreement between the
parties; OR,
<PAGE>
b. by mutual written agreement between AMERICAN COMPUTER and AT&T-WORLD
SERVICES, giving sixty (60) calendar days notice to Agent; OR,
c. for non-payment of fees, but only after notice and sixty (60) calendar days
within which to cure the non-payment deficiency, by AT&T-WORLD SERVICES
5. EVENTS OF RELEASE
a. The occurrence of any of the following shall constitute an "Event of
Release" for purposes of this Escrow Agreement.
a. AMERICAN COMPUTER's failure to fulfill its material obligations under
the Marketing Agreement between AMERICAN COMPUTER and AT&T-WORLD
SERVICES; OR
b. AMERICAN COMPUTER goes out of business; OR
c. AT&T-WORLD SERVICES purchases the source code or other Escrowed
materials.
b. In the event AT&T-WORLD SERVICES does receive access to the source code or
other Escrow materials being held in Escrow for the protection of AT&T-WORLD
SERVICES under the terms of this Agreement, AT&T-WORLD SERVICES
acknowledges such source code or other Escrow material as having restricted
rights. The proprietary restrictions on the source code to the software
shall survive the termination of this Agreement in the event AT&T-WORLD
SERVICES receives access to the software source code hereunder.
AMERICAN COMPUTER hereby grants AT&T-WORLD SERVICES a security interest in
the copy of the source code and other Escrow material stored and deposited
with the Escrow Agent hereunder for the sole purpose of protecting AT&T-
WORLD SERVICES' access to the source code under the terms of this
Agreement. In the event AT&T-WORLD SERVICES is prevented from obtaining
access to the source code by virtue of the Federal Bankruptcy laws or
otherwise, AMERICAN COMPUTER hereby consents to lifting the Automatic Stay
under Section 362 of the Federal Bankruptcy code 12 USC 362, and agrees to
join in petitioning the Federal Bankruptcy court for relief from the
Automatic Stay herein provided, and to otherwise take such action as may be
necessary to perfect and maintain AT&T-WORLD SERVICES' Security interest in
the escrowed source code and other materials. As long as AT&T-WORLD
SERVICES faithfully performs its obligations hereunder, AMERICAN COMPUTER
agrees to take all necessary steps to preserve AT&T-WORLD SERVICES' rights
in the escrowed source code and other materials, and to comply with any
reasonable request of AT&T-WORLD SERVICES respecting the escrow. AT&T-
WORLD SERVICES' security interest does not extend to the Software generally
or to AMERICAN COMPUTER's copyright rights in the Software and other
escrowed materials.
c. AMERICAN COMPUTER agrees that the terms and conditions of this Escrow
Agreement shall be the governing document for the escrow arrangement
between ______________________and AT&T-WORLD SERVICES.
6. PAYMENT
AT&T-WORLD SERVICES agrees to pay all fees and costs associated with performance
and administration of this Escrow Agreement.
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<PAGE>
7. MODIFICATIONS
Modifications to this Escrow Agreement shall be made only through written
agreement by AMERICAN COMPUTER and AT&T-WORLD SERVICES. Once all parties have
agreed to such modifications, these modifications shall become effective as of
the date of execution of a modified Escrow Agreement.
8. ENTIRE AGREEMENT
This Escrow Agreement, including Exhibits hereto, and the Marketing Agreement
and the Schedules thereof, constitute the entire agreement among the parties,
including the representations, understandings and agreement, either oral or
written between the parties. The parties acknowledging that AT&T-WORLD SERVICES
has no substantial performance obligations under this Escrow Agreement to
AMERICAN COMPUTER.
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement on the date
first above written.
AMERICAN COMPUTER
/S/ GEORGE T. JIMENEZ
- -------------------------------
NAME: George T. Jimenez
TITLE: President
AT&T-WORLD SERVICES
/S/ T.R. LUCIANO
- -------------------------------
NAME: T.R. Luciano
TITLE: Vice President
ESCROW AGENT
- -------------------------------
NAME:
TITLE:
- 4 -
<PAGE>
EXHIBIT 10.3
February 24, 1994
American Computer and Electronics Corporation
209 Perry Parkway
Gaithersburg, Maryland 20877
FIRM FIXED PRICE SUBCONTRACT NO. LWF547D
PLACED UNDER GOVERNMENT PRIME CONTRACT # N00600-94-D-0344
================================================================================
SUBCONTRACT AGREEMENT
The Subcontract Agreement is entered into as of February 24, 1994.
BETWEEN
AT&T Corp., Government Integrated Solutions (GIS), ("COMPANY") a New Jersey
corporation, having offices at 8403 Colesville Road, Silver Spring, MD
20910
AND
American Computer and Electronics Corporation ("SUBCONTRACTOR"), a Maryland
Corporation having its principal office at 209 Perry Parkway, Gaithersburg,
Maryland 20877.
WITNESSETH THAT;
IN CONSIDERATION OF THE PROMISES, MUTUAL COVENANTS AND AGREEMENTS CONTAINED
HEREIN, THE PARTIES HERETO AGREE AS FOLLOWS:
This Subcontract, effective February 24, 1993 is made between AT&T
("COMPANY") and American Computer ("SUBCONTRACTOR"). The effort to be
performed by Subcontractor under this subcontract will be part of AT&T's
Prime Contract Number N00600-94-D-0344 with the Washington Navy Yard. The
<PAGE>
work defined in Section C (Statement of Work) and made a part of this
subcontract will be performed on a Fixed Price basis, in accordance with
the AT&T Special Terms and Conditions SECTION D, Contract Clauses SECTION E
and any other referenced specifications and schedules attached hereto.
SECTION A - CONTENTS OF SUBCONTRACT AND ORDER OF PRECEDENCE
A.1 CONTENTS OF SUBCONTRACT
* Contract Form/Cover Page/Signature Page
* Section A - Contents of Subcontract and Order of Precedence
* Section B - Services and Prices
* Section C - Statement of Work
* Section D - AT&T General Provisions
* Section E - Contract Clauses
* Section F - Contract Administration
* Section G - Representations and Certifications
A.2 ORDER OF PRECEDENCE
In the event of an inconsistency between any of the provisions of
this subcontract, the inconsistency shall be resolved by giving
precedence to the provisions of the Subcontract in the following
order:
(1) AT&T Special Terms and Conditions, Section D
(2) The Statement of Work, Section C
(3) Contract Clauses, Section E
(4) All other sections and attachments.
A.3 ENTIRE AGREEMENT
Upon acceptance of the subcontract, the Company agrees that the
provisions under this subcontract, its attachments and all
documents incorporated herein by reference, shall constitute the
<PAGE>
entire Subcontract between the parties hereto and supersede all
prior agreements relating to the subject matter hereof. This
subcontract may not be modified or terminated orally, and no
modification nor any claimed waiver of any of the provisions
hereof shall be binding upon Subcontractor unless in writing and
signed by AT&T.
AT&T AMERICAN COMPUTER
By /s/ Clyde P. Jackson, Jr. By /s/ S. Joseph Dorr
----------------------------- -----------------------------
Name CLYDE P. JACKSON, JR. Name S. JOSEPH DORR
(Typed) (Typed)
Title MANAGER, PURCHASING & Title VICE PRESIDENT
TRANSPORTATION
Date June 7, 1994 Date June 3, 1994
------------ ------------
<PAGE>
Section B
Subcontract LWF547D
SECTION B
SUPPLIES/SERVICES AND PRICES
B.1 STATEMENT OF REQUIREMENTS
The seller shall provide the Software and Documentation described in Section C
at the prices listed on Attachment B-1 for a total price of $__________.
[This material is confidential and has been omitted and filed separately with
the Commission.]
B.1.1 DELIVERY - TMS System will be built and operational by
9-30-94.
B.1.2 PERIOD OF PERFORMANCE: 1-1-94 through 12-31-94
B.2 WARRANTY
Warranty begins after Government Acceptance.
B.3 OPTION PRICES AND SCHEDULE
B.3.1 The Company reserves the right to unilaterally exercise an
option to purchase from Subcontractor the listed services in Paragraph
B.4 "Continuing Maintenance", in whole or in part, by written notice,
at any time within the stated option period at the price specified.
B.4 CONTINUING MAINTENANCE:
The Seller shall provide Continuing Maintenance at the prices
described below and detailed on Attachment B-2.
[This Section B.4 is confidential and the confidential portion has been
omitted and filed separately with the Commission.]
<PAGE>
TMS Support Call-Out Maintenance on an "as required" basis.
B.5 RIGHT TO PROCURE ADDITIONAL QUANTITIES OF SUPPLIES/SERVICES
The Company reserves the right to procure additional quantities of
supplies/services at the unit prices specified thereto. Such right
shall be exercisable by the Company for a 5 year period from the
effective date of the Subcontract.
B.6 FIXED PRICE
Fixed price is contingent upon anticipated receipt of Delivery Orders
from the Government. The Company will issue Subcontractor a purchase
order for work to be performed under this contract. Subcontractor
will not be expected to perform services without a purchase order.
If all or a portion of this subcontract is not ordered by the
Government, there will be a reduction of unit price plus training both
on hours and equipment in accordance with the price breakdowns on
Attachment B-3 dated October 3, 1993 modified by the delta Proposal
Attachment B-4.
B.7 TYPE OF SUBCONTRACT
The Subcontract awarded hereunder is a firm fixed price, supply, type
subcontract. The prices specified shall not be increased due to
increased labor or materials costs during the term of this Subcontract
unless otherwise specified herein.
(Attachments B-1, B-2, B-3 and B-4 are confidential and have been
omitted and filed separately with the Commission)
<PAGE>
Section C
Subcontract #LWF547D
SECTION C
STATEMENT OF WORK
1. SCOPE
This Statement Of Work (SOW) defines the requirements for the supplier to
design, develop, and implement the necessary software and hardware to provide
the Department of State (DOS), located in Washington, D.C., certain
telecommunication management systems. DOS will provide work area and office
equipment, as required, for sub-contractor personnel on site.
These systems shall provide a fully inter-operable automated solution to
address work order receipt and processing, trouble call receipt and
processing, installation records, maintenance record activity, cable and wire
records, cost allocation for billing to end users number of all upgrades in
addition, long distance and local calls, including on-net calls, and
directory services. Subcontractor's effort shall be in support of the DOS
Consolidated Telecommunications Services (CTS) procurement.
1.1. REFERENCED PARAGRAPH CITATION
Where paragraphs of this specification or any of its reference documents are
cited, the citation shall be understood to include all subparagraphs unless
otherwise noted.
1.2. BACKGROUND
The CTS Prime Contract awarded by DOS will provide for the furnishing of
services to operate and maintain the in-service operational automatic dial
telephone switching system providing switched voice and data
telecommunications services to the United States Department of State, Agency
for International Development (AID), and the U.S. Arms Control and
Disarmament Agency (ACDA). For the purposes of this document, all the above
shall be collectively referred to as DOS.
The CTS Prime Contract will include the operation and maintenance of the
existing network, of subscriber station equipment, attendant
<PAGE>
cabinets/consoles, ancillary equipment, and house cable to provide
on-premises and off-premises telephone service to DOS users, and will have
responsibility for coordination with suppliers of common carrier facilities
and services. It will provide for support personnel to perform
telemanagement services to assist in administration and management of these
services and for installation and maintenance functions associated with the
continued provision of reliable and effective voice and data communications.
It will also permit upgrades and improvements to the existing network, which
through the implementation of new technology, will provide cost-effective
enhancements, resulting in productivity gains and lower costs for
telecommunications. It will permit acquisition of additional equipment and
services, which may interconnect and interoperate with the existing network
to accommodate the establishment of new additional domestic DOS annexes and
field offices, networked or stand-alone, and for replacement or consolidation
of existing switches.
DOS seeks to establish a single contract for support of telecommunications
operations of switched voice, data, and video services for the Department of
State, AID, and ACDA. The CTS Prime Contract will be for a period of 1 year,
with nine optional 1-year renewals, for a maximum of 10 years. It is the
Department's objective in this acquisition to continue provision of the
existing communications system and services, including timely upgrades and
improvements that provide cost-effective enhancements resulting in
productivity gains and/or lower costs for telecommunications. It is also
intended that the CFS Prime Contract provide for acquisition of additional
equipment and services to accommodate the establishment of new additional
domestic DOS annexes and field offices, and for the replacement or
consolidation of existing switches. Contractor support of the DOS
Consolidated Telecommunications System operations is required in the areas of
installation and maintenance, switch administration, network recovery,
software, trouble reporting and tracking, call accounting and billing,
Telecommunications Service Request processing and tracking, network design,
equipment upgrades, data processing support, toll fraud and abuse prevention,
etc. Further, network management, to include integration of the CTS network
operations with public switched and international networks, must be included.
In support of this source selection, AT&T is the prime contractor, and is
seeking to subcontract portions of the CTS Prime Contract in the areas of
Telecommunications Management Systems (TMS) development, acquisition, and
support. This SOW describes the intended effort that American Computer is
being requested to subcontract.
<PAGE>
2. APPLICABLE DOCUMENTS
The documents listed in this section form a part of this SOW to the extent
invoked by specific reference in other paragraphs of this SOW. If a
specification is referenced without indicating any specific paragraphs as
being applicable, then the specification is applicable in its entirety.
Where a specific issue of the document is cited, no other issue shall be used
without prior written approval of the Company. Where no specific issue of
the document is cited, the issue in effect at the time of the issuance of the
RFP shall apply.
2.1. Government Documents
DOCUMENT DESCRIPTION
AFSCP-800-43 Software Management Indicators
DOD-STD-2168 Defense Systems Software Quality Programs 29 Apr. 88
DOD-STD-480B Configuration Control Engineering Changes Deviations
and Waivers
15 Jul. 88
MIL-STD-1003 Software Development Methodology
MIL-STD-1521B(l) Technical Reviews And Audits 18 Dec. 85
MIL-STD-1840A Automated Interchange Of Technical Information Notice
1, 20 Dec. 88
MIL-STD-480B Configuration Management
MIL-STD-482A Configuration Status Accounting Systems 1 Apr. 74
MIL-STD-483A Configuration Management Practices 4 Jun. 87
MIL-STD-490A MIL STD, Specification Practices 4 Jun. 85
MIL-STD-499B Engineering Management
MIL-STD-63A Definitions And Units, EMI/EMC
MIL-STD-810E Test Methods and Engineering Guidelines 14 Jul. 89
MIL-STD-831 Qualification Test Reports
MIL-STD-970 Standards and Specifications, Order of Precedence
Notice 1
2.2. OTHER DOCUMENTS
DOCUMENT DESCRIPTION
<PAGE>
3. REQUIREMENTS
3.1. Project Management
3.1.1. GENERAL
Subcontractor shall establish a project management organization with the
authority to commit the required resources to fulfill the obligations
specified herein. Individuals must be clearly assigned with direct
responsibilities relative to this project. Subcontractor shall prepare a
program organization structure and responsibility matrix that defines lines
of authority without redundancy, and provides function and responsibility
statements for each manager.
3.1.2. PROJECT OFFICE
3.1.2.1. PROJECT MANAGER
Subcontractor shall designate a Project Manager (PM) who shall, within the
scope of the Master Agreement, take direction exclusively from and report to
Company's Subcontract Manager regarding technical and administrative matters.
Subcontractor's PM shall have sufficient authority, management support, and
resources to commit Subcontractor to take those actions necessary to
accomplish all contractual obligations. Subcontractor's PM shall have full
responsibility and authority for all members of Subcontractor's project
management organization.
Subcontractor shall communicate with the Company to exchange technical
comments, coordinate data or schedules, and in general perform necessary
liaison to maintain an on-schedule/on-cost effort. Subcontractor shall make
such visits to Company, and vice versa, as required for assistance or
coordination toward the integration of Subcontractor's effort with Company's
activities. Subcontractor shall supply a monthly report in writing including
the hours expended per month by task including hours expended to date.
Subcontractor shall establish and identify points of contact with principal
personnel to ensure proper coordination and communication. Subcontractor
shall conduct monthly, or more frequently as required, PRMs at
Subcontractor's facility to review the project's technical, cost, schedule,
and risk status. Company shall have the right to attend PRMs. PRMs shall be
attended by the Cost Account Managers or by their designated representatives.
PRMs are informal in nature, and are intended to improve communication and
facilitate decision-making.
Subcontractor shall implement a single, comprehensive Action Item Tracking
System (AITS) to provide status on all action items generated during
<PAGE>
Technical Coordination Meetings (TCMs), PRMs, and formal technical reviews
and audits. A status report of all open action items shall be reviewed and
updated at each PRM.
3.1.2.2. COMPANY'S PROJECT REVIEW MEETINGS (PRMS)
Subcontractor shall provide an individual to attend Company's monthly PRMs at
Company's facility and to be prepared to brief Company on Subcontractor's
technical, cost, schedule, and risk status.
3.1.2.3. COMPANY-FURNISHED PROPERTY MANAGEMENT
Subcontractor shall be responsible and accountable for all items of
Company-Furnished Equipment (BFE) and Company-Furnished Information (BFI).
Subcontractor shall exercise due care to safeguard BFE/BFI from loss,
improper disclosure, damage, or destruction. BFE/BFI shall not be furnished
to third parties without prior written approval from Company. Subcontractor
shall maintain an inventory of all BFE/BFI and provide Company with a copy of
the inventory monthly, indicating the location of all items.
3.2. TMS SOFTWARE DEVELOPMENT PROGRAM (SLIN 0011AA)
3.2.1. QUALITY ASSURANCE
Subcontractor shall implement a Quality Assurance program consistent with ISO
9000 guidelines. Subcontractor shall and apply its standard software
development program and methodology for its COTS products as documented in
the supplier's TMS Quality Assurance Policies and Procedures Manual (TMS/QA
Std. 1992-0731) and the supplier's Software Quality Assurance Program
(TMS-QA-0001). Subcontractor shall apply its standard software quality
assurance program for its COTS products as documented in the supplier's
Software Quality Assurance Program (TMS-QA-0001). These documents are based
on ANSI approved IEEE Software Engineering Standards and ISO 9000 guidelines.
Please note that the TMS acronym when used in reference to supplier's
standards documents means the Telecommunication Management Systems Division.
Company reserves the right to approve Subcontractor's inspection, test, and
validation procedures and to verify any inspections and tests deemed
necessary to the buyer for acceptance of procedures and products.
3.2.3. SYSTEMS/SPECIALTY ENGINEERING
Subcontractor shall establish a Systems Engineering Management (SEM) process
for the TMS. A lead systems engineering person shall be identified by the
Subcontractor as the principal point of contact for the TMS effort. This
process shall establish checkpoints early in the design to assure that
reliability, testability, and affordability are designed into the product.
<PAGE>
3.2.3.1. SYSTEMS ANALYSIS
Subcontractor shall perform an engineering analysis to include TMS
requirements included in the CTS Contract paragraph C.12.2 (American Computer
has been provided a copy of the CTS Contract and requirements for Company to
provide services to DOS under the life of the CTS program. The analysis will
allow for the selection of an architecture and design(s) that will comply
with the requirements of the approved TMS Program Specification. This
analysis shall describe the technical requirements of an operational
system/subsystem and allocate requirements to functional areas.
Subcontractor may use locally prepared Requirement Allocation Sheets (RAS) to
document this effort. The analysis shall also define interface parameters
and their relationship among other areas including design constraints.
Analyses shall be updated prior to Formal Reviews and Audits. Updated
results of analyses shall be presented at Formal Reviews and Audits.
Attachment 2 is a listing of Government Furnished Equipment (GFE) available
to the Prime Contractor for incorporation into the TMS. This listing is an
inventory of ADP hardware/software. If required, any part of this material
may be used for incorporation into the TMS.
Subcontractor shall prepare Prime Item Product Function Specifications (PFS)
for the TMS, consistent with MIL-STD-490, Appendix VII.
3.2.3.2. FORMAL REVIEWS AND AUDITS
Subcontractor shall conduct the following Formal Reviews and Audits at
Subcontractor's Facility using MIL-STD-1521B and Appendices as guides as
cited below:
a. System Software Review (SSR) (Appendix C)
b. Preliminary Design Review (PDR) (Appendix D)
c. Critical Design Review (CDR) (Appendix E)
d. Test Readiness Review (TRR) (Appendix F)
e. Functional Configuration Audit (FCA) (Appendix G).
Subcontractor shall prepare Meeting Agenda Recommendations for Reviews and
Audits. Subcontractor shall prepare presentation materials and minutes,
including action items that document the results of each Formal Review and
Audit. The minutes shall contain a list of all attendees and all
presentation materials.
Presentation materials shall be furnished to Company, 5 working days before
each formal review or audit. Design reviews shall be considered complete
<PAGE>
when all of Subcontractor's action items generated during these reviews
have been resolved, dispositioned, and documented by the Company.
Subcontractor's project manager and support personnel shall attend all of
Company's formal reviews with Company's customer and be prepared to advise
and assist in the preparation and presentation of briefing materials.
3.2.3.4. ACCESS TO DESIGN DATA
Company shall have the right to review all design data generated during the
design process, including but not limited to calculations, engineer's notes,
and Computer-Aided Engineering (CAE) data bases, in Subcontractor's format.
3.2.4. TMS SOFTWARE DEVELOPMENT
Subcontractor shall tailor existing commercial TMS applications software
modules to meet the requirements of the Company-approved, Subcontractor
agreed to, latest TMS Program Specification. This tailoring shall include
modifications necessary to meet the identified requirements. Subcontractor
shall implement a software development engineering process using best
commercial practices.
The subcontractor shall provide updated versions of both the DBMS (i.e.
Oracle, etc) and the applications software (ITX) as enhancements become
available and shall follow the procedures for an ECP. The subcontractor must
support the software for the life of the contract in its current version. If
the subcontractor has added enhancements to the software application and the
government has requested an upgrade, the subcontractor shall follow the
procedures for an Engineering Change Proposal. The subcontractor shall
provide application and system software on either 3 1/2" diskettes or
cartridge tape and one copy of all associated reference manuals.
3.2.4.1 GOVERNMENT OPEN SYSTEMS INTERCONNECTION PROFILE COMPLIANCE
The subcontractor shall comply with the GOSIP standards as specified in the
CTS contract paragraph C.4.1.7.
3.24.2 SECURITY
The subcontractor shall comply with the Security requirements as specified in
the CTS contract paragraph C.3.3.
3.2.5 INTEGRATION AND TEST
3.2.5.1. GENERAL
Subcontractor shall implement and manage a program to define, conduct,
evaluate, and document the results of demonstrations, inspections, and
<PAGE>
tests required to support engineering development, and to verify that
Subcontractor's equipment satisfies the requirements of the TMS Program
Specification.
Company shall have the right to witness any and all Subcontractor's
simulations, walk-throughs, demonstrations, and/or tests performed.
3.2.5.2 DEVELOPMENTAL TESTING
Subcontractor shall conduct developmental testing as necessary.
3.2.5.3. ACCEPTANCE TESTING
The subcontractor must prepare a Program Test Plan that identifies the test
and acceptance procedures to be used to demonstrate system readiness prior
to cutover and after cutover for final system acceptance. The Plan must be
submitted to AT&T 14 days prior to the CTS CDRL delivery date of June 1,
1994.
This plan must provide for documenting that all equipment and services
being offered by the subcontractor comply with all of the terms and
conditions of the contract.
On the first business day following cutover, the System will enter the
Acceptance Test phase wherein the System will be required to operate at
design specifications, without a major failure, for 30 consecutive days.
The acceptance testing will thoroughly validate all hardware and software;
the Acceptance Test Plan must include the subcontractor's detailed test
procedures, methods, and test equipment to be used.
All test results and observations shall be documented in detail and
submitted to AT&T within 5 working days after the conclusion of each test.
Upon final system acceptance, all previous test results performed on-site
shall be consolidated and provided as supporting documentation.
3.2.5.3.l ACCEPTANCE TEST CRITERIA
1. The System shall operate continuously without interruption over a
30 day period following cutover. A service affecting CPU restart
in an active processor of the system shall indicate failure of
this criteria.
2. The System shall continuously provide real time and historical
system performance data, without interruption, over the
acceptance period. This performance data will only be analyzed
by on-site personnel. Off-site remote maintenance will be
permissible only with Company authorization. Hard copy
information must not be removed from the complex without the
<PAGE>
express authorization of the TSO. The performance data shall
include, but not be limited to, the following:
- Maintenance messages
- System statistics
- Software errors
- System initialization/reload.
3. The System shall provide sufficient memory to properly execute
all system program instructions and all feature activations
continuously and without interruption during the acceptance
period. If requested by AT&T, the subcontractor shall provide a
daily report generated by the System showing the status of memory
allocation.
If any maintenance work will require the interruption of service to users,
attendants, or system administrators, this work must be clearly identified
and the nature and extent of the interruption described in detail as an
attachment to the schedule.
3.2.6.4 RESPONSE TIMES
The subcontractor shall commence work on all trouble reports within 2 hours
of notification within the PPM and be on site within four (4) hours if
required. All malfunctions shall be corrected within 24 hours of
notification. AC shall provide a name and telephone number for trouble
reporting which must be available for call out 24 hours per day/7 days per
week/365 days per year. AC will dispatch on a time basis when requested by
AT&T outside of 8:00am - 5:00pm Monday-Friday. The subcontractor shall
provide escalation procedures and contacts for problem resolution. The
procedures shall indicate the tiered support staff for handling out-of-
service conditions. The subcontractor shall provide status of all pending
troubles to the contractor personnel.
3.2.6.5 TECHNICAL SUPPORT "HOT LINE"
The subcontractor shall provide remote technical support during the PPM
including call receipt, application support, hardware support as part of
standard warranty and post warranty monthly maintenance.
3.2.6.6 PRODUCT SUPPORT SERVICES FOR SOFTWARE
Product support services for the TELMARST-TM- Software shall include the
following:
<PAGE>
1. Resolution of problems associated with generic and custom
application software provided by Subcontractor.
2. Improvements made available through new releases of the
application software features that resolve problems or potential
problems inherent in the customer's software set.
3. Installation of the new software release via remote dial-up
access.
4. Old version to new version conversion tools as necessary.
5. Documentation updates and improvements.
3.18. PREPARE AND CONDUCT CABLE AND WIRING SYSTEM TRAINING (SLIN 0028AJ)
Subcontractor will provide cable management course material for
incorporation into AT&T Cable and Wiring System Course.
<PAGE>
SECTION D
Subcontract #LWF547D
SECTION D
AT&T GENERAL PROVISIONS
ARTICLE DESCRIPTION
I GENERAL PROVISIONS APPLICABLE TO ENTIRE AGREEMENT
II LEASE - NOT APPLICABLE
III PROVISIONS APPLICABLE TO PURCHASE OF DATA PROCESSING
EQUIPMENT AND MATERIALS
IV PROVISIONS APPLICABLE TO LICENSE OF SOFTWARE FOR DATA
PROCESSING SOFTWARE
V PROVISIONS APPLICABLE TO MAINTENANCE SERVICES FOR DATA
PROCESSING EQUIPMENT
<PAGE>
SECTION D
Subcontract #LWF547D
ARTICLE I
SCOPE OF AGREEMENT
This Subcontract is applicable to the procurement by Company from
Subcontractor of Subcontractor's Data Processing Equipment, including any
software normally furnished with the equipment (the "Equipment"), Software
including programs and documentation (the "Software"), maintenance and
other services (the "Services") and associated supplies (the "Materials").
ORDER
The term "Order" shall mean Company's form of purchase order used for the
purpose of ordering Equipment, Software, Services or Materials. Each Order
shall reference this Subcontract thereby incorporating the terms and
conditions of this Subcontract in such Order. If notice of rejection of an
Order is not received by Company within twenty (20) days from the date of
issuance of an Order, such Order shall be deemed to have been accepted by
Subcontractor.
ASSIGNMENT
Subcontractor shall not assign any right or interest under this Subcontract
or an Order (excepting monies due or to become due) nor delegate any work
or other obligation to be performed or owed by Subcontractor under this
Subcontract or an Order without the prior written consent of Company. Any
attempted assignment or delegation in contravention of the above provisions
shall be void and ineffective. Any assignment of monies shall be void and
ineffective to the extent that (1) Subcontractor shall not have given
Company at least thirty (30) days' prior written notice of such assignment
and (2) such assignment attempts to impose upon Company obligations to the
assignee additional to the payment of such monies, or to preclude Company
from dealing solely and directly with Subcontractor in all matters
pertaining to this Subcontract or an Order including the negotiation of
amendments or settlements of charges due.
ASSIGNMENT BY COMPANY
Company shall have the right to assign this Subcontract or an Order and to
assign its rights and delegate its duties under this Subcontract or an
Order either in whole or in part (an "assignment"), at any time and without
Subcontractor's consent, to any present or future affiliate of American
<PAGE>
Telephone and Telegraph Company. Company shall give Subcontractor written
notice of any assignment. The assignment shall neither affect nor diminish
any rights or duties that Subcontractor or Company may then or thereafter
have as to Equipment, Software, Services or Materials ordered by Company
prior to the effective date of the assignment. Upon the acceptance of the
assignment and assumption of the duties under this Subcontract or the Order
by the assignee, Company shall be released and discharged, to the extent of
the assignment, from all further duties under this Subcontract or the Order
as to Equipment, Software, Services or Materials not ordered by Company by
the effective date of the assignment.
CHOICE OF LAW
The construction, interpretation and performance of this Subcontract and an
Order and all transactions under either of them shall be governed by the
laws of the State of New Jersey, excluding its choice of law rules and
excluding the Convention for the International Sale of Goods. The parties
agree that the provisions of Article 2 "Sales" of the New Jersey Uniform
Commercial Code apply to this Subcontract and an Order and all transactions
under either of them, including agreements and transactions relating to the
furnishing of services, the lease or rental of material, and the license of
software. Subcontractor agrees to submit to the jurisdiction of any court
wherein an action is commenced against Company based on a claim for which
Subcontractor has agreed to indemnify Company under this Subcontract or an
Order.
CLEAN UP
Upon completion of installation or removal of the Equipment or of any other
Services performed on Company's premises, Subcontractor shall promptly
remove all implements, surplus materials and debris in respect of such
activities.
COMPLIANCE WITH LAWS
Subcontractor and all persons furnished by it shall comply with the Fair
Labor Standards Act and the Occupational Safety and Health Act and all
other applicable federal, state, county and local laws, ordinances,
regulations and codes, including identification and procurement of required
permits, certificates, approvals and inspections, in the performance of an
Order. Subcontractor shall indemnify Company from any loss or damage that
may be sustained by reason of any failure to do so.
<PAGE>
EMERGENCY
Subcontractor shall use its best efforts to assist Company in obtaining
components and equipment compatible with the Equipment in the event of an
emergency.
FORCE MAJEURE
Neither party shall be held responsible for any delay or failure in
performance of any part of an Order to the extent such delay or failure is
caused by fire, flood, explosion, war, strike, embargo, government
requirement, civil or military authority, act of God, act or omission of
carriers or other similar causes beyond its control ("force majeure
conditions"). If any force majeure condition occurs, the party delayed or
unable to perform shall give immediate notice to the other party, and the
party affected by the other's delay or inability to perform may elect to:
(a) terminate the Order as to any Equipment, Software or Materials which
have not been shipped or as to any Services which have not been commenced,
(b) suspend the Order for the duration of the force majeure condition, and
as the case may be (1) obtain a lease elsewhere for equipment to perform
the functions of the Equipment leased under the Order and deduct from the
term of the Order the time for which such other lease was obtained,
(2) obtain a license elsewhere for software to perform the functions of the
Software licensed under the Order and deduct from the term of the Order the
time for which such other license was obtained or (3) buy or sell elsewhere
equipment, materials or maintenance services to be bought or sold under an
Order and deduct from any commitment the equipment, materials or
maintenance services bought or sold or for which commitments have been made
elsewhere or (c) resume performance under the Order for the full term once
the force majeure condition ceases with an option in the affected party to
extend such term up to the length of time the force majeure condition
endured. Unless written notice is given within thirty (30) days after the
affected party is notified of the force majeure condition, (b) shall be
deemed selected.
FUTURE IMPROVEMENTS AND BENEFITS
As Subcontractor announces improvements, upgrades, field modifications and
the like ("enhancements"), Subcontractor shall advise Company of their
features and advantages. As to the Equipment, Software, Materials,
Services and such enhancements, Subcontractor has assured Company that all
prices, terms, warranties and benefits granted to Company by Subcontractor
are at least as favorable as those now offered by Subcontractor to any of
its commercial customers. If, during the term of this Subcontract,
Subcontractor should enter into an arrangement with any other customer
<PAGE>
providing greater benefits or more favorable terms, this Subcontract shall
thereupon be deemed to be amended to provide the same to Company under the
same conditions.
GOVERNMENT CONTRACT PROVISIONS
If an Order contains a notation that the Equipment, Software, Services or
Materials is intended for use under a Government Contract, it shall be
subject to the then current Government Contract Provisions printed on or
attached to such Order.
HARMONY
Subcontractor shall be entirely responsible for all persons furnished by it
working in harmony with all others when Subcontractor is working on
Company's premises. Company shall be entirely responsible for its
personnel, including its contractors, working in harmony with
Subcontractor's personnel on Company's premises.
IDENTIFICATION
Subcontractor shall make no use of any identification of Company, American
Telephone and Telegraph Company ("AT&T") or their associated companies in
its advertising or promotional efforts in reference to activities
undertaken by Subcontractor under this Subcontract or an Order. The term
"identification" includes any trade name, trademark, service mark,
insignia, symbol or any simulation thereof, and any code, drawing,
specification or evidence of Company's inspection. Subcontractor shall
remove any such identification prior to any sale, use or disposition of
Materials, Equipment or Software rejected or not purchased by Company, and
shall indemnify Company, AT&T and their associated companies against any
claim arising out of Subcontractor's failure to do so. This clause does
not modify the USE OF INFORMATION clause.
IMPLEADER
Subcontractor agrees that it shall not implead or bring any action against
Company or its employees based on any claim by a person for personal injury
or death that occurs in the course or scope of employment of such person by
Company and that arises out of Equipment, Software, Services or Materials
furnished under an Order.
<PAGE>
INDEMNITY
All persons furnished by Subcontractor shall be considered solely
Subcontractor's employees or agents, and Subcontractor shall be responsible
for payment of all unemployment, social security and other payroll taxes,
including contributions when required by law. Subcontractor agrees to
indemnify and save harmless Company, its affiliates and its customers and
their officers, directors, employees, successors and assigns (all
hereinafter referred to in this clause as "Company") from and against any
losses, damages, claims, demands, suits, liabilities and expenses
(including reasonable attorneys' fees) that arise out of or result from:
(1) injuries or death to persons or damage to property, including theft, in
any way arising out of or occasioned by, caused or alleged to have been
caused by or on account of the performance of the work or services
performed by Subcontractor or persons furnished by Subcontractor,
(2) assertions under Workers' Compensation or similar acts made by persons
furnished by Subcontractor or by any subcontractor, or by reason of any
injuries to such persons for which Company would be responsible under
Workers' Compensation or similar acts if the persons were employed by
Company, (3) any failure on the part of Subcontractor to satisfy all claims
for labor, equipment, materials, and other obligations relating directly or
indirectly to the performance of the Work; or (4) any failure by
Subcontractor to perform Subcontractor's obligations under this clause or
the INSURANCE clause. Subcontractor agrees to defend Company, at Company's
request, against any such claim, demand or suit. Company agrees to notify
Subcontractor within a reasonable time of any written claims or demands
against Company for which Subcontractor is responsible under this clause.
INFRINGEMENT
The following terms apply to any infringement, or claim of infringement, of
any patent, trademark, copyright, trade secret or other proprietary
interest based on the manufacture, installation, normal use, lease or sale
of any equipment, program, documentation, service or material (hereinafter
"material") furnished to Company under this Subcontract or an Order or in
contemplation of this Subcontract or an Order. Subcontractor shall
indemnify Company for any loss, damage, expense or liability that may
result by reason of any such infringement or claim, except where such
infringement or claim arises solely from Subcontractor's adherence to
Company's written instructions or directions which involve the use of
material other than (1) commercial material which is available on the open
market or is the same as such material or (2) material of Subcontractor's
origin, design or selection; and Company shall so indemnify Subcontractor
in such excepted cases. Each party shall defend or settle, at its own
expense, any action or suit against the other for which it is responsible
<PAGE>
under this clause. Each party shall notify the other promptly of any claim
of infringement for which the other is responsible, and shall cooperate
with the other in every reasonable way to facilitate the defense of any
such claim.
INSURANCE
Subcontractor shall maintain and cause Subcontractor's subcontractors to
maintain during the term of this Agreement (1) Workers' Compensation
insurance as prescribed by the law of the state or nation in which the work
is performed; (2) employer's liability insurance with limits of at least
$300,000 for each occurrence; (3) comprehensive automobile liability
insurance if the use of motor vehicles is required, with limits of at least
$1,000,000 combined single limit for bodily injury and property damage for
each occurrence; (4) Comprehensive General Liability ("CGL") insurance,
including Blanket Contractual Liability and Broad Form Property damage,
with limits of at least $1,000,000 combined single limit for personal
injury and property damage for each occurrence; (5) if the furnishing to
Company (by sale or otherwise) of products or materials is involved, CGL
insurance endorsed to include products liability and completed operations
coverage in the amount of $5,000,000 for each occurrence; and (6) Errors
and Omissions Insurance in the amount of at least $1,000,000 per claim with
an annual aggregate of at least $3,000,000 inclusive of legal defense
costs. All CGL insurance shall designate American Telephone and Telegraph
Company, its affiliates and their officers, directors, and employees (all
hereinafter referred to in this clause as "Company") as an additional
insured. All such insurance must be primary and required to respond and
pay prior to any other available coverage.
Subcontractor agrees that Subcontractor, Subcontractor's insurer(s) and
anyone claiming by, through, under or in Subcontractor's behalf shall have
no claim, right of action or right of subrogation against Company and its
customers based on any loss or liability insured against under the
foregoing insurance. Subcontractor and Subcontractor's subcontractors
shall furnish prior to the start of work certificates or adequate proof of
the foregoing insurance including, if specifically requested by Company,
copies of the endorsements and insurance policies. Company shall be
notified in writing at least thirty (30) days prior to cancellation of or
any change in the policy.
LABOR RELATIONS
Subcontractor shall be responsible for its own labor relations with any
trade or union represented among its employees and shall be responsible for
adjusting all disputes between itself, its employees or any union
<PAGE>
representing such employees. The provisions of this paragraph shall be
extended by Subcontractor to all subcontractors hereunder. Subcontractor
shall immediately notify Company if Subcontractor has knowledge of actual
or potential labor dispute which is delaying or could delay the timely
performance of this Subcontract or an Order.
LICENSES
No licenses, express or implied, under any patents or copyrights are
granted by Company to Subcontractor under this Subcontract or an Order.
NONWAIVER
No course of dealing or failure of either party to strictly enforce any
term, right or condition of this Subcontract or an Order shall be construed
as a waiver of such term, right or condition.
OPERATING SYSTEM SOFTWARE
The term Equipment includes any software (operating program in machine
readable form and feature descriptions or firmware) normally furnished with
or embedded in the Equipment. Title to such software shall remain in
Subcontractor. For the life of the Equipment listed in the Order for
purchased Equipment, or during the term of the Equipment lease Order, as
applicable, Subcontractor grants to Company and any subsequent purchaser or
lessee of said Equipment a nonexclusive license to use said software on the
Equipment on which it was delivered. Company and any subsequent purchaser
or lessee may copy the software for use on such Equipment with which it was
originally delivered and for archival purposes, but shall not knowingly
reproduce either the original software or make copies of the software for
distribution to others. Modifications or additions made to the software
may invalidate the terms of the warranty and maintenance provisions of this
subcontract. Nonetheless, title to any such modification or addition to
the software shall remain in the entity which creates the modification or
addition only to the extent such modification or addition does not infringe
on the software rights of the owner.
ORDER TERMINATION
An Order may be terminated only in the event the order is terminated by the
Government for convenience or default or due to failure to resolve
Government cure notices resulting from hardware or software or services
problems.
<PAGE>
PLANT RULES AND GOVERNMENT CLEARANCE
All persons furnished by Subcontractor shall, while on the premises of
Company, comply with all plant rules and regulations and, where required by
Government regulations, submit satisfactory clearance from the United
States Department of Defense and other federal authorities concerned.
RELEASES VOID
Neither Subcontractor nor Company shall require waivers or releases of any
personal rights from representatives or customers of the other in
connection with visits to its premises, and both parties agree that no such
releases or waivers shall be pleaded by them or third persons in any action
or proceeding.
SEVERABILITY
If any of the provisions of this Subcontract or an Order shall be invalid
or unenforceable, such invalidity or unenforceability shall not invalidate
or render unenforceable the entire Subcontract or Order, but rather the
entire Subcontract or Order shall be construed as if not containing the
particular invalid or unenforceable provision or provisions, and the rights
and obligations of the parties shall be construed and enforced accordingly.
SHIPPING
Subcontractor shall, at its expense, (a) ship the Equipment, Software and
Materials to the site designated in an Order by the date set forth in the
Order in accordance with specific shipping instructions, (b) place the
Order number on all subordinate documents, (c) enclose a packing memorandum
with each shipment, and when more than one (1) package is shipped, identify
the one containing the memorandum and (d) mark the Order number on all
packages and shipping papers. Adequate protective packing shall be
furnished at no additional charge.
SUBCONTRACTOR'S INFORMATION
Except for information owned by Company under the clause DEVELOPED
INFORMATION, no specifications, drawings, sketches, models, samples, tools,
computer or other apparatus programs, technical or business information or
data, written, oral or otherwise, furnished by Subcontractor to Company
under this Subcontract or an Order or in contemplation of this Subcontract
or an Order shall be considered by Subcontractor to be confidential or
proprietary. Unless such information is clearly marked with the terms in
FAR Clause 52.227.14 for Data not first produced in the performance of this
<PAGE>
subcontract. Further, there are no limitations on Company's use of
Software except as otherwise agreed to in the clause OPERATING SYSTEM
SOFTWARE in this Article and in the clauses LICENSE GRANT and TITLE in
Article IV; however, full title to and ownership of the Software shall
remain in Subcontractor or Subcontractor's licensor, as applicable.
SURVIVAL OF OBLIGATIONS
Subcontractor's obligations under this Subcontract or an Order, which by
their nature would continue beyond the termination, cancellation or
expiration of this Subcontract or an Order, including, by way of
illustration only and not limitation, those in the clauses COMPLIANCE WITH
LAWS, IDENTIFICATION, IMPLEADER, INDEMNITY, INFRINGEMENT, INSURANCE,
RELEASES VOID, USE OF INFORMATION and WARRANTY, shall survive termination,
cancellation or expiration of this Subcontract or an Order.
TAXES
Company shall pay any state and local sales or use taxes which may be
imposed upon the charges specified in an Order, unless an exemption
certificate is furnished by Company to Subcontractor. Such taxes shall be
billed to Company as separate items. Subcontractor shall assume and pay
all other taxes. If there is any question concerning an exemption
certificate furnished by Company, Subcontractor shall advise Company
thereof immediately.
TOOLS AND EQUIPMENT
Unless otherwise specifically provided in an Order, Subcontractor shall
provide all labor, tools and equipment (the "tools") for performance of an
Order. Should Subcontractor actually use any tools owned or rented by
Company, Subcontractor shall indemnify and hold harmless Company from and
against any and all losses, damages, claims, demands, suits and liabilities
(including reasonable attorneys' fees) of any kind and nature whatsoever
(including but not limited to claims resulting from injuries or death to
persons or damage to property) in any way arising out of or resulting from
Subcontractor's maintenance, possession, operation, use, storage or
movement of the tools or any accident in connection therewith.
Subcontractor further acknowledges that Subcontractor accepts the tools "as
is, where is" and that Company has no responsibility for the condition or
state of repair of the tools. Subcontractor agrees not to remove the tools
from Company's premises and to return the tools to Company upon completion
of use, or at such earlier time as Company may request, in the same
condition as when received by Subcontractor, reasonable wear and tear
<PAGE>
excepted. Such use shall be controlled by the clauses entitled INSURANCE
and INDEMNITY.
USE OF INFORMATION
Any specifications, drawings, sketches, models, samples, tools, computer or
other apparatus programs, technical or business information or data,
written, oral or otherwise expressed, owned or controlled by Company
("Information"), furnished to or acquired by Subcontractor under this
Subcontract or an Order or in contemplation of this Subcontract or an
Order, shall remain Company's property. All copies of such Information in
written, graphic or other tangible form shall be returned to Company at its
request. Unless such Information was previously known to Subcontractor
free of any obligation to keep it confidential, or has been or is
subsequently made public by Company or a third party, it shall be kept
confidential by Subcontractor, shall be used only in the filling of Orders
or performing under this Subcontract or Order and may not be used for other
purposes except upon such terms as may be agreed upon between Subcontractor
and Company in writing.
VARIATION OF QUANTITY
Unless otherwise specified in an Order, Company assumes no liability for
merchandise produced, processed or shipped in excess of the amount
specified in any Order placed with Subcontractor.
WORK DONE BY OTHERS
If any part of the Services or other work performed by Subcontractor is
dependent upon work done by others, Subcontractor shall inspect and
promptly report to Company any defect that renders such other work
unsuitable for Subcontractor's proper performance. Subcontractor's silence
shall constitute approval of such other work as fit, proper and suitable
for Subcontractor's performance of the Services or other work.
<PAGE>
ARTICLE III
SALE
Subcontractor shall sell its Equipment and Materials to Company upon the
terms and conditions set forth in this Subcontract and in Orders placed by
Company pursuant to this Article.
RETURN OF EQUIPMENT
Whenever Equipment under warranty is shipped for repair or mechanical
replacement purposes, Subcontractor shall bear all costs including, but not
limited to, costs of packing, rigging, transportation and insurance.
Subcontractor shall also bear all risk of loss or damage from the time the
Equipment is removed from Company's site until the Equipment is returned to
such site.
RETURN OF MATERIALS
Subcontractor shall accept for credit Materials returned under the
following circumstances: (1) Subcontractor or Company error in the ordering
or shipping process, providing the Materials are returned by Company to
Subcontractor within ninety (90) days of receipt or (2) receipt of
defective Materials or failure of Materials under the applicable warranty.
Materials returned for credit must be in complete cartons and in good
resalable condition, except where the Materials are defective or fail under
the applicable warranty.
RISK OF LOSS
Subcontractor shall retain risk of loss and damage to the Equipment or
Materials prior to the passage of title pursuant to the clause TITLE unless
caused by the willful or negligent acts of Company or its employees.
SUBCONTRACTOR RIGHT TO SUBSTITUTE
The Subcontractor may offer to the Company substitute equipment provided
that:
a. The functional and technical characteristics of the substitute
equipment are equal or better than the equipment it is to replace;
b. The cost of the substitute equipment is equal to or less than the cost
of the equipment it is to replace; and
<PAGE>
c. The Subcontractor provides sufficient detailed information to
substantiate that a. and b. above are met.
The Company may, at its option, accept or reject the substitute equipment.
<PAGE>
ARTICLE IV
LICENSE GRANT
Subcontractor hereby grants to Company a nonexclusive, nontransferable
(except as set forth in this Subcontract) license to use the Software,
including all media on which it may be recorded or stored. The term
"Software" means any computer software programs, firmware and documentation
covered by the Order including the Basic Materials defined in the clause
SOFTWARE AND PROGRAMMING AIDS and such other Basic Materials listed on the
Order. Throughout this Subcontract, the term "Software" is included in the
term "material". "Use" shall mean use by any individual having authorized
access to the computer on which the Software is operated and shall include
employees of Company, its agents, representatives or contractors. Company
shall not be required to obtain any agreement for use of any program or
software derived from Software.
LICENSE FEE
The price set forth in the Order is the fee for the Software furnished and
the license granted under the Order.
LICENSE TERM
The term of the Order shall be effective from the date of Company's
acceptance of the Software and shall remain in effect until the use of the
Software, as it may have been updated or enhanced by Subcontractor from
time to time, is permanently discontinued by Company under the terms of the
Order.
MODIFICATIONS
Company shall have the right to modify the Software. Company shall have
all right, title and interest in and to any such modifications. However,
any such modifications of Subcontractor's software may invalidate the terms
of the warranty and maintenance provisions of this subcontract.
RELOCATION OF DESIGNATED SITE OR COMPUTER
If the Order specifies that Company's use of the Software is limited to a
designated site or a designated computer, the provisions of this clause
shall apply. For purposes of this clause, the term "site" shall include
the term "computer", as applicable to the Order.
<PAGE>
Company may redesignate the site at which the Software will be used, and
shall notify Subcontractor of the new site and the effective date of the
redesignation. Concurrent operation of the Subcontractor's Software at a
second site for a period not to exceed three (3) months for the purpose of
redesignating the assigned using site shall not require an additional
license.
The license granted under the Order for a designated site may be
transferred: (a) to a backup site if the computer at the designated site is
inoperative due to malfunction, to performance of preventive maintenance,
to engineering changes or to changes in features or model, until such
computer is restored to operative status and processing of the data already
entered in the computer at the backup site has been completed or (b) to one
other site for assembly or compilation of the Software if the
specifications of the computer at the designated site are such that the
Software cannot be assembled or compiled on such computer.
REMOTE ACCESS
Company shall have the right, at no additional charge, to have the Software
used at any other location for Department of State (DOS) employees or their
agents by means of remote electronic access.
RISK OF LOSS
If any Software is lost, damaged or made invalid during shipment,
Subcontractor will promptly replace the Software and Software storage media
at no additional charge to Company. If any Software is lost or damaged
while in the possession of Company, Subcontractor will promptly replace the
Software at the established price.
SOFTWARE AND PROGRAMMING AIDS
On the delivery date, Subcontractor shall furnish to Company, at no
additional charge, at least the following Basic Materials:
1. Object program (the fully compiled or assembled series of
instructions, written in machine language, ready to be loaded into the
computer, that guides the operation of the computer) stored in a
medium compatible with the equipment described in the Order;
2. Program implementation and user instructions and required procedures;
3. The Software Specifications, as well as the required machine
configuration;
<PAGE>
SOURCE PROGRAMS AND TECHNICAL DOCUMENTATION
In the event that Subcontractor, among other things, becomes insolvent,
ceases to carry on business on a regular basis or fails to perform its
obligations under the Order, and during a period of thirty (30) days
thereafter Subcontractor (or some other financially and technically
responsible successor in interest acceptable to Company which assumes in
writing Subcontractor's obligations under the Order) does not continue to
perform such obligations, then (a) Subcontractor, or others acting on
behalf of Subcontractor, shall furnish to Company all source programs,
technical documentation and other information ("Software Source Materials")
required for maintenance, modification or correction of the most current
version of the Software provided to Company and (b) Subcontractor will be
deemed to have granted to Company a perpetual right to use the Software and
the Software Source Materials under the terms and conditions of the Order.
SPECIFICATIONS
The term "Specifications" shall mean the specifications for the Software as
set forth in the Order, or if not so set forth, shall mean Subcontractor's
then current published specifications and user documentation for the
Software.
SUBLICENSE BY COMPANY
Company may sublicense the Software. A sublicensee shall be deemed to DOS.
All obligations, undertakings and indemnifications by Subcontractor under
an Order shall run and inure to the benefit and obligations of Company and
the sublicensee. No sublicense shall release Company from its obligations
under an Order.
TITLE
Title to Software shall remain in Subcontractor or Subcontractor's
licensor, as applicable. Company shall have the right to make a reasonable
number of copies of the Software for use as authorized in the Order.
Company however, shall not knowingly reproduce copies of the Software for
the purpose of supplying it to others.
WARRANTY
Subcontractor warrants to Company and its customers that the Software will
be free from errors, will conform to and perform in accordance with the
Specifications, and will function properly. Subcontractor also warrants
<PAGE>
that there are no copy protection or similar mechanisms within the Software
which will, either now or in the future, interfere with the grants made in
this Subcontract or an Order. Subcontractor also warrants that the media
containing the Software will be free from defects in material and
workmanship and that services will be performed in a first-class,
workmanlike manner. Subcontractor further warrants that Company and its
customers shall have quiet enjoyment of the Software and that, as to
Software to which Subcontractor does not have title, Subcontractor has a
license in the Software sufficient to permit the license of the Software to
Company and its customers and has full right, power and authority to
license the Software to Company and its customers as provided in this
Subcontract. Subcontractor also warrants that the Software will be
compatible with and may be used in conjunction with other software as
described in the Specifications. Subcontractor also warrants that, if an
Order states that the Software is to be used in conjunction with certain
data processing equipment, the Software shall be compatible with that
equipment. If the Software, or any portion thereof, is or becomes
unusable, totally, or in any respect, Subcontractor will correct errors,
defects and restore the Software to error-free conforming condition without
additional charge to Company or its customers.
Subcontractor also warrants that the Software does not contain any
malicious code, program, or other internal component (e.g. computer virus,
computer worm, computer time bomb, or similar component), which could
damage, destroy, or alter software, firmware, or hardware or which could,
in any manner, reveal, damage, destroy, or alter any data or other
information accessed through or processed by the Software in any manner.
Subcontractor shall immediately advise Company, in writing, upon reasonable
suspicion or actual knowledge that the Software provided under this
Subcontract or an Order may result in the harm described above.
Subcontractor shall indemnify and hold Company and its customers harmless
from any damage resulting from the harm described above. Subcontractor's
Maximum liability regardless of the form of action taken shall not in any
event exceed the individual transaction charges paid under this
Subcontract.
All warranties shall survive inspection, acceptance and payment.
<PAGE>
ARTICLE V
MAINTENANCE SERVICES AGREEMENT
Subcontractor shall provide Maintenance Services (as defined in the clause
MAINTENANCE SERVICES) upon the terms and conditions set forth in this
Subcontract and in Orders placed by Company pursuant to this Article. At
any time, Company may terminate individual Orders for Maintenance Services,
at no charge, provided at least thirty (30) days' prior written notice is
given to Subcontractor. If the charges for such terminated Order were paid
annually in advance, Subcontractor shall promptly refund to Company the pro
rata portion of said charges.
AUDIT
Subcontractor shall maintain complete, clear and accurate records of all
hours and billable costs incurred under Per Call Service Orders. Such
records shall be maintained in accordance with recognized commercial
accounting practices and in such a manner that they may be readily audited
and shall be held until actual hours and billable costs have been finally
determined before any payment or final adjustment of payment, as the case
may be, has been made. Subcontractor further shall permit Company or its
representatives to examine and audit these records, including all records
of a supporting nature, at all reasonable times. Audits shall be made no
later than one (1) calendar year after completion of the maintenance Order,
and the correctness of the Subcontractor's billing shall be determined from
the results of such audit.
ELIGIBILITY FOR MAINTENANCE SERVICES
Equipment shall automatically be eligible for Maintenance Services provided
it shall have been under Maintenance Service or warranty by Subcontractor
on the date of commencement of Maintenance Services. Any new equipment
integrated into the existing TMS system shall be inspected by Subcontractor
at no charge to determine whether it is in good working order and can be
maintained in such condition. Subcontractor shall notify Company in
writing as to the eligibility of such Equipment. If the Equipment is not
eligible, but can be made eligible, Company may, at its expense, make or
have made such changes required to upgrade the Equipment to eligibility
status.
ENGINEERING CHANGES
a. The Subcontractor is encouraged to propose, independently, engineering
changes to equipment, software, or other contract requirements irrespective
<PAGE>
of commercial announcement. These changes may be proposed for reasons of
immediate economy, or to improve performance, to save energy, personnel, or
to meet increased data processing requirements, and so reduce projected
life cycle costs. After reviewing the Subcontractor's suggested changes,
the government at its discretion may ask for a price proposal. If the
Company agrees to the technical and price proposals of the Subcontractor,
changes shall be processed as modifications to the contract.
b. This clause applies only to those proposed changes initiated by the
Subcontractor and identified as a proposal submitted pursuant to the
provisions of this clause. As a minimum, the following information shall
be submitted by the Subcontractor with each proposal:
(1) A description, in detail, of the difference between the existing
contracted for items and/or services and those proposed, and a specific
analysis of the comparative advantages and disadvantages of each.
(2) Specific items or services contained in the Subcontract which must be
changed if the proposal is adopted, e.g., if new equipment is offered to
replace currently installed, will the old be exchanged for the new, and on
what basis.
(3) A statement as to how the changes will affect performance, costs,
etc., if adopted.
(4) An evaluation of the effects the change would have on Life Cycle Costs
such as government furnished property, maintenance, personnel, site
modification, energy, etc.
(5) An analysis of the time frame in which the change should be instituted
so as to obtain maximum benefit to the government for the remainder of the
contract.
c. The decision of the Company's Subcontract Manager as to the acceptance
of any such proposal under this contract shall be final and not subject to
the "Disputes" clause of this contract.
d. Acceptance of any engineering change proposal submitted pursuant to
this clause shall be made by issuance of a written modification to this
Subcontract. Unless and until such a modification is issued to the
Subcontractor, the Subcontractor remains obligated to perform in accordance
with the terms of the existing subcontract.
e. If a change proposal submitted pursuant to this clause is accepted and
applied to this contract, either the Subcontractor or the government shall
<PAGE>
be entitled to an equitable adjustment in the subcontract price. When the
cost of performance of this subcontract is either increased or decreased as
a result of the change, the equitable adjustment increasing or decreasing
the contract price shall be in accordance with the "Changes" clause rather
than under this clause but the resulting subcontract modification shall
state that it is made pursuant to this clause. In those cases when the
entitlement to equitable adjustment is essentially equal between the
parties there may be no set increase or decrease in the subcontract amount.
f. The Subcontractor is given the option of submitted its engineering
change proposal as Value Engineering Change Proposal in accordance with FAR
Clause 52.248.1, Value Engineering (MAR 1989) contained in this contract.
In such case, that clause shall govern the transaction, including the
information to be contained in such a proposal.
MAINTENANCE CHARGE CHANGES
Should Subcontractor's commercial rates for maintenance service comparable
to the Maintenance Services be reduced during the term of the Order, the
maintenance charges to Company shall be reduced accordingly.
MAINTENANCE CREDIT
If Equipment fails to operate as provided in its specifications, Company
shall notify, either orally or in writing, Subcontractor of such
inoperativeness or a work-around not provided. If the Equipment remains
inoperative, other than through the fault or negligence of Company, for a
continuous period of twenty-four (24) hours or longer from the time of
Company's notice, Company shall be entitled to credit against the
maintenance charges computed as follows:
For each hour during which the Equipment is inoperative, the credit shall
be one, two hundred-fortieth (1/240) of the monthly maintenance charges for
the Equipment; provided, however, the credit shall in no event exceed one-
thirtieth (1/30) of the monthly maintenance charges for the Equipment for
any calendar day nor the monthly maintenance charge for the Equipment for
any month. Company shall have the option of either (1) extending the term
of the Order by applying such credit against the maintenance charges going
beyond the term of the Order or (2) reducing the maintenance charges during
the term of the Order. Company shall, in addition, be entitled to a credit
against the charges for the time any office systems equipment item,
regardless of supplier, is rendered inoperative as a result of the
inoperativeness of the Equipment.
<PAGE>
MAINTENANCE FACILITIES
Company shall provide Subcontractor with adequate storage space for spare
parts and adequate working space, including heat, light, ventilation,
electric current and outlets for use by Subcontractor's maintenance
personnel. These facilities shall be within reasonable distance of the
Equipment to be serviced and shall be provided at no charge to
Subcontractor.
Company shall not be responsible for any damage to Subcontractor's
equipment or materials stored on Company's premises unless such damage is
the result of Company's negligence.
MAINTENANCE SERVICES
Subcontractor shall recommend, but Company may designate, the type of
Maintenance Services for each item of Equipment.
The types of Maintenance Services from which Company may choose are
Preventive Maintenance Service, Remedial Maintenance Service, On-Site
Dedicated Maintenance Service or Per Call Service, which are defined below.
Subcontractor shall provide such Maintenance Services for the Equipment as
is designated in an Order for the term as specified in such Order. Cost of
spare parts is included in the charge for Business Day Service, Around the
Clock Service and On-Site Dedicated Maintenance Service type plans.
Business Day Service is available during the hours from 8 a.m. to 5 p.m.,
Monday through Friday with the exception of Company's holidays. Around The
Clock Service is available twenty-four hours a day, seven (7) days a week
including holidays.
Maintenance Services provided under the terms and conditions of this
Subcontract may be limited to specific geographic areas and Subcontractor
reserves the right to impose additional mutually agreed upon charges for
travel outside Subcontractor's normal service areas.
Preventive Maintenance
Preventive Maintenance is defined as maintenance performed by Subcontractor
which is designed to keep Equipment in good operating condition, and is to
be performed on a scheduled basis.
Subcontractor shall propose to Company for Company's approval a Preventive
Maintenance schedule which may be modified by mutual agreement. Preventive
Maintenance shall be performed in accordance with the manufacturer's
written instructions at reasonable intervals. An appropriate log shall be
<PAGE>
maintained to reflect the date, time, location and nature of such
Preventive Maintenance. This log shall also include the signature of an
appropriate Company representative for each Preventive Maintenance call.
Subcontractor shall furnish at Company's request the log of Preventive
Maintenance calls to be used mutually between Subcontractor and Company for
the review of suitability of Preventive Maintenance services. Preventive
Maintenance shall be performed by a technician other than the resident
technician unless otherwise determined by Company.
The log of Preventive Maintenance shall be maintained by Subcontractor and
be made available to Company, at its request, for a period of not less than
two (2) years after the termination or expiration of the Maintenance Order.
Remedial Maintenance
Remedial Maintenance is defined as those functions required to repair a
malfunctioning piece of Equipment and return it to good operating
condition.
When Remedial Maintenance is performed, Subcontractor shall furnish Company
a log indicating what Equipment failed and what corrective action was taken
to repair such Equipment. Company's representative shall sign such log
indicating acceptance of the Services performed and shall be furnished a
copy by Subcontractor of the signed log. This log shall serve as the basis
for discussion of Subcontractor's performance under the Maintenance Order.
This log shall also indicate the time the Equipment was returned as
operational and accepted by Company.
Remedial Maintenance shall be performed by a technician other than the
resident technician unless otherwise determined by Company.
Subcontractor shall provide on-site response time not to exceed two (2)
hours after receipt by Subcontractor of a malfunction notice, either oral
or written.
Per Call Service
Per Call Service is defined as maintenance services provided outside
contracted Maintenance Services, including holidays, and performed on a
time and materials basis at Subcontractor's then current rates.
TECHNICAL INFORMATION, SOFTWARE AND PROGRAMMING AIDS
Subcontractor shall furnish to Company on the agreed-upon delivery date any
technical information, programs, routines, subroutines, documentation, or
<PAGE>
related material it has or may develop or modify, necessary for the general
use or maintenance of Equipment under Maintenance Service, which are
normally furnished to maintenance customers without additional charge.
TRAINING AND ASSISTANCE
Subcontractor shall provide, without additional charge to Company, such
training and assistance as it normally provides without charge to
maintenance customers.
WARRANTY
Subcontractor warrants to Company that replacement and repair parts and
components furnished under an Order shall be free from defects in design
(except to the extent designed by Company), material and workmanship and
shall conform to and perform in accordance with the specifications.
Subcontractor also warrants to Company that such parts and components shall
function properly for a period of ninety (90) days unless the Company
purchases an extended warranty. Maintenance services shall be performed in
a first class, workmanlike manner and that the equipment shall function in
a good operating condition during the terms of the Maintenance Order. In
warranties, Subcontractor hereby assigns such warranties to Company. All
warranties shall survive inspection, acceptance and payment.
Whenever Equipment, repair parts or components under warranty are shipped
for repair or mechanical replacement purposes, Subcontractor shall bear all
costs, including but not limited to, costs of packing, rigging,
transportation and insurance. Subcontractor shall also bear all risk of
loss or damage from the time the Equipment, repair parts or components are
removed from Company's site until the Equipment is returned to such site.
(Attachment 1-A is confidential and omitted and filed separately with the
Commission)
<PAGE>
EXHIBIT 10.4
AUTHORIZED DISTRIBUTOR AGREEMENT
AMERICAN COMPUTER AND ELECTRONICS CORPORATION
1. APPOINTMENT
American Computer and Electronics Corporation, A Maryland Corporation
(Hereinafter referred to as "the Company"), located in Gaithersburg,
Maryland 20877, hereby appoints AmerInd, Inc., (hereinafter referred to as
"the Distributor") as an Authorized Distributor for the sale of the Products
specified in Appendix A, attached hereto and incorporated by reference into
this Agreement. The geographical area and/or target market(s) in which the
distributor is measured in fulfilling distributor's responsibilities
specified herein is specified in Appendix B.
2. TERM
The initial term of this Agreement and the distributorship, hereby created
shall be from May 1, 1991 to December 31, 1996, unless sooner terminated as
hereinafter provided. The Agreement and any renewal thereof may be extended
for an additional one year term by mutual written agreement between parties.
3. COMPANY - DISTRIBUTORSHIP RELATIONSHIP
The distributorship is exclusive and non-assignable by the Distributor
without the written consent of the Company. The relationship between the
Company and the Distributor shall be that of Seller and Buyer. The
Distributor, and its officers, agents and employees shall under no
circumstances be considered to be agents or representatives of the Company,
and except as the Company may specifically authorize in writing by the
Company, the Company, the Distributor shall have no right to enter into any
contracts or commitments in the name or on behalf of the Company or to bind
the Company in any respect whatsoever. The Distributor will not represent
any Company or product that directly competes with the Company's products.
4. COMPANY'S RESPONSIBILITIES
The Company agrees that so long as that distributorship is in effect it
will, subject to and in accordance with the terms and conditions herein
expressed:
(a) Sell the Products covered by this Agreement to the Distributor for
its resale or lease.
<PAGE>
(b) Furnish to the Distributor sales promotional aids.
(c) Furnish to the Distributor sales support through its Headquarters
and Field Sales organizations.
(d) Keep the Distributor regularly advised of changes in published
specifications and design of the Products.
(e) Indicate to the public that the Distributor is an Authorized
Distributor of the Products listed in Appendix A.
(f) Provide the product sales and service training and assistance in
sales planning for the Distributor.
(g) Provide for product service to the ultimate user of the Product in
accordance with the terms of the Company's standard contract for
maintenance service.
5. DISTRIBUTORS RESPONSIBILITIES
The Distributor agrees that it will, subject to the provisions of this
Agreement and so long as this distributorship is in effect:
(a) Will make every reasonable effort to develop business and to promote
the sale and/or lease of and to sell or lease the Products covered
by this Agreement.
(b) Maintain a sales organization which actively solicits the sale
and/or lease of Products covered by this Agreement.
(c) Support the Company's sales promotion as requested by taking
mutually agreed upon action in communicating and carrying out
advertising the promotional programs which the Company may make
available.
(d) Include a representative listing of the Products covered by this
Agreement in any catalog issued by the Distributor.
(e) Have its sales personnel attend product sales and service training
courses offered by the Company from time to time.
(f) Provide product support and service to its customers as more
particularly provided for in paragraph 27.
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<PAGE>
(g) Furnish Products, technical information and other related sales
assistance to potential customers who are referred to the
Distributor by the Company for handling.
6. PRICES
(a) The Products to be purchased and sold during the initial term and
succeeding terms of this Agreement shall be those set forth in
Appendix A. Company agrees to sell and the Distributor agrees to
buy such Products in accordance with the prices set forth in
Appendix A, subject to written acceptance by the Company which may
accept or reject any order. Such acceptance shall not be
unreasonably withheld.
(b) The Company reserves the right to increase prices upon sixty (60)
days prior written notice to the Distributor. Such changes in pries
shall be subject to the price protection provisions set forth in
paragraph 8.7.
7. PRICE PROTECTION
In the event the Company changes its prices on any Products, the Distributor
shall be offered price protection as herein specified.
(a) Price Increase
In the event of a price increase, the Company shall be bound to honor any
order(s) at prior prices accepted prior to the effective date of the
price increase.
(b) Price Decrease
In the event of a price reduction, orders of Products affected by the price
reduction shall be adjusted to reflect the price decrease. Products in
transit prior to the effective date of the price reduction shall be
subject to the price reduction provided, however, that the Distributor
applies for the price reduction within (30) days after the effective date
of the announced price reduction.
(c) Notwithstanding anything to the contrary set forth in this paragraph
7, the Company agrees to negotiate in good faith with the
Distributor in order to provide price protection to the Distributor
for its outstanding quotes identified in writing to the Company
within thirty (30) days from the date the Company notifies the
Distributor of a change in its prices.
8. DELIVERY
Delivery of the Products purchased by the Distributor shall be made by the
Company F.O.B. point of shipment (freight collect) and fide thereto shall
pass to
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<PAGE>
Distributor once such Products are delivered to the carrier. Risk of loss
or damage shall pass to the Distributor upon delivery of the Products to
the carrier.
9. EXCUSABLE DELAYS
Shipping dates given prior to shipment are approximate and are based upon
prompt receipt of all necessary information. Company shall not be liable
for failure to meet such dates nor for delays in delivery due to causes
beyond its reasonable control or acts of God,, acts of Distributor, acts
of civil, governmental or military authority, priorities fires, strikes,
or other labor disturbances, floods, epidemics, wars, riots, delays in
transportation or car shortages, or inability on account of causes beyond
its reasonable control to obtain necessary labor, materials. components
or manufacturing facilities. In the event of any such delays the date of
delivery or of performance shall be extended for a period equal to the
time lost by reason of the delay.
10. PRODUCT CHANGE AND DISCONTINUANCE OF PRODUCTS
(a) The Company shall have the right, at its absolute discretion, and
without thereby incurring any liability to the Distributor with
respect to any purchase order theretofore placed, or otherwise, to
change the design or to discontinue the manufacture or sale of any
Products covered by this Agreement.
(b) The Company shall endeavor to notify the Distributor at lease ninety
(90) days prior to the delivery of any Products which incorporate a
change in design that shall, in the Company's reasonable opinion
affect the marketability of any Product The Company shall also
endeavor to notify the Distributor at lease ninety (90) days prior
to the discontinuance of manufacture or sale of any Products covered
by this Agreement. The Company, however, shall not incur any
liability to the Distributor for its failure to so notify the
Distributor.
11. PAYMENTS AND FINANCIAL CONDITION
(a) Terms of payment shall be in U.S. dollars, either within sixty (60)
days from date of invoice or five (5) days from Distributor's
receipt of payment by the customer, whichever occurs first. If
invoices are not paid when due, the Distributor agrees to pay "Late
Charges" on the unpaid delinquent balance at an interest rate not to
exceed 1 1/2% per month.
(b) In the event that the Company offers discounts for early payment to
the Distributor, the Distributor agrees to extend the same payment
terms to the customer. Such discounts shall apply to the
Distributor's entire price of
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<PAGE>
the items on which the Company offers a payment discount. These
discounts must be mutually agreed upon discounts.
(c) If Distributor's financial condition at any time does not jusfify
continuance of the work to be performed by any hereunder on the
agreed terms of payment, Company may require partial payment in
advance. Any order for Products by Distributors all constitute a
representation that Distributor is solvent. In the event of
Distributor's bankruptcy or insolvency or in the event any
proceeding is brought against Distributor, voluntarily or
involuntarily, under the bankruptcy or any insolvency laws, Company
shall be entitled to cancel any order than outstanding at any time
during the period allowed for filing claims against the estate and
shall receive reimbursement for its proper cancellation charges.
Company rights under this provision are in addition to all rights
available to it at law or in equity. Company specifically reserves
the right to establish credit rotation based upon Distributor's
financial condition, and to delay manufacture or shipment of
specific purchase orders based upon these limitations.
12. TAXES
The Company's prices do not include sales, use, excise or similar taxes.
Consequently, in addition to the Companies prices in effect at the time
of sale, the Distributor shall pay or reimburse the Company of, the gross
amount of any present or future sales, use, excise or similar tax
applicable to the price, sale or furnishing of any services or Products
hereunder, or their use by the Company or the Distributor, or in lieu
thereof the Distributor shall provide the Company with a tax exemption
certificate acceptable to the taxing authorities.
13. PRODUCT SALE TRAINING
(a) The Company shall provide a limited quantity of tuition free product
related sales training courses. The time and location shall be
announced by the Company. The Distributor shall be responsible for
travel and living expenses of its personnel attending such courses.
(b) Training courses shall be structured to instruct sales personnel of the
product(s) configuration and operation, product(s) options/accessories
and operation, competitive features, benefits, selling tips, etc. A
limited quantity of printer material and sales aids associated with
such training shall be provided at no charge by the Company.
14. SALES SUPPORT LITERATURE
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<PAGE>
(a) The Company shall provide at no charge to the Distributor, up to a
maximum o 5000/year, its standard sales promotional literature, such
as brochures, specification sheets and application sheets.
(b) Standard sales promotional literature excess of the maximum set
forth in (a) above required by the Distributor and/or sales
promotional literature customized for the Distributor shall be paid
for by the Distributor.
15. MAINTENANCE TRAINING AND DOCUMENTATION
(a) Maintenance Training
(1) Training courses at published tuition rates are held
periodically throughout the year at the Company's training
facility. The training course is structured to teach the
serviceman to perform mechanical adjustment and parts
replacement. Electronic theory is taught to the functional
block diagram level necessary to identify and swap a
replacement board.
(2) When requested by the Distributor, within the first six months
of this Agreement, or within six months from the introduction
date of any new product(s) purchased by the Distributor, the
Company shall provide such training, tuition free, for up to
five (5) of the Distributor's employees per year. The
Distributor shall be responsible for travel and living expenses
of its employees attending such courses.
(b) Maintenance Documentation
When requested by the Distributor, during the initial term of this
Agreement, or within six months from the introduction date of any
new product(s) purchased by the Distributor, the Company shall
provide at no charge up to five (5) service manuals. Update service
shall be provided at no charge during the initial term of the
Agreement and any renewal(s) thereof.
16. SPECIAL PROMOTIONS/SALE
The Company may decide, from time to time, in its sole discretion, to
offer special prices to the Distributor in conjunction with the purchase
by the Distributor of demonstration Products, or with the introduction of
new products, options or accessories, or for any other reason, in order
to promote sales to the public. In the event such special
promotions/sales are offered by the Company, the Distributor may accept
such offerings in accordance with the special terms and conditions
associated with said special promotions/sales.
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<PAGE>
17. CUSTOMIZED PRODUCTS
The Company may agree, it its sole discretion, if requested by the
Distributor, to furnish products or parts manufactured to an individual
customer's or to the Distributes specification to design. The prices and
the terms and conditions of such customized products shall be negotiated
between the Company and the Distributor. All sales of such customized
products shall be made with the understanding that the inventory
adjustment and repurchase provisions as set forth in paragraph 12 and 33
shall not apply.
18. BUSINESS PLAN/REVIEW
(a) The parties recognize that, if this Agreement is not commercially
successful, either or both of the parties may wish to terminate the
Agreement or may not wish to extend the Agreement for additional one
year term(s). In order to measure whether this Agreement is
commercially successful, the Distributor and the Company agree to
prepare a yearly business plan for Distributor which shall be
attached to and shall become a pan of this Agreement. The business
plan shall set forth mutually acceptable Product and dollar quotas
by quarter. The business plan may also include other elements
including, without limitation, sales/service training and promotion
schedules and demonstration equipment requirements.
(b) The parties agree to meet at least once during each calendar quarter
to review Distributor's progress under the business plan and, if
necessary, to develop plans for improvements in performance required
to realize the objectives of the business plan.
(c) The Company will measure the effectiveness of Distributor's
performance under this Agreement against the objectives set forth in
the business plan. If Distributor fails to meet all of the
quarterly Product (s) quotas set forth in the business plan for two
successive quarters, the Company shall have the right to terminate
this Agreement with respect to the Product(s) involved or to
terminate this Agreement it its entirety pursuant to paragraph 32 a
(5).
19. WARRANTY
(a) Company warrants that Products and any services furnished hereunder
will be free from defects in material and workmanship and will be of
the kind of quality specified in Company's published warranty for
that Product.
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<PAGE>
(b) The Distributor agrees to maintain a record of all of its sales by
product type for a period of three (3) years in order to assist the
Company in the administration of the warranty and any voluntary or
mandatory field retrofit which mat be required during such time
period.
20. PRODUCT SUPPORT AND SERVICE
The parties recognize that users of the Products to be sold by the
Distributor under this Agreement shall require, in a timely fashion,
product support and service, such as installation of the Products, and
add-on options, as well as replacement parts, repair and maintenance
service. In recognition of such product support and service
requirements, the Distributor agrees to either:
(a) maintain an adequate inventory of replacement parts, provide
installation, repair and maintenance service under the provisions of
the Authorized Warranty Service Center Agreement, or
(b) advise the customer that the Distributor is not furnishing such
services, and that such services are available from the Company.
`Me Company shall provide the Distributor with a "Product Support
and Service Procedure" to be used in the event this election (b) is
applicable.
21. PATENTS
(a) The Company shall defend any suit or proceeding brought against the
Distributor or a subsequent purchaser so far as based on a claim
that any Product or any part thereof furnished under this Agreement
constitutes an infringement of any patent of the United States, if
notified promptly in writing and given authority, information and
assistance (at the Company's expense) for the defense of same, and
the Company shall pay all damages and costs awarded therein against
the Distributor. In case any Product or any part thereof is in such
suit held to constitute infringement and shall at its own expense
either procure for the Distributor or the subsequent purchaser the
right to continue using said Product, or part, or replace same with
a noninfringing, Product, or part, or modify it so it becomes
no-infringing, or refund the purchase price, less reasonable
depreciation thereof The foregoing states the entire liability of
the Company for patent infringement by any such Product or any part
thereof.
(b) The preceding paragraph shall not apply to any product or part
specified by the Distributor or manufactured to the Distributor's
design, or to the use of any product furnished hereunder in
conjunction with any other product in a combination not furnished by
the Company as a part of this transaction. As to any such product,
part, or use in such combination, the Company assumes no liability
whatsoever for patent infringement and the
-8-
<PAGE>
Distributor will hold the Company harmless against any infringement
claims arising therefrom.
22. TRADEMARKS
(a) The Distributor shall not use directly or indirectly, in whole or in
part, the Company's signature, or any other trademark or name that
is now or may hereafter be owned by the Company, as part of the
Distributor's corporate or business name, or in any way in
connection with the Distributors business except in the manner, and
to the extent that the Company may specifically consent to in
writing. If any such trademarks or names are issued in any way by
the Distributor's business except in the manner, and to the extent
that the Company may specifically consent to in writing. If any
such trademarks or names are used in any way by the Distributor with
the express written approval of the company, the Distributor, upon
the termination of this Agreement, shall delete and discontinue all
such use and shall not thereafter use any name, title or expression
in connection with any business in which the Distributor may
thereafter be engaged which, in the judgment of the Company, so
nearly resembles any trademark of name, or part thereof, owned by
the Company as may be likely to lead to confusion or uncertainty on
the part of the public.
(b) The proper use of the Company's trademarks is described in the
Company's published trademark procedure.
23. DISCLOSURE OF INFORMATION
Any information, suggestions or ideas transmitted by on party to the
other in connection with the performance of this Agreement are not
to be regarded as secret or submitted in confidence except as may be
otherwise provided in a writing signed by the duly authorized
representatives of the parties.
24. LIMITATION OF LIABILITY
(a) In no event, whether as a result of breach of contract, warranty or
tort, shall Company be liable for any consequential or incidental
damages including, but not limited to loss or profit or revenues,
loss of use of the product or any capital, cost of substitute
products, facilities, service or replacement power, down time costs,
or claims of Distributor's customers for such damages.
(b) Except as provided in the paragraph entitles "Patents", the
Company's liability on any claim of any kind for any loss or damage
arising out of, or resulting from this Agreement, or from its
performance or breach, or from
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<PAGE>
the products or services furnished hereunder, shall in no case
exceed the price of the specific product or service which gives rise
to the claim. Except as to title, any such liability shall
terminate upon expiration of the warranty period provided for herein.
25. TERMINATION
(a) This Agreement may be terminated:
(1) by either party at will, with or without cause, upon not less
than sixty (60) days written notice of the other party.
(2) by either party upon one day written notice in the event that
either party ceases to function as a going concern or to
conduct its operations in the normal course of business, has a
receiver appointed for it or an application made of appointment
of such a receiver, files or has filed against it a petition
under the Federal Bankruptcy Code, or makes an assignment of
the benefit of its creditors.
(3) by the Company upon one day written notice in the event that
the Distributor attempts to assign this Agreement or any rights
hereunder without the Company's written consent.
(4) by the Company upon ten (10) days written notice in the event
that Distributor fails to make any payment to the Company when
due under the terms of this Agreement.
(5) by either party in the event of a material breach of this
Agreement by the other party which is not remedied within ten
(10) days after written notice of such breach is given by the
non-breaching party to the other party.
(b) All orders in effect on the date of termination of this Agreement
shall be automatically canceled as of such date.
(c) In the event that this Agreement is terminated in accordance with
subparagraphs (a) (1), (a) (4) or (a) (5) above, the Company will
accept orders from Distributor priced in accordance with Distributor
pricing m effect at the time of order on C.O.D. terms for additional
Product(s) which Distributor is contractually obligated to furnish
to its customers as of the termination date; provided, however, that
Distributor must provide the Company with written notice of such
obligations on or before the 10th day following the termination date.
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<PAGE>
26. NO LIABILITY TERMINATION
Neither the Company nor the Distributor shall, by reason of the deletion
of any product or the termination or non-renewal of the Distributors
distributorship of said products, be liable to the other for
compensation, reimbursement or damages on account of, the loss or
prospective profits on anticipated sales, or on account of expenditures,
investments, leases or commitments in connection with the business of
goodwill of the Company of the Distributor or otherwise.
27. NOTICE
Any notice or demand which under the terms of this Agreement must or may
be made shall in be writing and shall be given or made by telegram or
similar communication or by certified or registered mail addressed to the
respective parties as follows:
the Distributor: Deloris Assahna
---------------------------------------------------------
Contracts Administrator
---------------------------------------------------------
Amerind, Inc.
---------------------------------------------------------
1310 Braddock Place
---------------------------------------------------------
Alexandria, Virginia 22314
---------------------------------------------------------
The Company: Vice President - TMS Division
American Computer and Electronics Corporation
Gaithersburg, Maryland 20977
Such notice or demand shall be deemed to have been given or made when
sent in the use of telegram or other similar communication or when
deposited, postage prepaid in the U.S. Mail.
The above addresses may be changed at any time by giving written notice
as provided above.
28. FAILURE TO ENFORCE
The failure to either party to enforce at any time or for any period of
time the provisions hereof shall not be construed to the a waiver of such
provisions or of the right of such party thereafter to enforce each and
every such provision.
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<PAGE>
29. GOVERNING LAW
The Agreement and any extension, modification, renewal, change or
amendment hereto shall be governed by the laws of the Commonwealth of
Maryland.
30. EXECUTION AND MODIFICATION
This instrument contains the entire and only agreement the parties
respecting the sale to and the purchase and distribution by the
Distributor of the Products listed in Appendix A and any representation,
promise or condition in connection therewith not incorporated herein
shall not be binding upon either party. This instrument supersedes all
pre-existing agreements or arrangements between the parties relating to
the purchase, sale or distribution by the Distributor of the Products.
This instrument shall not be effective or binding upon either party until
signed by authorized representative of both parties, not shall any
change, modification extension, renewal, ratification , rescission,
discharge, waiver, or termination of this Agreement or of any of the
provisions herein contained, be binding upon either party until made in
writing and signed by authorized representatives of parties.
IN WITNESS THEREOF, the parties have executed this Agreement by their duly
authorized representatives.
AMERICAN COMPUTER AND
ELECTRONICS CORPORATION DISTRIBUTOR AmerInd, Inc.
----------------------
BY: /s/ S. Joseph Dorr BY: /s/
------------------------------- ------------------------------
TITLE: Vice President TITLE: Executive Vice President
--------------------------- ----------------------------
DATE: July 16, 1991 DATE: July 23, 1991
---------------------------- -----------------------------
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<PAGE>
Exhibit 10.5
CONTRACT
BETWEEN
TELEGLOBE CANADA INC.
AND
AMERICAN COMPUTER AND ELECTRONICS CORPORATION
Re: RETR Project
(Network Traffic Data)
Contract No.: A6748
<PAGE>
CONTRACT NO.: A6748
CONTRACT ENTERED INTO BETWEEN:
TELEGLOBE CANADA INC., a Canada business corporation having its
registered office at 1000 de La Gauchetiere Street West, Montreal,
Quebec, H3B 4X5, hereinafter called "TELEGLOBE",
AND:
AMERICAN COMPUTER AND ELECTRONICS CORPORATION, a corporation
having a place of business at 209 Perry Parkway, Gaithersburg,
Maryland, U.S.A. 20877, hereinafter called the "Supplier",
THE PARTIES AGREE EACH WITH THE OTHER AS FOLLOWS:
SPECIFIC TERMS AND CONDITIONS
1. OBJECT OF THE CONTRACT
1.1 The Supplier shall develop, supply, deliver and install the software
and the equipment as required in the specification no. 93-375, Last
Revision dated August 10, 1994, attached hereto as Annex 2.
1.2 The object of this contract shall also include the provision of all
other materials and the carrying out of all other things required to
be done, furnished and performed to fully execute same as per high
trade standards.
2. DELIVERY AND INSTALLATION
2.1 The Supplier shall be responsible for making all arrangements and for
all costs associated with delivery of the software and the equipment,
including as applicable, the packaging, loading, shipping, unloading
and insurance to the location where the software and the equipment is
to be delivered and installed hereunder, which shall be:
Teleglobe Canada Inc.
Toronto International Center
825 Milner Avenue
Scarborough, Ontario Ml B 3C3
<PAGE>
Teleglobe Canada Inc.
3033 Beta Avenue
Burnaby, British Columbia
V5G 4M9
Te.leglobe Canada Inc.
625 Belmont Street
Montreal, Quebec
H3B 3Cl
Teleglobe Canada Inc.
1441 Carrie-Derrick
Montreal, Quebec
H3C 4S9
hereinafter called "the site" or "the sites".
2.2 The Supplier shall also arrange for and be responsible for the cost of
installation of the software and the equipment and of all services
auxiliary or related to the carrying out of this contract at the site,
including without limitation, elevator usage, water, temporary power
and hoisting.
3. CONTRACT PRICE
3.1 In consideration of proper performance of this contract, payment of
the contract price in the amount of (confidential material has been
omitted and filed separately with the Commission.), in Canadian
currency shall be made by TELEGLOBE to the Supplier, as per the
schedule of payments contained in clause 4 hereof, and in accordance
with all other conditions of payment herein.
3.2 The contract price includes all delivery and installation charges,
insurance cost and any taxes and charge which may apply at the site of
manufacturing in the country of origin and import duties but excludes
GST and provincial sales taxes which may be applicable to the software
and equipment (as that term is defined in clause 1.6 of Annex 1) and
services provided by the Supplier under the terms of the contract,
which shall be reimbursed by TELEGLOBE to the Supplier upon proof of
payment. In the event of changes in the form or applicability of
duties and/or sales taxes, the contract price will be adjusted
accordingly.
4. PERFORMANCE OF WORK AND PROGRESS PAYMENTS
4.1 Time is of the essence of this contract. The Supplier shall
accordingly achieve and maintain a rate of progress which will ensure
a timely
2
<PAGE>
performance of this contract in accordance with the following table
showing the sequence of events and dates by which such events must be
completed, as well as the associated progress payments payable to the
Supplier.
<TABLE>
<CAPTION>
MILESTONE DATE PAYMENT
(PERCENTAGE OF
CONTRACT
PRICE)
<S> <C> <C>
Architecture Approval August 19, 1994 10%
Functional Design Approval 1st Phase - Oct. 14, 1994 5%
2nd Phase - Nov. 18, 1994 5%
Complete Development 1st Phase - Nov. 25, 1994 15%
2nd Phase - Feb. 24, 1995 5%
HARDWARE DELIVERY
(a) DCMS October 15, 1994 5%
(b) Stratus October 15, 1994 5%
(c) Hewlett Packard November 15, 1994 10%
Completion of delivery for December 1st, 1994 ---
Phase 1
Provisional Acceptance December 16, 1994 10%
Completion of delivery for March 31, 1995 ---
Phase 2
Final Acceptance April 21, 1995 20%
Release of Holdback May, 1996 10%
</TABLE>
5. NOTICES AND ELECTED DOMICILE
All notices pertaining to this contract shall be in writing and shall be sent
to the respective following postal addresses or facsimile numbers:
5.1 For TELEGLOBE:
Teleglobe Canada Inc.
1000 de La Gauchetiere Street West
Montreal, Quebec
H3B 4X5
3
<PAGE>
Contract contact: Mrs. Brigitte Aube, Contacts Administration
Facsimile: (514) 868-8043
Technical contact: Mr. Martin Demers
Facsimile: (514) 868-7834
5.2 For the Supplier:
American Computer and Electronics Corporation
209 Perry Parkway
Gaithersburg, Maryland 20877
U.S.A.
Contract contact: Mr. Thomas V. Russotto
Technical contact: Mr. W.T. Lamoreaux
Facsimile: (301) 921-0434
6. EFFECTIVE DATE
The effective date of this contract is July 20, 1994.
7. APPLICABLE LAW AND LANGUAGES
This contract shall be governed and interpreted in accordance with the laws
in force in the Province of Quebec and the laws of Canada application
therein. The parties have agreed that this contract shall be written in
the English language only. Les parties ont convenu de rediger ce contrat
en langue anglaise seulement.
8. ARBITRATION
Any difference, controversy or claim arising out of or relating to the
contract, its interpretation or performance, shall be considered a Dispute.
Any Dispute shall be subject to binding arbitration as provided hereafter.
8.1 The Dispute shall diligently be notified by the aggrieved party to the
other party. The notification shall be deemed diligently made if
communicated to the other party within five (5) business days of the
knowledge of the occurrence.
8.2 Within (5) business days following such notification, each party shall
prepare and disclose to the other party a brief on its position and
within ten (10) days thereafter the parties shall prepare a common
brief which shall contain all points of agreement and all points of
disagreement in relation to the Dispute.
4
<PAGE>
8.3 Each party shall then within five (5) days of completing the common
brief, submit the Dispute and the common brief to their respective
Chief Executives with recommendation that the Chief Executives
communicate with each other within a reasonable period with a view to
resolving the Dispute.
8.4 Notwithstanding clause 8.3 above, if no resolution of the Dispute has
occurred after 90 days after the date on which a party has submitted
the Dispute to his Chief Executive, then the Dispute shall be
submitted for resolution by binding arbitration under the
International Chamber of Commerce Rules of Conciliation and
Arbitration in effect on the date the arbitration is submitted to the
tribunal of arbitration. In such event:
8.4.1 a sole arbitrator shall be appointed in accordance of said
Rules, unless the parties agree in a particular case within
thirty days of the submission of the Dispute for resolution by
binding arbitration that the tribunal should consist of more
than one arbitrator. Such arbitrator(s) shall be knowledgeable
in the field of law involved;
8.4.2 the place of arbitration shall be Quebec, Province of Quebec,
Canada and the arbitration shall be conducted in the English
language;
8.4.3 responsibility for paying the costs of the arbitration,
including the costs incurred by the parties themselves in
preparing and presenting their cases, shall be apportioned by
the tribunal of arbitration;
8.4.4 the award shall be rendered in the English language and shall
state the reasons upon which it is based;
8.4.5 the award shall be final and binding on the parties as from the
date of it is made;
8.4.6 the award of the tribunal of arbitration may be entered and
enforced as a judgment against a party in any court of
competent jurisdiction or application may be made to such court
for a judicial acceptance of the award and an order of
enforcement, as the case may be.
8.5 Nothing in the foregoing shall prevent a party from initiating such
conservatory measure proceedings as are necessary to protect any arm's
length third party rights.
5
<PAGE>
8.6 The fact that a dispute is brought to arbitration does not relieve
either party from its obligation to fulfill its commitments as
provided by the contract.
9. PERFORMANCE GUARANTEE
9.1 The Supplier shall, within thirty (30) days following execution of
this contract, deliver to TELEGLOBE a form of security, reasonably
acceptable to TELEGLOBE, in the amount of sixty percent (60%) of the
contract price and providing for the unconditional performance by the
Supplier of its obligations under this contract (the "performance
security"). Although to be issued for sixty percent (60%) of the
contract price, the performance security will automatically reduce to
twenty-five percent (25%) of the contract price upon provisional
acceptance and to zero percent (O%) upon final acceptance. All costs
for such security shall be paid by the Supplier.
9.2 Notwithstanding anything to the contrary contained in this contract,
until such performance security has been delivered to it, TELEGLOBE
may withhold any amounts due to the Supplier.
9.3 Upon delivery of the security to TELEGLOBE, it shall promptly pay to
Supplier all withheld amounts.
10. UNITED NATIONS CONVENTION
The Parties intend to exclude the application of the United Nations
Convention on Contract for the International Sale of Goods to this
contract. Accordingly, this contract shall not be subject to the United
Nations Convention for the International Sale of Goods but rather this
contract shall be governed by the internal rules in force in the Province
of Quebec.
11. GOOD FAITH
The Parties acknowledge to one another that each respectively intends to
perform its obligations as specified in this contract in good faith.
12. PARTIES TO ACT REASONABLY
The Parties agree to act reasonably in exercising any discretion, judgment,
approval or extension of time which may be required to effect the purpose
and intent of this contract. Whenever the approval or consent of a party is
required under this contract, such consent not be unreasonably withheld or
delayed.
6
<PAGE>
13. ANNEXES
The following annexed documents form an integral part of this contract:
ANNEX 1 - GENERAL TERMS AND CONDITIONS;
ANNEX 2 - SPECIFICATION No. 93-375, LAST REVISION DATED
AUGUST 10, 1994;
ANNEX 3 - LIST OF SOFTWARE AND EQUIPMENT;
ANNEX 4 - INSURANCE REQUIREMENTS.
ANNEX 5 - MUTUAL CONFIDENTIALITY AGREEMENT.
14. COUNTERPARTS
This contract may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which taken together shall be
deemed to constitute one and the same instrument.
15. BENEFIT OF THE CONTRACT
This contract shall enure to the benefit of and be binding upon the
respective successors and permitted assigns of the Parties hereto.
IN WITNESS WHEREOF the parties have signed on the dates and at the respective
locations appearing hereunder.
At Montreal, Province of Quebec, on this 12th day of August, 1994.
TELEGLOBE CANADA INC.
Per: /s/
------------------------------------
Title: Vice President Network
---------------------------------
Per: /s/ Guy Millette
------------------------------------
Title:
---------------------------------
7
<PAGE>
At Gaithersburg, Maryland, of U.S.A. on this 17th day of August, 1994.
AMERICAN COMPUTER AND ELECTRONICS CORPORATION
Per: /s/ George T. Jimenez
------------------------------------
Title: President
---------------------------------
Per: /s/ Thomas V. Russotto
------------------------------------
Title: Vice President
---------------------------------
8
<PAGE>
ANNEX 1
GENERAL TERMS AND CONDITIONS
<PAGE>
TABLE OF CONTENTS
NO. ARTICLE PAGE
1. DEFINITIONS......................................................
2. OPERATIONAL REQUIREMENTS AND
PROTECTION OF EXISTING SYSTEMS.................................
3. CONDITION OF SITE................................................
4. SUPERVISION AND REMOVAL OF PERSONNEL.............................
5. SAFETY AND SECURITY..............................................
6. EMERGENCIES......................................................
\
7. DOCUMENTATION AND LABELING.......................................
8. SPECIFICATIONS, DRAWINGS.........................................
9. DEPARTURES FROM SPECIFICATION....................................
10. CHANGE ORDERS....................................................
11. LOCAL LAWS AND PERMITS...........................................
12. IN-PLANT AND ON-SITE TESTING.....................................
13. RIGHT TO USE SOFTWARE AND EQUIPMENT..............................
14. PROVISIONAL ACCEPTANCE...........................................
15. FINAL ACCEPTANCE.................................................
16. CONDITIONS OF PAYMENT............................................
17. PENALTY..........................................................
18. TERMINATION FOR DEFAULT..........................................
19. TITLE AND RISK...................................................
i
<PAGE>
NO. ARTICLE PAGE
20. INDUSTRIAL AND INTELLECTUAL PROPERTY.............................
21. SOURCE CODE AND OBJECTIVE CODE...................................
22. WARRANTY AND SUPPLIER'S SUPPORT..................................
23. INSURANCE........................................................
24. INDEMNIFICATION..................................................
25. PRIVILEGES, HYPOTHETICS OR LIENS, FOR
LABOR, MATERIALS OR OTHERWISE..................................
26. PUBLIC RELEASE OF INFORMATION....................................
27. PATENTS AND OTHER INTELLECTUAL AND
INDUSTRIAL PROPERTY............................................
28. SUPPLIER NOT AGENT...............................................
29. ASSIGNMENT AND SUBCONTRACTING....................................
30. WHOLE CONTRACT...................................................
31. INFORMATION FROM TELEGLOBE.......................................
32. MEETINGS.........................................................
33. CONFIDENTIALITY..................................................
34. OPTIMIZATION OF R&D INCOME TAX BENEFITS..........................
35. FORCE MAJEURE....................................................
36. SURVIVAL.........................................................
37. SEVERABILITY.....................................................
38. AMENDMENTS AND WAIVER............................................
i
<PAGE>
ANNEX I
GENERAL TERMS AND CONDITIONS
1. DEFINITIONS
Unless the context otherwise requires, the following definitions shall
apply to this contract:
1.1 "contract" means and includes all these General Terms and Conditions
and the Specific Terms and Conditions to which this document is annexed
and any other documents referred to as forming part of this contract;
1.2 "delivery" means and includes the shipping and unloading of the
software and the equipment at the sites;
1.3 "existing software" means the software already in possession of the
Supplier as specified in Annexes 2 and 3 hereof;
1.4 "installation" means the mechanical and electrical installation of the
software and the equipment and includes the putting into place,
fastening, connecting, testing, aligning and making ready for putting
the software and the equipment into service;
1.5 "Party" or "Parties" means either TELEGLOBE or the Supplier if used in
the singular, and both TELEGLOBE and the Supplier if used in the
plural.
1.6 "software and equipment" means the existing software, the software
enhancements, the equipment listed in Annex 3 and any other software or
hardware components necessary to meet the requirements of the
specification;
1.7 "software enhancements" means the software functionality and related
documentation developed by the Supplier exclusively for Teleglobe
pursuant to this contract and specified in Annexes 2 and 3 hereof and
includes all drawing, technical documentation, source code, object code
and any other information related thereto;
1.8 "specifications" means the description of the overall and detailed
tasks and software and equipment requirements specified in Annex 2 and
includes all technical definitions and descriptions, plans, drawings,
designs and
<PAGE>
standards therein contained or referred to, and as may be prepared or
utilized in carrying out this contract;
1.9 "supplier's representative" means the employee or agent of the Supplier
who is designated in writing by the Supplier as being in full charge of
the operations of the Supplier on the site for the purposes of this
contract.
2. OPERATIONAL REQUIREMENTS AND PROTECTION OF EXISTING
2.1 The Supplier shall at all times exercise all necessary precautions
while working at the site not to interfere with the operation of
existing systems or software and equipment located at or near the site.
Any tasks carried out at the site shall be coordinated in advance with
TELEGLOBE.
2.2 The Supplier shall adequately protect at the site existing building
structure, software and. equipment, installations and promises from any
damage from water, dust, temperature extremes, impact and any other
causes and agrees to assume all liability for any such damage
attributable to his work or presence at the site.
3. CONDITION OF SITE
The Supplier shall at all times keep the site, including working and
storage areas it uses, free from rubbish and waste material. If the
Supplier fails to do so promptly, TELEGLOBE shall have the right to
have the necessary cleaning up carried out at the Supplier's expense.
4. SUPERVISION AND REMOVAL OF PERSONNEL
4.1 When warranted by the tasks being performed, the Supplier shall have on
the site a representative having authority to receive on behalf of the
Supplier any request, instruction or other notice that may be given
under the contract by TELEGLOBE and to respond thereto.
4.2 The Supplier shall, at the request of TELEGLOBE, remove from the site
any person there employed who, in the opinion of TELEGLOBE, is
intemperate, disorderly, negligent, dishonest, incompetent or has
otherwise been conducting himself improperly and the Supplier shall not
permit a person so removed to return to the site.
5. SAFETY AND SECURITY
The Supplier shall at all times exercise all necessary precautions for the
safety of his employees and those of his subcontractors and agents in
compliance with all statutory requirements and shall also observe the
safety, security and conduct
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rules and regulations of TELEGLOBE and or those of TELEGLOBE's lessor, as
may apply, when working within the site area.
6. EMERGENCIES
TELEGLOBE has authority, in an emergency, to stop the Supplier's work or any
part thereof whenever, in TELEGLOBE's opinion, such stoppage may be
necessary for security reasons or to ensure the safety of persons, or
neighboring property. The foregoing shall NOT imply any obligation for
TELEGLOBE to exercise such authority nor impose any responsibility
whatsoever upon TELEGLOBE, should TELEGLOBE not exercise said authority in
any given circumstance.
7. DOCUMENTATION AND LABELING
The Supplier undertakes to provide TELEGLOBE all documentation and labeling
specified in Annex 2 hereof in addition to that which is usually provided
with the software and the equipment, and thereafter to make available and to
offer to TELEGLOBE at reasonable price all pertinent new documentation,
updates, editions or revisions of same.
8. SPECIFICATIONS, DRAWINGS
Subject to the provisions of clause 20.3 hereof, all specifications, samples
and other information or documents furnished to the Supplier by TELEGLOBE in
connection with this contract shall be used by the Supplier solely for the
purpose of carrying out the object of this contract and for no other purpose
except with the prior consent in writing of TELEGLOBE, and shall remain the
property of TELEGLOBE and be returned to TELEGLOBE upon demand. All
intellectual and industrial property in these documents when produced by
TELEGLOBE shall vest in and remain at all times that of TELEGLOBE.
9. DEPARTURES FROM SPECIFICATION
9.1 All requests by the Supplier for departures from specification shall be
submitted to TELEGLOBE in writing. Every such request shall include an
analysis of the effect of said departure on the overall specification
and on the contract price.
9.2 TELEGLOBE reserves the right to either approve or reject in writing
requests for such departure, at the discretion of TELEGLOBE and without
obligation to justify any decision pertaining thereto.
10. CHANGE ORDERS
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10.1 TELEGLOBE shall have the right to order changes to the object of this
contract, subject to the following conditions:
10.1.1 TELEGLOBE shall first provide the Supplier with a written
request giving details of the proposed change;
10.1.2 within fifteen (15) days of receipt of this information, the
Supplier shall advise TELEGLOBE of the details of any increase
or decrease in the contract price, or revision in the time of
completion, that would be required to implement the change.
The proposed adjustment to the contract price and to time for
completion, shall be fair and reasonable to both TELEGLOBE and
the Supplier;
10.1.3 TELEGLOBE may then, by written notice, authorize the Supplier
to proceed with the change, which the Supplier shall then be
obliged to implement in accordance with a mutually agreed upon
timetable;
10.1.4 if the change so directed by TELEGLOBE affects other
obligations in addition to conditions of price or delivery,
the Supplier shall so advise at the time of its quotation for
the change. Unless such advice is received by TELEGLOBE, the
change shall in no way after or void other obligations of the
Supplier under this contract.
10.2 In no event shall the Supplier proceed with changes prior to their
written authorization by TELEGLOBE.
11. LOCAL LAWS AND PERMITS
To the extent that same affects the Supplier's performance of its
obligations under this contract, a the Supplier shall, at no additional
cost to TELEGLOBE and to the complete exoneration of TELEGLOBE, comply
with all applicable federal, provincial and municipal laws, by-laws and
regulations, including those in force in the locality within which work
is being executed hereunder.
12. IN-PLANT AND ON-SITE TESTING
12.1 The Supplier shall notify TELEGLOBE of forthcoming final in-plant and
on-site tests adequately in advance so that authorized representatives
of TELEGLOBE may be present during any such tests. The Supplier shall
further provide TELEGLOBE adequately in advance with complete test
plans and test procedures, for TELEGLOBE's approval prior to
commencement of final in-plant or on-site testing.
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12.2 Unless otherwise stipulated by the specifications or requested by
TELEGLOBE, the software and the equipment shall not be shipped until
such time as the software and the equipment has been tested in-plant
to the satisfaction of TELEGLOBE.
12.3 After installation, individual software and equipment tests and
relevant system-level tests shall be performed on-site by the Supplier
so as to verify that the performance is in accordance with the
specification.
12.4 The Supplier shall carry out retesting or additional testing at
TELEGLOBE's request, as may be necessary to properly verify that the
software and equipment operates in compliance with the requirements
set out in this contract. The cost of retesting whether in-plant or
on-site shall be at the Supplier's expense except that in the event
that mutual agreement cannot be reached as to the reasonableness of
retesting, then the Supplier shall repeat the test, and the cost of
direct wages and travel expenses in respect of such retesting shall be
borne by TELEGLOBE in the event that the results of the tests are the
same as those previously recorded, within the said measurement
tolerance stipulated in the specifications. If not within the
measurement tolerance, such costs as well as the costs of retesting
shall be at the Supplier's expense, including the cost to TELEGLOBE of
direct wages and travel expenses related to such retesting.
12.5 Should on-site testing with telecommunications traffic result in the
Supplier, his employees or subcontractors, becoming aware of private
communications, the Supplier agrees that such communications will not
be disclosed and the Supplier undertakes to include appropriate
provisions in any subcontracts with the view to protecting the
confidentiality and privacy of communications. TELEGLOBE may also, as
it deems necessary, specify other reasonable security requirements,
and the Supplier agrees to ensure that his own and the subcontractors
testing staff shall submit to such requirements and that they will
meet the criteria established by TELEGLOBE to that affect.
13. RIGHT TO USE SOFTWARE AND EQUIPMENT
TELEGLOBE shall not be prevented from commencing and continuing the use
of the software and the equipment whether such software and equipment
may or may not comply in all respects with the specification. However,
such use by TELEGLOBE shall not imply, nor be construed as, nor
constitute, provisional or final acceptance of the software and the
equipment or any part thereof, neither shall it prejudice any of
TELEGLOBE's rights under this contract, nor shall it relieve the
Supplier from any of his obligations hereunder.
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14. PROVISIONAL ACCEPTANCE
14.1 The Supplier shall notify TELEGLOBE in writing when, in his
opinion, all prerequisite conditions for provisional acceptance have
been met. Within thirty (30) days following receipt of such
notification TELEGLOBE shall advise the Supplier in writing that
provisional acceptance is granted, or that, for stated reasons,
provisional acceptance is withheld.
14.2 Prerequisite conditions for provisional acceptance, in addition to
full compliance with all other applicable terms and conditions of this
contract, area
14.2.1 completion of delivery of all software and equipment related
to Phase 1 as defined in Annex 2;
14.2.2 completion of all on-site tasks including installation and
on-site testing of the Phase 1 as specified in Annex 2;
14.2.3 receipt and approval by TELEGLOBE of all relevant
documentation, including certified in-plant and on-site test
records, with all departures from specification covered by
written waivers.
14.3 The granting of provisional acceptance by TELEGLOBE shall in no way
release the Supplier from his liability, nor his obligation to perform
in full conformity with all the requirements of this contract. If
defects or deficiencies are found after provisional acceptance,
TELEGLOBE will give written notice thereof to the Supplier who shall
correct same within the shortest reasonable time. Failure by the
Supplier to do so will entitle TELEGLOBE to have any such defects or
deficiencies corrected at the Supplier's expense.
15. FINAL ACCEPTANCE
15.1 The Supplier shall notify TELEGLOBE in writing when, in his
opinion, all prerequisite conditions for final acceptance have been
met. Within thirty (30) days following receipt of such notification,
TELEGLOBE shall advise the Supplier in writing that final acceptance
is granted or that, for stated reasons, final acceptance is withheld.
Prerequisite conditions for final acceptance, in addition to full
compliance with all the other terms and conditions of this contract,
are as follows:
15.1.1 completion of delivery of all software and equipment related
to Phase 2 as defined in Annex 2.
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15.1.2 revisions and updates to all pertinent handbooks, manuals,
drawings, and all other documentation have been completed
and delivered to the satisfaction of TELEGLOBE;
15.1.3 all defects and deficiencies have been corrected to the
satisfaction of TELEGLOBE, and the performance of the software
and the equipment of Phases 1 and 2 is in full accordance with
the specification;
15.1.4 written confirmation of the Supplier's employees or its
subcontractor's employees with regard to the ownership of all
software enhancements in accordance with clause 20.3 hereof;
15.1.5 if requested by TELEGLOBE, submission by the Supplier of a
sworn statement on title and liens, privileges or hypothecs in
a form satisfactory to TELEGLOBE, in accordance with
sub-clause 25.2 hereof;
15.1.6 all final approval certificates required by any by-law or
permits required for -the carrying out of this contract, have
been issued and copied to TELEGLOBE.
16. CONDITIONS OF PAYMENT
16.1 No progress payment shall become due and be paid until all
events previously scheduled in clause 4 of the Specific Terms and
Conditions of this contract, up to and including the event for
which payment is invoiced, have been duly completed.
16.2 Invoicing and payment shall be carried out as follows:
16.2.1 all Supplier's invoices shall separately show any
applicable sales taxes, duties or other levies;
16.2.2 all invoices submitted under this contract shall
indicate the contractor's GST registration number as well as
the GST amount separately if applicable. Invoices not
complying with the above will be returned to the contractor
for correction. TELEGLOBE will not be liable to the contractor
for any interest charges or other similar penalty for delays
in making payments resulting from the foregoing;
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16.2.3 all invoices shall be addressed in triplicate to TELEGLOBE's
Accounts Payable, 17th Floor, expressly stating the contract
number appearing on the front page of this contract;
16.2.4 subject to the conditions of this article, TELEGLOBE will pay
the Supplier's invoices within thirty (30) days of their
receipt.
16.3 The making of any payment hereunder shall not be deemed as
evidence that the event for which pa is made has been completed
satisfactorily and shall not relieve the Supplier from the
responsibility for full and satisfactory performance of this contract.
17. PENALTY
17.1 Except in the event of:
a) force majeure as defined in clause 35 hereof;
b) any emergency situation occurring under the provisions of clause 6
hereof;
c) any default (whether or not intentional) or negligence on the part
of TELEGLOBE;
failure by the Supplier to meet the final acceptance date specified in
this contract, shall result in the Supplier becoming indebted to
TELEGLOBE, as a penalty for simple delay, and not as liquidated
damages, for the amount one percent (1%) of the contract price for
each calendar week of delay, commencing at zero hour one minute
(00:01) the day after the provisional acceptance date specified
herein, and ending on the date the Supplier has met the provisional
acceptance requirements in accordance with this contract or on the
date TELEGLOBE terminates this contract. The total amount of penalty
under this clause shall not exceed ten percent (10%) of the contract
price.
17.2 Any delay or permission granted for completion of provisional
acceptance requirements after the specified date for provisional
acceptance, or any payment to TELEGLOBE of the penalty specified
herein, shall not be construed as a waiver of or a bar to
TELEGLOBE's rights to recover any damages and costs as a result of the
Supplier's failure to perform in strict accordance with the terms of
this contract, nor as a waiver of or a bar to TELEGLOBE's right to
require full performance of this contract by the Supplier.
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18. TERMINATION FOR DEFAULT
18.1 Without prejudice to any other recourse or right of TELEGLOBE
hereunder or at law, if the Supplier fails to satisfactorily deliver
or install the software and the equipment or part of it on schedule,
except in the event of force majeure as defined in clause 35 hereof,
any emergency situations occurring under the provisions of clause 6
hereof or any default (whether or not intentional) or negligence on
the part of TELEGLOBE, or if the Supplier is otherwise in default
under this contract, TELEGLOBE may by written notice to the Supplier
terminate this contract. In the event of such termination, the
Supplier shall only be entitled to payment for that part of the
software and the equipment, if severable, which has been accepted and
delivered, provided that TELEGLOBE then determines that part to be
truly useful.
18.2 Should TELEGLOBE decide that it does not require any part of
the software and the equipment, then the Supplier shall remove at its
own expense any such part already delivered to the place of delivery,
and notwithstanding that title to that software and equipment have
vested in TELEGLOBE, such title shall revert back to the Supplier upon
removal, and the Supplier shall, without prejudice to any claims
TELEGLOBE may have hereunder or at law, reimburse TELEGLOBE forthwith
all moneys paid by TELEGLOBE to the Supplier in respect of such part.
18.3 TELEGLOBE may also terminate this contract should the Supplier
become insolvent, file for bankruptcy, take advantage of any legal
scheme for the relief of debtors, adopt a resolution for his
winding-up or for the bulk sale of his assets, or if a petition in
bankruptcy, for receivership or for winding-up is taken against him
and is not contested or withdrawn within thirty (30) days from its
inception.
18.4 Upon the giving of such a notice, TELEGLOBE may by written
notification within ten (10) days require the Supplier to deliver any
software and equipment, work-in-process, parts or other material which
the Supplier has specifically acquired or produced in accordance with
this contract and the Supplier shall comply with such requirements
within thirty (30) days. TELEGLOBE shall credit the Supplier, less the
amount of any claim against the Supplier, the value of same.
18.5 The total payment made to the Supplier pursuant to this
clause, added to any other payment previously made hereunder and
related to a particular part of the software and the equipment, shall
not exceed the contract price applicable to the software and the
equipment or to said particular part thereof, as may be modified, from
time to time by the Parties, in accordance with clause 10 hereof.
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18.6 Upon termination for default, TELEGLOBE shall have the right
to have the installation, if partially or unsatisfactorily completed
hereunder, completed as per the specifications, the whole at the sole
cost and expense of the Supplier Teleglobe acting reasonably, subject
to any further recourses available to TELEGLOBE hereunder or at law.
18.7 The Supplier may also terminate this contract if TELEGLOBE is
in default under this contract for the payment of the Supplier
invoices in accordance with clause 16 hereof.
18.8 Except in the event as provided in clause 18.3, the right of
either Party to invoke termination of this contract may only occur if
the condition giving rise to the default is not remedied within thirty
(30) days of receipt of written notice by the nondefaulting Party
specifying such default.
19. TITLE AND RISK
19.1 Title to the software enhancements, the equipment, documentation and
spare parts shall vest in TELEGLOBE as soon as their delivery has
taken place. However, when and if any software enhancements and
equipment is rejected, its title shall revert to the Supplier upon
notice of said rejection.
19.2 Such vesting of the title in TELEGLOBE shall not be construed
as an acceptance by TELEGLOBE, nor shall it affect or modify the other
rights of TELEGLOBE hereunder or at law, nor shall it release in any
way whatsoever the Supplier from any of his obligations and
liabilities for defective workmanship, materials and performance, nor
from his obligations leading up to final acceptance and full
performance hereunder.
19.3 Notwithstanding title having passed to TELEGLOBE or any
insurance coverage that TELEGLOBE may benefit from, the Supplier shall
bear the risk of all loss of or damage to any software and equipment
until Final acceptance. In the event of such loss or damage, the
Supplier shall repair and restore or replace the damaged or lost
software and equipment and provide all necessary and associated work
therefor, the whole at the Supplier's sole expense.
19.4 In the event of termination for default as specified in clause 18
hereof, title to all software enhancements and equipment or
work-in-process shall, in the event that TELEGLOBE should require the
delivery of such software and equipment or work-in-process under the
terms of such clause, vest in TELEGLOBE as soon as the delivery
thereof has been completed.
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20. INDUSTRIAL AND INTELLECTUAL PROPERTY
20.1 The software enhancements shall be the sole property of
TELEGLOBE and any patent, copyright, trade mark appellation or other
industrial and intellectual property including moral rights, which may
derive therefrom vests in TELEGLOBE.
20.2 TELEGLOBE may register in its own name, any industrial or
intellectual property rights pertaining to such software enhancements
and the Supplier shall fully cooperate with TELEGLOBE in the process
of such registration.
20.3 The Supplier and TELEGLOBE express their mutual desire to
enter into a "License Agreement" under which each Party will receive
perpetual world wide, non-exclusive rights, to respectively license
the software enhancements and the existing software in conjunction
with their own software and other products. The relationship
contemplates payments of license fees and royalties in amounts yet to
be finalized. As well certain rights, obligations and limitations yet
to be finalized and set out in the License Agreement. The Parties
agree to negotiate the terms and the conditions of the License
Agreement and to conclude same on or before November 11, 1994.
20.4 The Supplier shall provide TELEGLOBE before final acceptance
with a written confirmation of the Supplier's employees or its
subcontractors' employees that the ownership of all software
enhancements created by said employees, including the related
copyrights, trade secrets, patent rights and moral rights will belong
to TELEGLOBE.
20.5 The Supplier grants or shall procure the granting to TELEGLOBE
and at no additional charge a personnel, non-transferable and
non-exclusive and worldwide right to use all existing software and
related documentation.
20.6 Subject to provisions of clause 20.3 hereof, the Supplier and
TELEGLOBE will at all times and from time to time make complete and
full disclosure to each other of all improvements of software
enhancements and existing software, and shall deliver or make
available to each other all documents, papers, drawings, records,
designs, specifications, reports and other information relating
thereto. The property of such improvements and the right to use it
shall be governed by paragraphs 20.1 to 20.5 above.
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21. SOURCE CODE AND OBJECTIVE CODE
The supplier hereby agrees to remit to TELEGLOBE one copy of the source
code and object code of the latest version of the existing software
including the documentation pertaining hereto, at the same time of the
delivery to TELEGLOBE of the source code and object code of the software
enhancements in accordance with clauses 19 and 20 hereof. TELEGLOBE
shall treat the copy of the source code and object code of the existing
software as confidential and subject to clause 33 hereof. For purposes
of clarity, TELEGLOBE expressly acknowledges and agrees that the
existing software constitutes confidential information of the Supplier
and is of great and central importance to and a valuable asset of the
Supplier and is critical to its day to day operations. TELEGLOBE agrees
that it will exercise the same degree of care and discretion with
respect to this confidential information as it exercises in protecting
its own confidential information and particularly in the case of the
source code and all associated specifications, will seal and only access
same as specifically authorized under the contract, and in particular,
upon conclusion of the License Agreement referred to in clause 20.3.
22. WARRANTY AND SUPPLIER'S SUPPORT
22.1 Notwithstanding inspection, provisional or final acceptance by
TELEGLOBE, any other terms of the contract, and any other rights,
remedies or warranties implied or imposed by law, the Supplier
warrants that all software and equipment supplied under this contract
is new, free from defects in design, material or workmanship, and that
it is of proper quality and in full conformity with all the
requirements of this contract and that all tasks performed hereunder
are in conformity with recognized professional practices.
22.2 The Supplier warrants that he has good title to all software
and equipment, parts and components supplied, free and clear from all
lions, privileges, hypothecs, encumbrances or any agreement by which
an interest therein is retained by the original supplier or seller
thereof, a financial institution, lender or any other party.
22.3 At any time during the one (1) year after final acceptance is
granted hereunder, hereinafter referred to as the warranty period, the
Supplier at his own expense shall correct any finished work or replace
without delay any software and equipment which is or becomes defective
or which fails to conform to the specifications. TELEGLOBE will return
the defective software and equipment to the Supplier who shall correct
or replace same within a reasonable time. Where, in the opinion of
TELEGLOBE, it is not expedient to remove such defective software and
equipment from the site, the Supplier shall replace it or make it good
at the site. If the Supplier fails
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to so perform promptly after notification from TELEGLOBE, TELEGLOBE
may proceed to have corrections made by other means and the Supplier
shall reimburse TELEGLOBE for all ensuing costs upon demand. If
TELEGLOBE is required to proceed in securing corrections through a
third party, TELEGLOBE will, prior to undertaking any evaluation or
corrective measures, require such third party to execute a
confidential nondisclosure agreement in favor of each TELEGLOBE and
the Supplier.
22.4 If repeated malfunctioning of the software and the equipment
prior to or during the warranty period shows that such software and
equipment cannot perform as specified, and if the Supplier has been
given an opportunity to make it good, TELEGLOBE may, demand delivery
of. new software and equipment meeting the specification and its
installation at no extra cost under reserve of any other rights or
remedies, and the Supplier shall then perform accordingly.
22.5 The Supplier shall provide TELEGLOBE at a reasonable cost,
technical support and advice concerning all aspects of the design,
maintenance and operation of the software and the equipment, when
required, to ensure the successful operation of the software and the
equipment throughout its useful life.
22.6 The Supplier warrants the availability of replacement parts
and facilities to maintain all of the software and the equipment for
at least ten (10) years. In the event that the Supplier cannot supply
mechanically identical units or components due to obsolescence then
the spares and replacements to be supplied shall be the functional
equivalents of the original parts. In addition, the Supplier shall
carry out as practicable at reasonable cost to TELEGLOBE, any
necessary adaptive engineering necessary and shall provide all
implementation documentation.
23. INSURANCE
23.1 The Supplier shall at no additional cost to TELEGLOBE maintain
the insurance coverage set out in the Annex 4 attached to this
contract.
23.2 The insurance coverage to be provided hereunder by the
Supplier or any other insurance coverage that TELEGLOBE may benefit
from, shall in no manner restrict or limit the Supplier's obligations
hereunder. Furthermore, any such insurance coverage provided by the
Supplier shall be considered as primary coverage to any other valid
and collectible insurance that TELEGLOBE may benefit from.
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24. INDEMNIFICATION
The Parties shall indemnify and hold one another harmless from and
against any and all payments and liabilities for payment of compensation
or damages which either Party may be required or held liable to make, to
or on account of the other Party, or which otherwise arises out of or is
connected with this contract. This indemnity shall extend to any and all
losses, damages, suits, proceedings or obligations of any kind incurred
by, or directed against either Party on account of any act or omission
of the other Party. Furthermore, the responsible Party shall defend at
its expense any such suits and proceedings and shall pay all expenses
incurred, fines imposed and satisfy all judgments rendered against the
wronged party in connection therewith.
25. PRIVILEGES, HYPOTHECS OR LIENS, FOR LABOR, MATERIALS OR OTHERWISE
25.1 The Supplier shall promptly pay for all labor and material
used in the manufacturing, installation and testing of the software
and the equipment, and in the event of failure by the Supplier at any
time to do so, which in the opinion of TELEGLOBE is without legal
cause, TELEGLOBE may retain from all monies due or to become
due to the Supplier such amount of money as TELEGLOBE may deem
sufficient to pay for the same, obtain title, or to secure TELEGLOBE
from loss by such non-payment. TELEGLOBE may at its option pay for
such labor, services, or material, or any of the same, out of the
monies so retained by it, and shall thereby obtain title to the
portion of the software and the software and the equipment so
paid for.
25.2 Before final acceptance is granted by TELEGLOBE the Supplier shall
furnish, if requested to do so by TELEGLOBE, a solemn
declaration and or a title search or registration certificate
satisfactory to TELEGLOBE that the software and the equipment and any
other property of TELEGLOBE or are free and clear from all privileges
or liens for labor, materials, or otherwise, from any other
encumbrances and that no claim then exists in respect of which a
privilege, prior claims, hypothecs or lien upon the said software and
equipment or property of TELEGLOBE could or might attach or suit be
brought against TELEGLOBE arising in respect of this contract.
25.3 The Supplier hereby waives, renounces and releases all
privileges, prior claims, hypothecs or liens now existing or that may
hereafter exist for labor performed or for materials or software and
equipment furnished under this contract upon the buildings in which
work is or has been executed and upon the lands on which same are
situated or upon any other property, and agrees to furnish a good and
sufficient release of privilege or
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lien from every person furnishing labor or materials under this
contract. The Supplier further agrees that no privilege, prior claims,
hypothecs or lien, or "lis pendens" or other document purporting to
claim any privilege, prior claims, hypothecs or interest with respect
to the said buildings and lands or any other property, shall be
registered against same, upon pain of liability for all damages which
may be incurred by said registration inclusive of all costs and fees
necessary to remove, radiate, strike out or cause to acquit or
discharge same.
26. PUBLIC RELEASE OF INFORMATION
Either Party shall obtain the written consent of the other Party
concerning the content and timing of news releases, articles, brochures,
advertisements, prepared speeches and other information releases,
concerning this contract, within a reasonable time prior to the proposed
release of such information. Either Party shall not use the name of the
other Party or any of its trademarks or those of its affiliates or
corporation controlling or under the same control of such other Party
without first obtaining the written consent of the other Party.
27. PATENTS AND OTHER INTELLECTUAL AND INDUSTRIAL PROPERTY
27.1 The Supplier shall hold harmless TELEGLOBE, its employees and
agents from and against, and will defend or settle at his expense, any
claim, suit or proceeding brought against TELEGLOBE, its employees or
agents on the issue of infringement or alleged infringement of any
patent, copyright, trademark, industrial design or other form of
intellectual or industrial property, or unauthorized use or disclosure
of information, in respect of the object of this contract. The
Supplier shall indemnify TELEGLOBE for any loss, damage or
expense whatsoever, including any settlement of final payment, legal
fees and costs, royalties and other sums payable in connection
with the carrying out of this contract or the use of or
disposal of the software and the equipment by TELEGLOBE,
ensuing from any such claim, suit or proceeding.
27.2 TELEGLOBE undertakes to notify the Supplier promptly in
writing of any such claim, suit or proceeding. Upon the written
request of the Supplier and at his expense, TELEGLOBE further
undertakes to give him proper and full information, assistance and
authority, as are available to TELEGLOBE, to settle or to defend any
such claim, suit or proceeding.
27.3 In the event that the Supplier is unable to settle any such
claim, suit or proceeding or make arrangements or provide alternate
software and equipment whereby its use by TELEGLOBE will be
non-infringing and satisfactory to TELEGLOBE, then the Supplier shall
be liable to
15
<PAGE>
TELEGLOBE for TELEGLOBE's additional costs and damages arising as a
result of such impediment and TELEGLOBE shall have the right to
terminate this contract for default, return the software and the
equipment at the Supplier's cost and claim back the price shown in
this contract for such software and equipment.
28. SUPPLIER NOT AGENT
The Supplier expressly acknowledges that he is an independent
contractor and that this contract shall not in any way constitute nor
appoint, nor authorize the Supplier, his subcontractors or his employees
or agents to act as employees, partners or agents of TELEGLOBE, and that
furthermore no tax, assessment or legal liability of the Supplier, his
subcontractors or his employees or agents becomes, by reason of this
contract, an obligation of TELEGLOBE.
29. ASSIGNMENT AND SUBCONTRACTING
29.1 The Supplier may not assign the whole or any part of this
contract nor subcontract any of his work hereunder without the prior
written consent of TELEGLOBE which shall not be unreasonably withheld
or unduly delayed. Any assignment or subcontracting made without such
consent shall be of no effect against TELEGLOBE.
29.2 TELEGLOBE may assign, transfer, sell or dispose any of its
rights or obligations hereunder or under any software license related
thereto to a legal successor, a statutorily designated assignee, or a
subsidiary of, or a corporation or entity controlling or under the
same control as TELEGLOBE, in which case a written notice to the
Supplier shall be given in a timely manner.
30. WHOLE CONTRACT
The express terms and conditions of this contract agreed to by the
parties, are the only ones upon which any of their contractual rights
and obligations are to be founded and, without. limiting the generality
of the foregoing, this contract supersedes all previous communications,
negotiations and agreements, either written or oral, relating to the
object of this contract. There are no representations, warranties,
terms, conditions, undertakings or collateral agreements, express,
implied or statutory between the Parties other than as expressly set,
forth in this contract.
31. INFORMATION FROM TELEGLOBE
31.1 The Supplier shall use its best efforts to identify all
information or documentation required from TELEGLOBE to perform the
Work.
16
<PAGE>
However, if in execution of the Work, the Supplier shall
require additional information or documents from TELEGLOBE, TELEGLOBE
shall provide same, if possible, promptly upon written request and
reasonable notice from the Supplier. If TELEGLOBE fails to respond to
any request for information or documents as herein provided and
failure to provide such information or documents results in the
Supplier not being able to meet the Milestone dates, they
shall be extended by the length of the delay occasioned by
such cause, or, if necessary the Work shall be redefined by
the parties.
31.2 As an alternative to extension of any Milestone, TELEGLOBE may
direct the Supplier in writing to make assumptions regarding the
information or documents required by the Supplier from TELEGLOBE.
TELEGLOBE must approve any assumptions made by the Supplier prior to
their implementation into the Work, and if such assumptions are
subsequently shown to be invalid, TELEGLOBE may authorize the Supplier
in writing to proceed with any necessary re-work.
32. MEETINGS
At the request of either party, TELEGLOBE and the Supplier shall
meet to discuss matters related to the Work including progress, review
of results, analysis of problems, financial expenditures, adequacy of
information to be provided by TELEGLOBE pursuant to Article 6 and
changes in the Work.
33. CONFIDENTIALITY
All information of the parties exchanged will be subject to the
obligation of the Mutual Confidentiality Agreement between the parties
attached hereto as Annex 5. The provisions of the Mutual Confidentiality
Agreement shall continue in full force and effect save and except for
clause 16 thereof which shall be extended to five (5) years from the
contract date.
34. OPTIMIZATION OF R&D INCOME TAX BENEFITS
34.1 TELEGLOBE intends to claim Income Tax benefits regarding these
expenditures. To this end, the Supplier shall optimize labor and
material expenditures in carrying out the Work, to the full extend to
which they are procurable consistent with proper economy and
expeditious carry out of the Work.
34.2 The supplier shall provide at TELEGLOBE's expense documentary
assistance to TELEGLOBE in the qualification of these expenditures
under the then current Canadian Federal and Provincial Scientific
Research and Experimental Development taxation regulations.
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35. FORCE MAJEURE
Neither party to this contract shall be liable for failure to
perform any of its obligations hereunder during any period in which such
performance is prevented by any cause beyond its reasonable control. In
the event of any such delay the date any delivery or performance
hereunder shall be extended by the length of the delay occasioned by
such cause. In the event the Supplier's production is curtailed, the
Supplier may allocate its available production, as reasonably equitable
in its opinion, among its various customers, following consultation with
its customers.
36. SURVIVAL
The terms and conditions contained in this contract that by their
sense and context and more particularly articles 20, 26, 27 and 29 are
intended to survive the performance thereof or hereof by either or both
parties shall survive the completion of the performance and termination
of this contract.
37. SEVERABILITY
In the event that one or more provisions contained in the contract
or any contract required hereunder to be delivered, shall be invalid,
illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions hereof
shall not be affected or impaired thereby.
38. AMENDMENTS AND WAIVER
No modification of or amendment to this contract shall be valid or
binding unless set forth in writing and duly executed by both of the
Parties hereto and no waiver of any breach of any term or provision of
this contract shall be effective or binding unless made in writing and
signed by the Party purporting to give the same and unless otherwise
provided, shall be limited to the specific breach waived.
18
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(Annexes 2 and 3 are confidential and have been omitted and filed separately
with the Commission.)
<PAGE>
EXHIBIT 10.6
LICENSE AGREEMENT
BETWEEN
TELEGLOBE CANADA INC.
AND
AMERICAN COMPUTER AND ELECTRONICS CORPORATION
<PAGE>
This License Agreement ("Agreement") made this 1st day of August 1995 between:
TELEGLOBE CANADA INC., a Canada business corporation having its registered
office at 1000 de La Gauchetiere Street West, Montreal, Quebec, H3B 4X5,
hereinafter called "TELEGLOBE",
AND
AMERICAN COMPUTER AND ELECTRONICS CORPORATION, a corporation having a place
of business at 209 Perry Parkway, Gaithersburg, Maryland, U.S.A. 20877,
hereinafter called "ACE".
TELEGLOBE and ACE being sometimes referred to individually as "PARTY" and
collectively as "PARTIES".
WHEREAS the Parties entered into an agreement effective on July 20, 1994 for the
supply by ACE of equipment and software concerning the RETR project as defined
therein (the "SUPPLY AGREEMENT");
WHEREAS in accordance with the Supply Agreement, ACE agreed to develop from some
software already owned by ACE, new software, the ownership of said new software
being vested in TELEGLOBE upon acceptance;
WHEREAS in accordance with Article 20.3 of Annex 1 of the Supply Agreement, the
Parties expressed their mutual desire to enter into a License Agreement under
which each Party will receive worldwide and non-exclusive rights to respectively
license ACE's Products and Software and the RETR Software, as defined in this
Agreement in conjunction with their own software and other products;
NOW THEREFORE, the Parties hereto, in consideration of the mutual covenants
herein contained covenant and agree with each other as follows:
1. DEFINITIONS
As used in this Agreement, the terms set forth below shall be defined as
follows, such definitions being cumulative of those set forth elsewhere in
this Agreement:
1.1 "ACE'S PRODUCTS AND SOFTWARE" shall mean the products and software
listed in Annex A attached hereto and forming part hereof.
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 3
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1.2 "RETR SOFTWARE" shall mean ACE's Products and Software with the
Software Enhancements.
1.3 "Software Enhancements" shall mean the software enhancement described
in Annex B attached hereto and forming part hereof;
1.4 "TELEGLOBE's CUSTOMER" shall mean a customer to whom TELEGLOBE has
sold or licensed ACE's Products and Software or has licensed the RETR
Software or any part thereof;
1.5 "TELEGLOBE's License Agreement" shall mean the license agreement for
a TELEGLOBE's customer in the form attached hereto as Annex C.
2. PURPOSE
2.1 The Preamble shall form an integral part of this Agreement.
2.2 The Parties hereto enter into this Agreement for the purpose of
recording their agreement in accordance with Article 20.3 of Annex 1
of the Supply Contract with regard to their respective rights and
obligations concerning the sale or the licensing of ACE's Products and
Software and the RETR Software or any part thereof.
3. NATURE OF THE RELATIONSHIP
3.1 The Parties shall fully cooperate each with the other in implementing
this Agreement and each Party will, from time to time, and upon any
reasonable request of the other Party consistent with the terms and
conditions of this Agreement, make or cause to be made all such
further acts, deeds, assurances and things as may be required to more
effectually implement the true intent of this Agreement.
3.2 Except as otherwise specifically provided herein, each Party shall
bear the costs and expenses that are incurred or may be associated
with each Party's activities undertaken pursuant to this Agreement.
3.3 The relationship and common enterprise between and among the Parties
hereto shall not be that of partners and shall be limited to the
express provisions of this Agreement. Nothing herein contained shall
be deemed to constitute a partnership or societe de fait between and
among them or to merge their assets or their fiscal or other
liabilities or undertakings nor shall it allow a Party to act
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 4
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as a mandatory or agent of the other Party or all of them, except to
the extent specifically permitted hereunder.
3.4 Subject to the specific limitation contained herein, nothing contained
in this Agreement shall preclude either Party from acting in a similar
way or in any other capacity for or with any other person, firm,
company, or other third Parties and this Agreement does not constitute
and shall not be construed or interpreted as an exclusive arrangement
between the Parties.
3.5 Unless expressly stated herein, nothing contained in this Agreement or
in any discussion undertaken or disclosures made by one Party to the
other shall be construed as representations or warranties made by one
Party to the other that the participation of either Party in this
Agreement will result in additional sales or the generation of any
additional revenues.
3.6 ACE may, from time to time, request from TELEGLOBE permission to
demonstrate, at TELEGLOBE facilities, the RETR Software. ACE shall
provide TELEGLOBE with as much notice of such demonstrations as
possible. TELEGLOBE shall grant all site visit requests unless there
is a reasonable objection to such a request.
3.7 TELEGLOBE may, from time to time, request from ACE permission to have
a TELEGLOBE customer visit the ACE facilities or an ACE Customer site
installation. TELEGLOBE shall provide to ACE with as much notice of
such visits as possible. ACE shall grant all site visit requests
unless there is a reasonable objection to such a request.
4. ACE'S PRODUCTS AND SOFTWARE
4.1 ACE hereby grants to TELEGLOBE a worldwide and non-exclusive license
to sell and license ACE's Products and Software including the ACE's
Products and Software being a part of the RETR Software to
international telecommunications carriers or other telecommunications
carriers in which TELEGLOBE has an ownership interest or with which
TELEGLOBE has concluded a strategic alliance. Said sale and licensing
can be made by TELEGLOBE in accordance with the TELEGLOBE's License
Agreement.
4.2 All sales made and license granted by TELEGLOBE will be subject to
prior written confirmation by ACE. ACE shall use its best effort to
cooperate with TELEGLOBE for the sale and license of ACE's Products
and Software and agrees to make available to TELEGLOBE, at its own
costs, reasonable quantities of literature and promotional advertising
materials for the purpose of promoting ACE's Products and Software.
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 5
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4.3 ACE hereby grants to TELEGLOBE the right to use the name of ACE and
the names of ACE's Product and Software in connection with activities
authorized under this Agreement and in furtherance of the purposes of
this Agreement, provided that such rights to use such names shall
terminate upon the termination of this Agreement.
4.4 ACE agrees to pack and to ship to TELEGLOBE's customer, at ACE's
expenses the ACE's Products and Software sold as TELEGLOBE may
specify, provided that ACE shall be given sufficient notice of the
shipments required to enable it to manufacture or secure and ship the
ACE's Products and Software.
4.5 For any ACE's Products and Software sold and licensed by TELEGLOBE,
ACE agrees to bill TELEGLOBE for the ACE's Products and Software at
the regular published list prices shown in Annex D hereof. Prices are
in U.S. currency. The list price shall include base price, extras
and terms in effect at the time each order is shipped by ACE, less the
particular discounts set forth in Annex E attached hereto (the "ACE
PRICE"). ACE will advise TELEGLOBE by providing sixty (60) day's
prior written notice of any changes in its regular published list
prices. It is understood that the new prices will not apply to ACE's
Products and Software for which TELEGLOBE has obtained ACE's
confirmation to sale in accordance with Article 4.2 hereof, prior to
the receipt of the above notice. For any other products or software
not listed in Annex D hereto, ACE will upon request, provide TELEGLOBE
with the applicable prices and discounts.
4.6 ACE shall bear the risk of all loss of or damage to any ACE's Products
and Software until complete delivery on TELEGLOBE's customer premises.
4.7 ACE agrees that any warranty given by it for ACE's Product and
Software sold and licensed by TELEGLOBE shall pass to TELEGLOBE's
customer.
4.8 ACE's Software will remain the property of ACE and TELEGLOBE will be
entitled to only license such Software in accordance with the terms
and conditions as specified by ACE.
4.9 ACE's Price shall become due and payable on the following terms:
a) thirty (30) percent on order;
b) fifty (50) percent on delivery;
c) twenty (20) percent on acceptance by TELEGLOBE;
Invoices and payment shall be in US dollars and carried out as
follows:
4.9.1 all ACE's invoices shall separately show any applicable
sales taxes, duties or other levies;
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 6
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4.9.2 all invoices submitted under this Agreement shall indicate
ACE's GST registration number as well as the GST amount
separately. Invoices not complying with the above will be
returned to ACE for correction. TELEGLOBE will not be
liable to ACE for any interest charges or other similar
penalty for delays in making payments resulting from the
foregoing;
4.9.3 all invoices shall be addressed in triplicate to TELEGLOBE's
Accounts Payable, 17th Floor, expressly stating the
Agreement number appearing on the front page of this
Agreement;
4.9.4 subject to the conditions of this article, TELEGLOBE will
pay ACE's invoices within thirty (30) days of their receipt.
4.9.5 The making of any payment hereunder shall not be deemed as
evidence that the event for which payment is made has been
completed satisfactorily and shall not relieve ACE from the
responsibility for full and satisfactory performance of this
Agreement.
5. RETR SOFTWARE
5.1 TELEGLOBE hereby grants to ACE a worldwide and non-exclusive license
to commercialize and sublicense the Software Enhancements. Each Party
recognize that the other Party has the right to commercialize and
sublicense the RETR Software in its entirety and to use the name of
said RETR Software or any part thereof and the name of ACE as the
developer and the maintenance provider of said RETR Software or any
part thereof, for the purpose hereof and in accordance with the terms
and conditions provided hereunder.
5.2 LICENSING BY TELEGLOBE
5.2.1 TELEGLOBE will not license the RETR Software or any part
thereof without first obtaining the consent of ACE which
consent shall not be unreasonably withheld.
5.2.2 ACE agrees to give, at TELEGLOBE's expenses, to the
TELEGLOBE's customers the same warranty as the one described
in Article 22 of Annex 1 of the Supply Agreement. The costs
of said warranty shall be agreed by the Parties prior to the
obtaining of ACE's consent as provided in Article 5.2.1
above.
5.2.3 ACE agrees to pack and to ship to TELEGLOBE's customer, at
TELEGLOBE's expenses, the RETR Software licensed by
TELEGLOBE as
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 7
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TELEGLOBE may specify, provided that ACE shall be given
sufficient notice of the shipments to enable it to secure
and ship the RETR Software or any part thereof.
5.2.4 Except as provided in Articles 5.2.2 and 5.2.3 above, ACE
will not be entitled to any royalty or any sharing of the
license fees received by TELEGLOBE for the licensing of RETR
Software or any part thereof.
5.3 LICENSING BY ACE
5.3.1 Except for ACE's Products and Software portion of the RETR
Software, ACE may not license the RETR Software or any part
thereof without first obtaining the written consent of
TELEGLOBE, which consent shall not be unreasonably withheld.
Such request shall be made in writing and addressed to
TELEGLOBE's Business Contact as provided in Article 12.7
hereof. ACE hereby acknowledges that the RETR Software is a
strategic instrument in TELEGLOBE's development as an
intercontinental carrier and that the refusal of TELEGLOBE
to license the RETR Software to any of TELEGLOBE's
competitors shall be deemed reasonable.
5.3.2 Payment of Royalties
ACE shall at all times keep an accurate account of the
operations coming under the scope of its license as provided
hereunder and shall render a full statement of the same in
writing to TELEGLOBE within thirty days (30) after each
quarterly period of each calendar year during the term of
this Agreement, and at the same time shall pay to TELEGLOBE
the amount of earned royalties (based on cash receipt to
ACE) as specified in Annex F hereto, accrued during the
corresponding quarterly period with the understanding that
TELEGLOBE shall have the right, at their own expense and not
more often than once in each three-month period, to have a
certified public accountant examine the books of ACE for the
purpose of verifying the royalty statements of the
operations coming under the scope of this Agreement.
5.3.3 Licensing
Licensing of the RETR Software shall be made in accordance
with a license agreement substantially similar to the
TELEGLOBE's License Agreement.
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 8
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5.4 MARKETING SUPPORT
Each Party agrees to cooperate at its own cost, to the extent
reasonably required by the other Party, for the purpose of marketing
and licensing the RETR Software or any part thereof.
5.5 FUTURE ENHANCEMENTS TO RETR SOFTWARE
5.5.1 ACE will at all times and from time to time make complete
and full disclosure to TELEGLOBE of all improvements of RETR
Software, as defined in Article 1.2 in this Agreement, and
shall deliver or make available to TELEGLOBE all documents,
papers, drawings, records, designs, specifications, reports
and other information relating thereto. These improvements
shall become part of ACE's Products and Software and Annex
A shall be amended to reflect this. Rights of use of said
improvements will be governed by Articles 4 and 5 of this
Agreement.
5.5.2 TELEGLOBE will at all times and from time to time make
complete and full disclosure to ACE of all improvements of
RETR Software, as defined in Article 1.2 in this Agreement,
and shall deliver or make available to ACE all documents,
papers, drawings, records, designs, specifications, reports
and other information relating thereto. These improvements
shall become part of the Software Enhancements and Annex 8
shall be amended to reflect this. Rights of use of said
improvements will be governed by Articles 4 and 5 of this
Agreement.
6. CONSENT OR CONFIRMATION REQUIRED
Each time, this Agreement provides for the consent or the confirmation of
one Party, (the "consenting Party") such consent shall be given within two
(2) business days from receipt by the consenting Party of such request,
otherwise such confirmation or consent shall be deemed to be given upon the
expiry of such delay. Each request of consent or confirmation shall be
supported by sufficient information relevant to the object of the request.
7. PATENT AND OTHER INTELLECTUAL AND INDUSTRIAL PROPERTY
Article 27 of Annex 1 of the Supply Contract applies MUTATIS MUTANDIS for
the benefit of TELEGLOBE and TELEGLOBE's customers with regard to the ACE's
Products and Software and the RETR Software or any part thereof.
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 9
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8. SUPPORT
For the installation, training, maintenance and support of ACE's Products
and Software and the RETR Software, TELEGLOBE will refer directly
TELEGLOBE's customers to ACE. ACE agrees to offer to said TELEGLOBE's
customers installation and training at prices set forth in Annex D and
maintenance and support plan at the price in effect at the time of such
request.
9. TERM OF AGREEMENT
Subject to the default provisions contained in Article 10 herein, the term
of this Agreement shall commence on the date hereof and continue for a
period of three (3) years. Thereafter, this Agreement shall be renewed
automatically for further terms of one (1) year each unless either Party
gives to the other written notice of termination or intention to charge the
Agreement at least sixty (60) days prior to the expiration of any such
term.
10. TERMINATION
10.1 The following events shall constitute events of default hereunder
("Events of Default") under the Agreement.
10.1.1 A Party shall fail to observe or perform any of its
covenants or agreements contained in this Agreement or
in any other agreement or document executed pursuant
hereto and such failure shall not be capable of cure or
is capable of cure but remains uncured for a period of
thirty (30) days after receipt by the breaching Party
of written notice of such failure;
10.1.2 A Party shall be insolvent, make an assignment for the
benefit of creditors, appoint or have appointed a
trustee, a receiver or similar officer, or commence or
have commenced against it a proceeding seeking
reorganization, rehabilitation, liquidation or similar
relief under any bankruptcy, insolvency or similar
debtor-relief statutes.
10.2 Upon the occurrence of an Event of Default, the Party not in
default shall have the right to terminate this Agreement
immediately, provided that the covenants, agreements and
obligations specified in Articles 4.5, 5.3.2, 12.4 and 12.6 shall
survive the termination of this Agreement.
10.3 Termination of this Agreement by the Party not in default in
accordance with the terms hereof shall be without prejudice to
any other rights or remedies such
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 10
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Party shall have by law and shall be without liability for any
loss or damage occasioned thereby.
11. INDEMNIFICATION AND LIMITATION OF LIABILITY
11.1 The Parties shall indemnify and hold one another harmless from
and against any and all payments and liabilities for payment of
compensation or damages which either Party may be required or
held liable to make, to or on account of the other Party, or
which otherwise arises out of or is connected with this
Agreement. This indemnity shall extend to any and all losses,
damages, suits, proceedings or obligations of any kind incurred
by, or directed against either Party on account of any act or
omission of the other Party. Furthermore, the responsible Party
shall defend at its expense any such suits and proceedings and
shall pay all expenses incurred, fines imposed and satisfy all
judgments rendered against the wronged Party in connection
therewith.
11.2 Notwithstanding the foregoing, neither TELEGLOBE nor ACE shall be
liable to the other for any indirect or consequential damages,
losses, liabilities, claims, costs or expenses of any kind or
nature whatsoever, including, but not limited to, any loss of
profits, business or goodwill.
12. GENERAL
12.1 FORCE MAJEURE
Neither Party to this Agreement shall be liable for failure to perform any
of its obligations hereunder during any period in which such performance is
prevented by any cause beyond its reasonable control. In the event of any
such delay, the date of any delivery or performance hereunder shall be
extended by the length of the delay occasioned by such cause. In the event
ACE's production is curtailed, ACE may allocate its available production,
as reasonably equitable in its opinion, among its various customers,
following consultation with its customers.
12.2 SEVERABILITY
In the event that one or more provisions contained in the Agreement or any
agreement required hereunder to be delivered, shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions hereof shall not be
affected or impaired thereby.
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 11
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12. 3 AMENDMENTS AND WAIVER
No modification of or amendment to this Agreement shall be valid or binding
unless set forth in writing and duly executed by both of the Parties hereto
and no waiver of any breach of any term or provision of this Agreement
shall be effective or binding unless made in writing and signed by the
Party purporting to give the same and unless otherwise provided, shall be
limited to the specific breach waived.
12.4 CONFIDENTIALITY
12.4.1 All information of the Parties exchanged will be
subject to the obligation of the Mutual Confidentiality
Agreement between the Parties attached as Annex 5 to
the Supply Agreement and will apply MUTATIS MUTANDIS to
this Agreement.
12.4.2 The Parties acknowledge that there are business areas,
opportunities and initiatives in which their efforts
may be competitive and which are not intended to be
pursued under or subject to this Agreement. The
Parties specifically covenant and agree that they will
not knowingly use, or allow to be used, each other's
proprietary information disclosed hereunder to gain an
unwarranted or unauthorized competitive advantage where
such circumstances may arise.
12.5 APPLICABLE LAW AND LANGUAGES
This Agreement shall be governed and interpreted in accordance with the
laws in force in the Province of Quebec and the laws of Canada applicable
therein. The Parties have agreed that this Agreement and its annexes shall
be written in the English language only. Les parties ont convenu de
rediger cette entente et ses annexes en langue anglaise seulement.
12.6 ARBITRATION
Any difference, controversy or claim arising out of or relating to this
Agreement, its interpretation or performance, shall be considered a
Dispute. Any Dispute shall be subject to binding arbitration as provided
hereafter.
12.6.1 The Dispute shall diligently be notified by the
aggrieved Party to the other Party. The notification
shall be deemed diligently made if communicated to the
other Party within five (5) business days of the
knowledge of the occurrence.
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 12
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12.6.2 Within (5) business days following such notification,
each Party shall prepare and disclose to the other
Party a brief on its position and within ten (10) days
thereafter the Parties shall prepare a common brief
which shall contain all points of agreement and all
points of disagreement in relation to the Dispute.
12.6.3 Each Party shall then within five (5) days of
completing the common brief, submit the Dispute and the
common brief to their respective Chief Executives with
recommendation that the Chief Executives communicate
with each other within a reasonable period with a view
to resolving the Dispute.
12.6.4 Notwithstanding paragraph 12.6.3 above, if no
resolution of the Dispute has occurred after 90 days
after the date on which a Party has submitted the
Dispute to his Chief Executive, then the Dispute shall
be submitted for resolution by binding arbitration
under the International Chamber of Commerce Rules of
Conciliation and Arbitration in effect on the date the
arbitration is submitted to the tribunal of
arbitration. In such event:
12.6.4.1 a sole arbitrator shall be appointed in accordance
of said Rules, unless the Parties agree in a
particular case within thirty days of the
submission of the Dispute for resolution by
binding arbitration that the tribunal should
consist of more than one arbitrator. Such
arbitrator(s) shall be knowledgeable in the field
of law involved;
12.6.4.2 the place of arbitration shall be Quebec, Province
of Quebec, Canada and the arbitration shall be
conducted in the English language;
12.6.4.3 responsibility for paying the costs of the
arbitration, including the costs incurred by the
Parties themselves in preparing and presenting
their cases, shall be apportioned by the tribunal
of arbitration;
12.6.4.4 the award shall be rendered in the English
language and shall state the reasons upon which it
is based;
12.6.4.5 the award shall be final and binding on the
Parties as from the date of it is made;
12.6.4.6 the award of the tribunal of arbitration may be
entered and enforced as a judgment against a Party
in any court of
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 13
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competent jurisdiction or application may be made
to such court for a judicial acceptance of the
award and an order of enforcement, as the case may
be.
12.6.5 Nothing in the foregoing shall prevent a Party from
initiating such conservatory measure proceedings as are
necessary to protect any arm's length third Party
rights.
12.6.6 The fact that a dispute is brought to arbitration does
not relieve either Party from its obligation to fulfill
its commitments as provided by this Agreement.
12.7 NOTICES
12.7.1 All notices pertaining to this Agreement shall be in
writing and shall be sent to the respective following
postal addresses or facsimile numbers:
12.7.2 For TELEGLOBE:
Teleglobe Canada Inc.
1000 de La Gauchetiere Street West
Montreal, Quebec
H3B 4X5
Business Contact: Mr. Guy Coallier
Telephone: (514) 868-8057
Facsimile: (514) 868-7275
Technical contact: Mr. Martin Demers
Telephone: (514) 868-7747
Facsimile: (514) 868-7473
12.7.3 For ACE :
American Computer and Electronics Corporation
209 Perry Parkway
Gaithersburg, Maryland 20877
U.S.A.
Contract contact: Mr. Thomas V. Russotto
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 14
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Technical contact: Mr. Luis Freije
Telephone: (301) 258-9850
Facsimile: (301) 921-0434
12.7.4 Method of Delivery
Any such notice delivered by:
a) first class registered or certified airmail,
postage prepaid shall be deemed to have been
seventy-two (72) hours after posting;
b) telefax or telex shall be deemed to have been
served upon the usual telefax or telex electronic
acknowledgment of receipt by the recipient's
telefax or telex machine; or
c) by express courier service, service fee prepaid
shall be deemed to have been served the third
business day in the jurisdiction of the recipient.
12.8 UNITED NATIONS CONVENTION
The Parties intend to exclude the application of the United Nations
Convention on Contract for the International Sale of Goods to this
Agreement. Accordingly, this Agreement shall not be subject to the United
Nations Convention for the International Sale of Goods but rather this
Agreement shall be governed by the internal rules in force in the Province
of Quebec.
12.9 GOOD FAITH
The Parties acknowledge to one another that each respectively intends to
perform its obligations as specified in this Agreement in good faith.
12.10 PARTIES TO ACT REASONABLY
The Parties agree to act reasonably in exercising any discretion, judgment,
approval or extension of time which may be required to effect the purpose
and intent of this Agreement. Whenever the approval or consent of a Party
is required under this Agreement, such consent shall not be unreasonably
withheld or delayed.
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 15
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12.11 WHOLE AGREEMENT
The express terms and conditions of this Agreement agreed to by the
Parties, are the only ones upon which any of their contractual rights and
obligations are to be founded and, without limiting the generality of the
foregoing, this Agreement supersedes all previous communications,
negotiations and agreements, either written or oral, relating to the object
of this Agreement.
12.12 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which taken together shall be
deemed to constitute one and the same instrument.
12.13 ASSIGNMENT OF RIGHTS AND OBLIGATIONS
Neither Party shall, without the consent of the other Party, sell, assign,
transfer or dispose of its rights and obligations under this Agreement
except to a successor, statutory assignee, subsidiary of such Party or a
corporation controlling, or under the same control as such Party, in which
case written notice shall be given in a timely manner by the Party making
said sale, assignment, transfer or disposition.
12.14 BENEFIT OF THE AGREEMENT
This Agreement shall enure to the benefit of and be binding upon the
respective successors and permitted assigns of the Parties hereto.
IN WITNESS WHEREOF the Parties have signed on the date mentioned above.
TELEGLOBE CANADA INC. AMERICAN COMPUTER AND
ELECTRONICS CORPORATION
Per: /s/ XXX Per: /s/ Thomas V. Russotto
-------------------------- --------------------------------
Title: VICE PRESIDENT, NETWORK Title: VICE PRESIDENT
-------------------------- --------------------------------
Per: /s/ Guy Millette Per: /s/ Loretta L. Rivers
-------------------------- --------------------------------
Title: ASSISTANT SECRETARY Title: SECRETARY
-------------------------- --------------------------------
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 16
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ANNEX A
ACE'S PRODUCTS AND SOFTWARE
Network Element Data Server (NEDS-TM-)
Function 01 - Local Collect
01 -Capture Call Blocks
02 -Capture and Format OM Data
03 -Manage Local to Central Collect Real-time Communications
04 -Build OM Trk TMS Report
05 -Interface the Network Connections
06 -Send Receive Switch Controls
07 -Manage DCMS Redundancy
08 -Archive and Clean Local data Store
09 -Monitor DCMS Internals
Function 09 - Interrogate, Navigate, Display Local Data
01 -Access Local Data on DCMS (ADM tool)
Central Access Network Server (CANS-Registered Trademark-)
Function 02 - Central Collect
01 - Manage Central to Local Collect Real-time Communications
02 - Capture Call Blocks - DMS-300
04 - Capture Call Blocks - DMS-100
Function 05 - Manage the Central Collection
01 - Manage Central Collect to Repository Real-time Communications
02 - Archive, backup Clean Central Raw and Temporary Storage
Function 10 - Interrogate, Navigate, Display Central Collect Data
01 -Access Central Collect Data on Central Collect System (ADM tool)
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 17
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ANNEX A - CONTINUED
ACE'S PRODUCTS AND SOFTWARE
Traffic Analysis & Performance Surveillance (TAPS-TM-)
Function 06 - Managing the Repository
01 -Manage Repository to Central Collect Real-time Communications
03 -Receive and Store Raw Information (Call Blocks and OM)
04 -Manage Backup and Archive of Repository Information
Function 11- Interrogate, Navigate, Display Repository Data
01 -Access All Repository (Call) Data (ADM tool)
03 -Manage SQL Interrogation Data Service on Traffic Indicators, Alarm
Function 13 - Piloting the system
01 -Manage RETR and ACE Specific Control Tables
Function 15 - Manage RETR External Data Tables in RETR
01 -Manage City/Zone Information
02 -Manage Call Basic Service Identification Information
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 18
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ANNEX B
SOFTWARE ENHANCEMENTS
Traffic Analysis & Performance Surveillance (TAPS-TM-)
Function 02 - Central Collect
03- Build Call Detail and Specific - DMS-300
05- Build Call Detail and Specific - DMS-100
Function 03 - Build the Call
01 -Assemble Call Details(Matching) - General Process
02 -Assemble Call Details (Matching) - Service Specific Process
03 -Validate and Augment the Call
04 -Augment the Call Detail (Prior to Matching)
Function 04 - Generate Alarms (5 minute indicators)
01 -Compute 5m Indicators from OM
02 -Compare 5m Indicators Against Thresholds
Function 06 - Managing the Repository
02 -Store Call and 5m Traffic Indicators
05 -Summarize and Archive Traffic Indicators
06 -Generate NewCDR, NewEBAF, GDSCall
Function 07 - Compute Indicators, Generate Alarms (1 hour indicators)
01 -Compute 1h Indicators from Call, Call Detail, Call Specific
02 -Compare 1h Indicators Against Thresholds
03 -Register Alarms
04 -Verify Call, Call Detail, Call Specific Against Simple Fraud
Patterns
05 -Produce Daily, Weekly, Monthly Reports from Indicators/OM/Call
Information
Function 11 - Interrogate, Navigate, Display Repository Data
02 -Access Traffic, Indicators, and Alarms
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 19
- --------------------------------------------------------------------------------
ANNEX B - CONTINUED
SOFTWARE ENHANCEMENTS
Function 12 - Managing the Alarms
01 -Manage Alarm Thresholds
02 -Manage State of Alarms
03 -Archive and Clean Alarms
Function 14 - Re-process Call in Error
01 -Display, Suggest and Fix Unmatched Calls
02 -Correct Augmented Calls
03 -Re-Compute Indicators
04 -Re-Run Reports
05 -ReSend NewCDRs, NewEBAF, GDSCalls
Function 16 - Data Conversion
01 -Convert and Load 3 Months of data from the current system into the
RETR Database
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 20
- --------------------------------------------------------------------------------
ANNEX 'C'
TO
SOFTWARE DEVELOPMENT LICENSE AGREEMENT
BETWEEN
TELEGLOBE CANADA, INC.
AND
AMERICAN COMPUTER AND ELECTRONICS CORPORATION
END USER OBJECT CODE COMPUTER PROGRAM LICENSE
The following sets forth the standard object code computer license which
TELEGLOBE incorporates into its INTERNATIONAL TELECOMMUNICATIONS CARRIERS
PURCHASE AGREEMENTS. It is understood by the Parties that substantially similar
terms and conditions may be utilized in lieu of the following.
1. SCOPE
Pursuant to the above-identified Agreement (I.E. THE INTERNATIONAL
TELECOMMUNICATIONS CARRIERS PURCHASE AGREEMENTS), object-code computer
programs for the RETR and other TELEGLOBE supplied equipment will be
delivered by TELEGLOBE to the Customer (I.e. the end user) on a licensed
basis in printed form or in any of several possible machine-readable forms,
including, but not limited to, magnetic tape or disk, read-only memory
(ROM) device, programmable read-only memory (PROM) device, electronically
programmable read-only (EPROM) device and electronically erasable
programmable read only memory (EEPROM) device. Customer shall then become
a licensee with respect to such computer programs. Delivery of such
programs by TELEGLOBE and acceptance of same by Customer shall be made only
under the conditions set forth below, unless otherwise agreed in writing by
TELEGLOBE.
2. COMPUTER PROGRAMS REMAIN TELEGLOBE PROPERTY
The original of any computer program delivered hereunder and any copies
made by Customer, in whole or in part, shall remain the property of
TELEGLOBE or its vendor as appropriate.
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 21
- --------------------------------------------------------------------------------
ANNEX 'C'- CONTINUED
3. SOFTWARE LICENSE
Concurrent with execution of the Agreement TELEGLOBE grants to the customer
a royalty-free, non-exclusive and non-transferable license under
TELEGLOBE's copyright to use each computer program delivered to Customer
hereunder (hereinafter called "Licensed Program") in accordance with terms
and conditions set forth herein. The licensing fee for the Licensed
Program is included in the price of the Initial RETR System. Each such
license granted authorizes Customer to use the Licensed Program only in
machine-readable form and only in a single unit of TELEGLOBE-supplied
equipment. Such license may not be assigned, sublicensed or otherwise
transferred by Customer. No right to copy a Licensed Program, in whole or
in part, is granted except as hereinafter expressly provided.
4. RIGHT TO COPY. PROTECTION AND SECURITY
4.1 Any Licensed Program provided hereunder may be copied (for back-up
purposes only) in whole or in part, in printed or machine-readable
form for Customer's internal use only, provided, however, that no more
than two (2) printed copies and two (2) machine-readable copies will
be in existence under a license at any one time without prior written
consent of TELEGLOBE, other than copies resident in Customer's
equipment.
4.2 With reference to any copyright notice of TELEGLOBE and its vendors
with a Licensed Program delivered hereunder, Customer agrees to
include the same on all copies it makes in whole or in part.
TELEGLOBE and its vendors' copyright notices may appear in any of
several forms, including machine-readable form. Use of a copyright
notice on a Licensed Program does not imply that such has been
published or otherwise made generally available to the public.
4.3 Customer agrees to keep confidential and not provide or otherwise make
available in any form any Licensed Program delivered to Customer, or
any portion thereof, to any person other than employee of Customer, or
TELEGLOBE.
5. TERM
Any Licenses granted hereunder may be terminated by Customer upon one (1)
month's prior written notice. TELEGLOBE may terminate any such license if
Customer is in default of any of the terms and conditions of the agreement
or
<PAGE>
LICENSE AGREEMENT BETWEEN TELEGLOBE CANADA INC.
AND AMERICAN COMPUTER ELECTRONICS CORPORATION PAGE 22
- --------------------------------------------------------------------------------
ANNEX 'C' - CONTINUED
Exhibits, and such termination shall be effective if Customer fails to
correct such default within ten (10) days after written notice thereof by
TELEGLOBE. The obligation of Subsection 4.3 herein shall survive
termination of any such license.
6. TERMINATION
Within one (1) month after termination of any license, Customer will
furnish to TELEGLOBE a document certifying with respect to each Licensed
Program that, through its best efforts and the best of its knowledge, the
original and all copies in whole or in part, in any form, including any
copy in an updated work, have been returned to TELEGLOBE or destroyed;
except that, with prior written consent from TELEGLOBE, Customer may retain
one (1) copy for archival purposes only.
7. LICENSE RIGHTS
Nothing contained herein shall be deemed to grant, either directly or by
implication, estoppel, or otherwise, any license under any patents or
patent applications of TELEGLOBE except that Customer shall have a non-
exclusive, royalty-free license under TELEGLOBE or its vendors' patents and
patent applications to use, in TELEGLOBE-supplied equipment only, each copy
of a Licensed Program supplied hereunder, when such license is implied or
otherwise arises by operation of law by virtue of the purchase of such
copies from TELEGLOBE.
Rights in programs or operating systems of others, if any, are further
limited by their license agreements that are hereby incorporated by
reference thereto and made a part hereof if fully set forth herein.
Customer agrees to abide thereby. Notwithstanding anything to the contrary
in other agreements, purchase orders or order acknowledgments, this Annex
"C" sets forth the entire understanding and obligations regarding Licensed
Programs implied or expressed.
<PAGE>
(Annexes D to F hereof are confidential and such confidential portions have
been omitted and filed separately with the Commission.)
<PAGE>
EXHIBIT 10.7
SUBCONTRACT
No. 95-1350-01
This Subcontract is entered into by and between ANSTEC, Inc., a Virginia
Corporation, with its principal offices located at 10530 Rosehaven Street,
Suite 600, Fairfax, VA 22030 (hereinafter referred to as "ANSTEC"), and
American Computer and Electronics Corporation, with offices located at 209
Perry Parkway, Gaithersburg, MD 20877 (hereinafter referred to as the
"Subcontractor").
WHEREAS, ANSTEC has entered into Contract No. Fl 1624-94-R-0001 ("Prime
Contract") with the Department of the Air Force, Communications System
Program Office ("Customer");
WHEREAS, ANSTEC desires Subcontractor to perform a portion of the work to be
provided by the ANSTEC to the Customer under the Prime Contract, and
Subcontractor is willing to perform such work;
NOW THEREFORE, in consideration of mutual promises, covenants, and agreements
herein set forth, the Parties agree that the Subcontractor shall furnish and
deliver to ANSTEC all of the supplies, and perform all of the services set
forth in the Schedule (Sections B through 1), for the consideration stated
therein. The rights and obligations of the Parties to this Subcontract shall
be subject to and governed by the Schedule, the General Provisions of
Purchase and other documents or specifications attached hereto or Referenced
herein.
This Subcontract shall not be varied in its terms or conditions by any oral
Agreement or representation, or otherwise than by an instrument in writing of
even or subsequent date thereto, unless properly executed by both
Subcontractor and ANSTEC.
The section titles used herein are for convenience only and shall in no way
be construed as part of this Subcontract or as an indication of the meaning
of the particular section.
SECTION A - CUSTOMER APPROVAL
ANSTEC and Subcontractor agree to enter into such good faith negotiations as
may be necessary to obtain Customer's approval of this Subcontract, if such
approval is required under the Prime Contract. This Subcontract shall not be
binding until ANSTEC has received necessary approval from the Customer in
writing.
<PAGE>
SECTION B - SUPPLIES/SERVICE AND PRICES
ANSTEC shall have the primary responsibility for performing work pursuant to
the Prime Contract. Subcontractor shall provide the necessary personnel,
facilities, equipment, materials, data supplies and/or services to perform
its portion of the work agreed to hereunder. Subcontractor shall also
provide such data and support to ANSTEC as may be required to price and/or
negotiate any tasks or subtasks under the Prime Contract that pertains to
work to be performed by the Subcontractor.
B-1 SUPPLIES/SERVICES
Supplies/Services and Reports described in Section D and in the Statement of
Work and Specifications (Attachment A) as determined by or specified in
individual Delivery Orders issued to the Subcontractor by ANSTEC.
B-2 PRICES
Prices of individual Contract Line Item Numbers (CLINS) and Subline Item
Numbers (SLINS) are contained in Attachment B, Supplies/Services Price
Schedule.
B-3 ALLOTMENT OF FUNDS
The Subcontractor shall not perform work or incur costs in excess of the
allotted amount and ANSTEC shall not be obligated to pay for work in excess
of the maximum dollar amount stipulated in the individual Delivery Order.
B-4 TRAVEL COSTS (COST REIMBURSEMENT ITEMS ONLY):
ANSTEC will reimburse the Subcontractor for reasonable actual costs for
lodging, meals, and incidental expenses not to exceed the rates, set forth in
the Federal and Joint Travel Regulations. Allowable airfare costs will not
exceed standard coach rates. Private aircraft may be used for travel
provided such costs do not exceed standard coach rates. All travel expenses
shall be paid in accordance with FAR 31.20546. Subcontractor will submit a
copy of the travel voucher and copies of such receipts will be provided by
the to ANSTEC if requested. All original travel receipts will be retained by
the Subcontractor.
SECTION C - DESCRIPTION/SPECIFICATION
C-1 STATEMENT OF WORK
Subcontractor shall perform those services generally described in Attachment
A. Subcontractor services shall be ordered pursuant to Delivery Order(s)
("DO") issued by
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<PAGE>
ANSTEC, and all. such -services shall be performed in accordance with the
specific terms and conditions of each such DO.
A. Work will be performed under this Subcontract only in pursuance of written
DO approved by ANSTEC's Subcontract Administrator.
B. ANSTEC's Project Director after preparing a draft DO, will contact the
Subcontractor to discuss the technical aspects, period of performance, and
allocation of level of effort and other resources of the DO. Estimated cost
shall be based on the prices contained in Attachment B for the individual
SLINS. Supporting information shall be provided in a mutually agreeable
format which details the price by SLIN.
C. In the event any work under the Prime Contract is terminated in writing by
the Principal Contracting Officer (PCO) prior to completion of work, ANSTEC
may terminate, by written notice to the Subcontractor of the effective date
and conditions of the termination, any DO or part of any DO hereunder which
requires work terminated by the PCO. Termination costs, as defined by FAR
52.249-2, will be allowable under the Subcontract.
D. Subcontractor shall have the right of first refusal over any other
subcontractor, to submit a technical and/or cost proposal for all options,
modifications or additional purchases relative to this Subcontract.
Subcontractor shall submit responses to ANSTEC within five (5) business days
after receipt of each request from ANSTEC.
C-2 REPORTS
The Subcontractor shall deliver to ANSTEC all reports specified in the
individual DO. These reports will comply with the requirements of the
Statement of Work and the applicable Contract Data Requirements List (CDRL)
format.
The Subcontractor shall deliver one copy of each report to the Project
Director specified in Section H- I and one copy to the Subcontract
Administrator specified in Section H-3.
SECTION D - PACKAGING/MARKING/DELIVERY
D-I STANDARD PRACTICE FOR COMMERCIAL PACKAGING
Unless otherwise specified in the applicable Specification(s), DO(s), and/or
Statement of Work, packaging and packing of all item for delivery shall be in
accordance with standard commercial practices. Each package shall be marked
with the contract number, delivery order number, and CLIN/SLIN number.
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<PAGE>
D-2 DELIVERY POINT
The delivery point for all items to be delivered by Subcontractor hereunder
shall be F.O.B. destination and unless the Subcontractor is notified to the
contrary shall be marked for delivery to the ANSTEC addressed as follows:
ANSTEC, Inc.
ATTN: Randy Billingsley
10530 Rosehaven Street, Suite 600
Fairfax, VA 22030
SECTION E - INSPECTION AND ACCEPTANCE
A. Notwithstanding any prior preliminary inspection and/or acceptance, final
inspection and acceptance of all supplies and services shall be made by
ANSTEC, Inc., 10530 Rosehaven Street, Suite 600, Fairfax, VA 22030 unless
otherwise specified in the applicable DO. Final acceptance of any supplies
or services shall not be deemed a waiver of any guarantee contained herein.
B. Acceptance of the functional test shall be, at source, by a designated
Government representative upon the successful completion of the functional
test specified in the acceptance test procedures.
C. Acceptance of services and materials shall be performed, at destination,
by a designated Government representative, upon the successful completion of
all required testing and the resolution of all outstanding discrepancies.
Acceptance shall cover those CLINs/SLINs identified in each DO and shall be
performed in total, one time, for each site.
D. Quality Assurance (QA,) documentation of Subcontractor performed
inspections and tests shall be made available for ANSTEC's and the
Government's review at the locations where the inspections and tests are
performed.
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<PAGE>
SECTION F- DELIVERIES OR PERFORMANCE
F-1 CLAUSES INCORPORATED BY REFERENCE
NOTICE: The following contract clause is hereby incorporated by reference:
FAR SOURCE TITLE DATE
52.247-34 F.O.B. DESTINATION NOV 91
F-2 TERM AND PLACE OF PERFORMANCE
The term of this Subcontract shall be from June 23, 1995 through September
30, 1995. The Subcontract term will be extended for up to nine (9)
additional twelve-month periods upon ANSTEC's prior written notice of each
such twelve-month extension period; provided, however, that this Subcontract
is not otherwise terminated pursuant to the Termination clause herein.
ANSTEC shall provide Subcontractor thirty (30) days notice of its intent to
extend Subcontract.
F-3 NOTICE OF DELAYS
In the event Subcontractor encounters difficulty in meeting performance
requirements, or can not comply with Delivery Order schedules or completion
dates, or if Subcontractor has knowledge of any actual or potential event
that is delaying or threatening to delay delivery of goods, or performance of
the services under this Subcontract, Subcontractor shall notify ANSTEC in
writing identifying what work may be delayed, the length of delay and
corrective actions taken and a revised delivery schedule or completion date.
F-4 SUBCONTRACT DELIVERABLES
A. During the course of performance under this Subcontract, Subcontractor may
be furnished with Government Furnished Information ("GFI") or Government
Furnished Equipment ("GFE"). All GFI and GFE used by the Subcontractor for
the performance of tasks applicable to this Subcontract shall be returned to
ANSTEC at the termination of the Subcontract or any DO issued pursuant to
this Subcontract.
B. As specified and described in DOs issued by ANSTEC to the Subcontractor,
the Subcontractor may be required to submit to ANSTEC reports, memoranda,
analyses, studies, specifications, plans, briefing materials, and other
documentation. All deliverables and services provided by the Subcontractor
shall be subject to inspection and approval by ANSTEC and the Government, and
all deliverables shall become the property of the Government and will be
retained by the Government with all rights and
-5-
<PAGE>
privileges as provided in the Prime Contract. Copies of all Subcontractor
deliverables shall be retained by ANSTEC and the Subcontractor.
C. Any products, materials or methodologies proprietary to the Subcontractor
and used in the preparation of Subcontract deliverables shall, to the extent
permitted under the technical data rights provisions in the Prime Contract
and incorporated by reference in this Subcontract, remain the property of the
Subcontractor provided, however, that in no event shall ANSTEC obtain any
rights in such proprietary products, materials or methodologies except
pursuant to a separate written agreement between the parties hereto.
F-5 TECHNICAL DATA AND COMPUTER SOFTWARE DELIVERY
It is understood that technical data and computer software will be
individually packed and mailed (F.O.B. Destination) to each address
designated in the DO. The practice of bulk packing and shipment to any one
addressee of technical data and computer software destined for a number of
other addressees is prohibited. (Reference AFARS 52.7030)
F-6 PLACEMENT OF ORDERS
A. Delivery Orders issued under this subcontract will be within the scope of
work defined by the Statement of Work ASQM 90015 (Attachment A). In the
event the Subcontractor receives a DO considered to be outside the scope of
work of this Subcontract, he is required to notify ANSTEC's Subcontract
Administrator, in writing, within three (3) days after receipt of the order.
B. All DOs are subject to the terms and conditions of this Subcontract. In
the event of a conflict between a delivery order and this Subcontract, the
Subcontract shall control.
SECTION G - SUBCONTRACT ADMINISTRATION DATA
G-1 ANSTEC PROJECT DIRECTOR
A. The Project Director for this Subcontract is William Wickes, who is the
point of contact for all technical matters under this Subcontract. His
telephone number is 703-591-4000.
B. The Project Director is authorized to issue Technical directions under the
Subcontract on behalf of ANSTEC. This direction may include instruction to
the Subcontractor which provides details or otherwise completes the general
scope of the work set forth in Section D. This direction may not constitute
new assignments of work or changes, modifications, or amendments of such a
nature as to justify an adjustment in the Subcontract terms, conditions or
price.
-6-
<PAGE>
G-2 SUBCONTRACTOR PROJECT DIRECTOR
The Subcontractor Project Director for this Subcontract is Ben Gray who is
the Subcontractor point of contact for all technical matters under this
Subcontract. His telephone number is (301) 258-9850.
G-3 CONTRACTUAL NOTIFICATIONS
All correspondence or notifications involving contractual or financial
matters under this Subcontract shall be addressed as follows:
ANSTEC, Inc. American Computer and Electronics Corporation
ATTN: Sumeet Shrivastava ATTN: Joe Dorr
10530 Rosehaven Street, 209 Perry Parkway
Suite 600 Gaithersburg, MD 20877
Fairfax, VA 22030 (301) 258-9850
(703) 591-4000
G-4 CONTRACTING-OFFICIALS
Any change or modification to the terms, conditions, delivery dates, or price
shall not be binding on either party unless the appropriate contractual
document has been signed by a duly authorized official of both parties.
G-5 SUBMISSION OF INVOICES
A. Subcontractor shall submit, upon delivery of a SLIN, in sample format set
forth in Attachment D, one (1) original invoice and two (2) copies to:
ANSTEC, Inc.
Attn: Contracts
10530 Rosehaven Street, Suite 600
Fairfax, VA 22030
B. Each invoice submitted by the Subcontractor shall contain the following
information:
1. Subcontract Number, Delivery Order Number, and invoice number.
2. Period of performance for which the invoice is submitted.
3. A breakdown of costs by SLIN. All travel costs shall identify
destination and duration of trip.
-7-
<PAGE>
C. The final invoice for each Delivery Order number shall be clearly
designated as the "Completion Invoice".
D. All Subcontractor invoices shall be paid by ANSTEC within five (5) days of
ANSTEC's receipt of payment from the Government. A "correct" invoice is one
which properly identifies all the information required by this Section H-5.
In the event the non-acceptance applies to a portion of the invoice, the
remaining portion shall be paid as provided herein.
E. ANSTEC shall use its best efforts to process all Subcontractors invoices
promptly, by forwarding to the Government completed Form DD250 within five
(5) days upon receipt of "correct" invoice by ANSTEC. ANSTEC shall notify
Subcontractor of any deficient invoices within five (5) days of receipt of
said invoices. Subcontractor will promptly correct said invoices. ANSTEC
shall submit to the Government invoices within five (5) days following
receipt of signed and executed Form DD250 from the Government.
F. If ANSTEC fails to process a Subcontractor invoice, or fails to notify
Subcontractor of invoice deficiencies per the terms of Section G-5, paragraph
E, or fails to process Form DD250 as required under paragraph E, ANSTEC shall
pay Subcontractor within 60 days of receipt of the invoice, regardless of any
deficiencies therein. Notwithstanding the terms of this paragraph, and
except in the case of failure to notify Subcontractor of invoice
deficiencies, the payment terms in this paragraph shall not go into effect
until six months after effective date of this Subcontract.
G. If ANSTEC negotiates more favorable payment terms (i.e. milestone payments
or progress payments), Subcontractor shall participate on a pro-rata basis in
the favorable payment terms, and the invoicing and payment requirements
imposed upon the parties by this Section shall apply to the milestone or
progress payments. Subcontractor shall be consulted with prior to final
negotiations with the Government with respect to more favorable payment
terms. ANSTEC agrees to pay Subcontractor interest for late payment of
invoices on a prorated basis, based on Subcontractor's portion of invoice in
relationship to the total invoice to Customer, when ANSTEC receives late
payment interest from Customer, at a rate equal to the rate paid to ANSTEC by
Customer. ANSTEC shall promptly communicate to Customer any price reduction,
discount or incentive offered in writing to ANSTEC by Subcontractor, so long
as such reduction, discount or incentive does not further reduce ANSTEC's
proceeds under the Prime Contract.
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SECTION H - SPECIAL PROVISIONS
H-1 PROPRIETARY INFORMATION
A. The parties acknowledge that in the performance of the Project they may
require access to and/or be in possession of proprietary information of the
other. "Proprietary Information" shall mean information regarded by the
disclosing party as confidential, including information relating to its past,
present or future research, development or business affairs and any
proprietary products, materials or methodologies. Other than the limited
right to use provided under this Subcontract, no title or license shall be
granted either expressly, or by implication, or estoppel to the receiving
party under the patent, trademark, copyright or trade secret owned or
controlled by the Parties. Upon termination or expiration of this
Subcontract, the Parties shall promptly return all Proprietary Information
received during the performance the work hereunder
B. Each party shall hold in confidence, in the same manner as it holds its
own proprietary information of like kind, all proprietary information of
another party to which it may have access hereunder. Access to proprietary
information shall be restricted to company personnel with a need to know and
engaged in a permitted use of such proprietary information.
C. The foregoing shall not prohibit or limit any party's use of information,
including but not limited to ideas, concepts, know-how, techniques and
methodologies, (a) previously known to it; (b) independently developed by it;
(c) acquired by it from a third party without continuing restriction on use;
or (d) which is, or becomes, publicly available through no breach by it of
this Subcontract
D. Proprietary information may only be disclosed pursuant to the operation
of law, provided the other Party is notified in writing prior to disclosure
of the materials.
E. This Section H-I shall survive termination of this Subcontract for any
reason.
H-2 SECURITY REQUIREMENTS
Subcontract or personnel visiting any Government facility in conjunction with
this Subcontract shall be subject to the standards of conduct applicable to
Government employees. Subcontractor visits shall be by appointment only and
shall be scheduled with ANSTEC in advance of such visits. Special site
specific regulations regarding access to classified or sensitive materials,
computer facilities access, issue of security badges, etc. will be provided
by ANSTEC at the time of any applicable DO.
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H-3 CHANGES
A. ANSTEC may at any time modify a DO as required during the course of this
Subcontract effort. Changes may be issued unilaterally by ANSTEC only
pursuant to change orders or modifications issued by the Government to
ANSTEC, or in response to a written request for a change from the
Subcontractor in no event shall the Subcontractor perform any modified or
changed work without the prior written authorization from the ANSTEC.
B. If any such change causes an increase or decrease in the cost of, or the
time required for, performance of any work or services hereunder, an
equitable adjustment shall be made in the estimated cost or delivery
schedule, or both, and the DO shall be modified in writing accordingly. Any
claim by the Subcontractor for an adjustment pursuant to a change order shall
be asserted in writing within thirty (30) calendar days of receipt by the
Subcontractor of the notification of change. Failure to submit any claim
within the 30-day period shall constitute a waiver of such claim unless the
ANSTEC has granted in writing an extension of time for the submission of the
claim. Failure of ANSTEC and the Subcontractor to agree to the amount of an
equitable adjustment shall be a dispute within the provisions of the
"Disputes" provision in this Subcontract.
C. Nothing in this Section I-3 shall excuse the Subcontractor from
proceeding with its performance under a DO or any change thereunder issued
pursuant to this section.
H-4 TERMINATION
A. Default. Failure to comply with any material term or condition under
this Subcontract shall entitle ANSTEC to give written notice to Subcontractor
requiring Subcontractor to cure such default within five (50 days of the date
of the default notice ("Cure Period"). ANSTEC shall be entitled, in addition
to any other rights available hereunder or otherwise by law, to terminate
this Subcontract effective immediately by giving written notice to
Subcontractor. If Subcontractor determines that such default cannot be
adequately cured within the Cure Period, Subcontractor shall provide ANSTEC
written notice, within three (3) days of the date of the default notice,
specifying why such default cannot be cured within the Cure Period.
Subcontractor shall also specify what steps have been taken and will be
pursued to cure such default and what date the default shall be cured, which
shall not be more than fifteen (15) days after the Cure Period. ANSTEC shall
have the sole discretion to determine if such additional time is required to
cure such default. A material ten-n or condition shall include, but not be
limited to failure to meet delivery schedules, actual or likely inability of
Subcontractor to pays its employees any wages or benefits required by law;
the institution of proceedings, voluntary or involuntary, under federal or
state bankruptcy laws; a general assignment for the benefit of creditors; the
appointment of a receiver; the liquidation of its assets; or Subcontractor's
experience of substantial financial difficulties which, in the sole opinion
of ANSTEC, make Subcontractor's continued ability to perform hereunder
unlikely. If
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ANSTEC terminates this Subcontract by reason of Subcontractor's default,
Subcontractor shall be liable for all costs, including reasonable
administrative costs, incurred by ANSTEC in performing or procuring
substitute services if such costs exceed the payment that would have been
made to Subcontractor for comparable work if this Subcontract had not been
terminated. ANSTEC shall use its best efforts to minimize such costs on
behalf of the Subcontractor.
B. Termination by Customer. ANSTEC may terminate this Subcontract
immediately, without penalty or liability to Subcontractor, by providing
written notice to Subcontractor if the Prime Contract is terminated by
Customer for any reason. Upon receipt of the notice to terminate, the
Subcontractor shall thereupon immediately cease work to the extent required
and shall turn over to ANSTEC any work completed and any work in progress,
including designs, drawings, specifications, plans, lists, or other material
produced in connection with the performance of services hereunder that has
been paid for by ANSTEC. The Subcontractor shall take all necessary steps to
minimize reasonable and equitable close-out costs and termination costs. The
FAR Termination Clauses set forth in the General Provisions shall govern the
actions of the parties in any termination.
C. Immediate Termination by ANSTEC. Notwithstanding the terms and
conditions set forth in the Default section above and in the event any breach
or default of this Subcontract, which in all probability, will result in a
violation of any federal, state or local statute or regulation, ANSTEC
reserves the right to terminate this Subcontract immediately, without benefit
of any Cure Period, upon providing Subcontractor with written notification of
such termination.
H-5 DISPUTES INVOLVING THE GOVERNMENT
A. In the event of a disagreement or dispute regarding any matter covered by
this Subcontract, which is not disposed of by mutual Agreement, the parties
hereto shall pursue those necessary corporate and/or legal remedies as may be
appropriate to resolve any dispute. Legal remedies may include pursuit of
the dispute by either party in a court of competent jurisdiction. In this
event, each party shall be responsible for all costs they incur as a result
of such action or as ordered otherwise by a court of competent jurisdiction.
To the extent this disagreement or dispute also required continued
performance under the Prime Contract, Subcontractor agrees to continue
performance on the disputed matter to the same extent that ANSTEC is required
to continue performance.
B. Not withstanding any other provisions herein, any decision of the
Contracting Officer under the Prime Contract which binds the Prime shall also
bind the Subcontractor to the extent that it relates to this Subcontract,
provided ANSTEC shall have notified the Subcontractor of such decision, and
if requested by the Subcontractor shall have appealed the decision in
accordance with the "Disputes" clause of the Prime Contract and taken any
further action as may be required under this clause.
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C. Any decision or appeal, or any other decision of the Government under the
Prime Contract which cannot be appealed under the "Disputes" clause of the
Prime Contract, if binding on the ANSTEC shall also bind the Subcontractor to
the extent that it relates to this Subcontract, provided ANSTEC shall have
promptly notified the Subcontractor of such decision and, if requested by
Subcontractor, shall have brought suit or filed claim, as appropriate against
the Government. A final judgment in any such suit or final disposition of
such claim shall be conclusive upon ANSTEC and the Subcontractor.
D. For any action brought by ANSTEC on behalf of the Subcontractor pursuant
to this clause, the Subcontractor agrees to indemnify and hold ANSTEC
harmless from all costs and expenses incurred by the ANSTEC in prosecuting
any such appeal initiated by the ANSTEC at the Subcontractor's request. All
costs and expenses incurred by ANSTEC shall be paid by the Subcontractor and
shall not be reimbursed as a cost under the Subcontract, unless recovered by
ANSTEC under the Prime Contract or as part of an award of damages to ANSTEC
based on such claim.
E. If the Board of Contract Appeals ("Board") issues a decision affecting any
question, claim or dispute with respect to this Subcontract, such decision
shall be conclusive and binding on both Parties.
H-6 DISPUTES NOT INVOLVING, THE GOVERNMENT
Any dispute or controversy between ANSTEC and the Subcontractor which
concerns only ANSTEC and the Subcontractor or which does not involve a final
decision of the Government contracting officer, and which cannot be resolved
by mutual agreement of the parties hereto, shall be settled by arbitration in
accordance with the commercial rules then in effect of the American
Arbitration Association. The place of such arbitration shall be Washington,
D.C. Each party shall select one arbitrator and the two arbitrators so
selected shall select the third arbitrator. The arbitrators shall be
knowledgeable in Government procurement matters related to the types of
services and supplies provided pursuant to this Subcontract. The arbitration
decision and award shall be binding on the parties, and judgment thereon may
be entered in any court of competent jurisdiction.
H-7 RELATIONSHIP OF THE PARTIES
A. The relationship of the parties to this Subcontract Agreement is that of
a prime contractor and a subcontractor, and nothing herein shall be deemed or
construed to create a joint venture, partnership or agency relationship
between the parties for any purpose. It is further understood that each
party is an independent contractor and as such shall have no authority to
bind or commit the other.
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B. Any decisions relating to or impacting the performance of services by the
Subcontractor in connection with the Project will be made in consultation
with the Subcontractor's Program Manager.
C. Subcontractor personnel are expressly prohibited from communicating with
Government personnel with respect to any aspect of the Project or the
Subcontractor's performance under this Subcontract that may result in a
change in Prime Contract price or scope of work without the prior consent of
ANSTEC. Subcontractor may discuss technical issues that will not impact
price or scope of work. Any communication between the Government and
Subcontractor personnel not in the presence of the ANSTEC Project Director or
other authorized representative shall be reported promptly to the ANSTEC
Project Director.
D. Subcontractor personnel will participate in Project meetings and
discussions as reasonably requested by the ANSTEC's Project Director, and
shall have the right to attend and receive reasonable prior notice when the
meeting or discussion will address areas of work to be performed by the
Subcontractor.
E. ANSTEC will apprise Subcontractor of all issues, recommendations and
decisions relating to the Project as ANSTEC may deem necessary and
appropriate for purposes of Subcontractor's performance under this
Subcontract Agreement.
F. Nothing in this Subcontract shall grant to either party any right to make
commitments of any kind for or on behalf of the other party without prior
written consent of the other party.
H 8 WARRANTY
A. Subcontractor warrants that the services provided under this Subcontract
will be performed in a professional and workmanlike manner in accordance with
applicable professional standards, and shall re-perform any work not in
compliance with the requirements of this Subcontract or any DO issued
hereunder.
B. Each party warrants that it is authorized to disclose to the other any
information which it discloses to the other under this Subcontract, and
agrees to indemnify and hold harmless the other in the event of its breach of
this warranty.
C. The Subcontractor agrees to extend to this Subcontract any Commercial
Warranty normally offered for this equipment. ANSTEC acceptance of the
Commercial Warranty does not limit ANSTEC's rights under any other term or
condition in this Subcontract. The Subcontractor shall extend all warranties
to at least one year from acceptance at each site at no additional cost to
ANSTEC or the Government.
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H-9 INSURANCE
Pursuant to FAR 52.228-05, "Insurance - Work on a Government Installation"
the Subcontractor shall carry insurance of the type and in the minimum
amounts set forth in FAR 28.307-2.
H-10 INDEMNIFICATION
A. The employees of this Subcontractor and ANSTEC engaged in performance
under this Subcontract shall at all times be deemed to be performing as
independent contractors and not as agents or employees of the other and the
acts and omissions of such employees shall be deemed to be those of their
respective employers. Subcontractor shall indemnify and hold harmless ANSTEC
and its employees from any penalty, liability, damage, expenses or
forfeiture, including court costs and reasonable attorney fees arising out of
or incidental to or in any way resulting from the acts or omissions of
Subcontractor or Subcontractor's employees while acting within the scope of
their employment. Both parties shall defend, indemnify and hold harmless the
other party from any and all liability, claim and expense of whatever kind
and nature for injury or death to any person or persons and for loss of or
damage to or arising out of either parties occupancy, use, operation, or
performance of work hereunder, resulting in whole or in part from the acts of
omissions of either party or its employees.
B. Subcontractor shall maintain employer's liability, comprehensive general
liability, comprehensive automobile, and property damage insurance in
reasonable amounts covering Subcontractor's obligations and responsibilities
hereunder, and shall maintain proper Workmen's Compensation insurance
covering all employees performing under this Subcontract.
H-11 LIMITATION OF OBLIGATION
Nothing contained herein shall be deemed as obligating ANSTEC to order any of
the services described herein; however, when and if services are ordered by
ANSTEC hereunder, such orders shall be subject to the terms and conditions of
this Subcontract.
H-12 ASSIGNMENT
Neither the interest to this Subcontract nor any other right or obligation
hereunder, may be assigned or transferred to any third party, nor may any
security interest therein be created without the prior written consent of
ANSTEC.
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H-13 ORDER OF PRECEDENCE
In the event of an inconsistency between the terms and conditions of this
Subcontract, the inconsistency shall be resolved by giving precedence in the
following order:
1. The Subcontract Schedule (Sections C through I except Section D,
Statement of Work).
2. The General Provisions (whether incorporated by reference or otherwise).
3. Section D, Statement of Work (Attachment A).
4. All other terms and conditions of this Subcontract.
H-14 COMPLIANCE WITH LAW
Subcontractor and all persons furnished by Subcontractor shall comply with
the Walsh Healy Public Contracts Act, the Fair Labor Standards Act, the
Occupational Safety and Health Act and all other federal, state, and local
laws, ordinances, regulations and codes, including identification and
procurement of required permits, certificates, approvals and inspections, in
performance under this Subcontract. Subcontractor agrees to indemnify ANSTEC
and its customers for any loss or damage that may be sustained by reason of
any failure to do so.
H-15 RELEASE OF NEWS INFORMATION
In the event either party desires to issue a news release, public
announcement, advertisement, or other form of publicity concerning their
efforts in connection with this Subcontract, then the party issuing the
publicity shall obtain the written approval of the other prior to the release
of said information and shall give full consideration to the role and
contribution of the other party. Written approval shall not be unreasonably
withheld by the other party and shall be in accordance with the requirements
of the Prime Contract.
H-16 DISSEMINATION OF INFORMATION
There shall be no dissemination or publication, except within and between
ANSTEC and the Subcontractor, of information developed under this Subcontract
or contained in the reports to be furnished pursuant to this Subcontract
without mutual agreement of the parties.
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H-17 NON-WAIVER OF RIGHTS
The failure of ANSTEC or the Subcontractor to insist upon strict performance
of the terms and conditions of this Subcontract or to exercise any rights or
remedies, shall not be construed as a waiver of its rights to assert any of
same rights or to rely on any such terms or conditions at any time thereafter.
H-18 CERTIFICATIONS
A. Subcontractor shall complete and submit to ANSTEC, upon execution of this
Subcontract, the Offeror Representation and Certifications from the Prime
Contract set forth in Attachment E.
B. If Prime Contract provision requires ANSTEC to file a response or claim
within a specified period and such response or claim is on behalf or in
conjunction with Subcontractor, Subcontractor shall submit any relevant
information or evidence of such response or claim to ANSTEC within the first
half of the specified period, providing ANSTEC has promptly notified
Subcontractor of the request.
C. Subcontractor represents and certifies, to ANSTEC, upon executing this
Subcontract, that Subcontractor is eligible to perform government contracts
and Subcontractor shall not take any action or fail to take appropriate
action, when necessary, which would jeopardize its eligibility. In the event
the Subcontractor should become ineligible to perform under this Subcontract
or the Prime Contract, Subcontractor shall immediately notify ANSTEC, in
writing, of such ineligibility.
H-19 SEVERABILITY
If any term or provision of this Subcontract Agreement shall be found by a
court of competent jurisdiction to be illegal or otherwise unenforceable, the
same shall not invalidate the whole of this Subcontract, but such term or
provision shall be deemed modified to the extent necessary in the court's
opinion to render such term or provision enforceable, and the rights and
obligations of the parties shall be construed and enforced accordingly,
preserving to the fullest permissible extent the intent and agreements of the
parties herein set forth.
H-20 LIABILITY
Subcontractor shall be liable to ANSTEC for all costs not reimbursed by
Customer that ANSTEC incurs as a result of Subcontractor's default under this
Subcontract and for any amount that is reduced by Customer for defective cost
and pricing data supplied by Subcontractor. Subcontractor liability shall
include but not be entitled to increased costs
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resulting from delays caused by Subcontractor or increased costs incurred by
ANSTEC performing or procuring a third party to perform Subcontractor's
portion of the work hereunder. ANSTEC may seek judicial or equitable remedy
in any court of competent jurisdiction for any additional costs incurred by
reason of Subcontractor's default.
H-21 REMEDIES
All remedies available to either party for breach of this Subcontract by the
other party are and shall be deemed cumulative and may be exercised
separately or concurrently. The exercise of a remedy shall not be an
election of such remedy to the exclusion of other remedies available by law
or in equity.
H-22 SOLICITATION
Neither party shall knowingly solicit, recruit, hire or otherwise employ or
retain any employee of the other, performing under this Subcontract or the
Prime Contract, during the term of this Subcontract and for one (1) year
following the termination or expiration of this Subcontract, without the
prior written consent of the other party.
H-23 COMPLETE AGREEMENT
This Subcontract Agreement contains the entire agreement between the parties
hereto with respect to the matters covered herein. No other agreements,
representations, warranties or other matters, oral or written, shall be
deemed to bind the parties hereto with respect to the subject matter hereof.
Any changes or amendments to this Subcontract may be made only in writing and
signed by the parties to be bound thereby.
H-24 APPLICABLE STATE LAW
This Subcontract shall be deemed to have been entered into in the
Commonwealth of -Virginia, United States of America, and shall, for all
purposes, be governed by and construed under the laws thereof regardless of
where any court action or legal proceeding is brought in connection with this
Subcontract.
H-25 PRIORITY RATING
This is a rated order, Priority Rating DO-A7, certified for national defense
use, and you are required to follow all the provisions of the Defense
Priorities and Allocations regulation.
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SECTION I - GENERAL PROVISIONS
The attached GENERAL PROVISIONS are applicable to and a part of this
Subcontract.
SECTION J - LISTS OF DOCUMENTS. EXHIBITS,
AND OTHER ATTACHMENTS
ATTACHMENT A - Statement of Work and Specifications
ATTACHMENT B - Prices of Supplies/Service
ATTACHMENT C - General Provisions of Prime Contract
IN WITNESS WHEREOF, the parties hereto have executed this Subcontract
Agreement by their officers thereunto duly authorized as of the date first
written above.
ANSTEC, Inc. American Computer and
Electronics Corporation
BY:/s/ Jerome H. Griss BY:/s/ S. Joseph Dorr
- ------------------------------ ------------------------------
NAME: Jerome H. Griss NAME: S. Joseph Dorr
- ------------------------------ ------------------------------
TITLE: Manager of Contracts TITLE: Vice President
- ------------------------------ ------------------------------
DATE: December 1, 1995 DATE: November 8, 1995
- ------------------------------ ------------------------------
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ATTACHMENT A
STATEMENT OF WORK AND SPECIFICATIONS
The Subcontractor shall provide all labor, equipment, tools, supervision, and
other items or services as proposed in its proposal dated March 20, 1995, to
support ANSTEC under the Prime Contract.
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ATTACHMENT B
PRICES OF SUPPLIES/SERVICES
Subcontractor's unit prices, as submitted it its proposal dated March 20,
1995, are incorporated herein by reference.
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ATTACHMENT C
GENERAL PROVISIONS OF THE PRIME CONTRACT
The Federal Acquisition Regulation ("FAR") and agency FAR Supplement clauses
identified below are hereby incorporated by reference with the same force and
effect as if set forth in full.
I. FEDERAL ACQUISITION REGULATION CLAUSES
CLAUSE NUMBER CLAUSE TITLE (DATE)
- ------------- -------------------
52.201-1 DEFINITIONS (APR 1984)
52.203-1 OFFICIALS NOT TO BENEFIT (APR 1984)
52.203-3 GRATUITIES (APR 1984)
52.203-5 COVENANT AGAINST CONTINGENT FEES (APR 1984)
52.203-6 RESTRICTIONS ON SUBCONTRACTOR'S SALES TO THE GOVERNMENT
(JUL 1985)
52.203-7 ANTI-KICKBACK PROCEDURES (OCT 1988)
52.203-9 REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY
(MODIFICATION) (NOV 1990)
52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR IMPROPER ACTIVITY
(SEP I 990)
52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN FEDERAL
TRANSACTIONS (JAN 1990)
52.210-5 NEW MATERIAL (APR 1984)
52.210-7 USED OR RECONDITIONED MATERIAL, RESIDUAL INVENTORY, AND
FORMER GOVERNMENT SURPLUS PROPERTY (APR 1984)
52.212-8 DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS (SEP 1990)
52.215-1 EXAMINATION OF RECORDS BY THE CONTROLLER GENERAL
(FEB 1993)
52.215-2 AUDIT--NEGOTIATION (FEB 1993)
52.215-22 PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA
52.215-26 INTEGRITY OF UNIT PRICES (APR 1991)
52.215-27 TERMINATION OF DEFINED BENEFIT PENSION PLANS (SEP 1990)
52.215-30 FACILITIES CAPITAL COST OF MONEY (SEP 1987)
52.215-33 ORDER OF PRECEDENCE (JAN 1986)
52.215-39 REVERSION OR ADJUSTMENT OF PLANS FOR POSTRETIREMENT
BENEFIT OTHER THAN PENSION(PRB) (JUL 1991)
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52.216-7 ALLOWABLE COST AND PAYMENT (Applicable to CLIN 0003 and
all corresponding CLINS during the option years)
(JUL 1991)
52.216-11 COST CONTRACT--NO FEE (Applicable to CLIN 0003 and all
corresponding CLINS during the option years) (JUL 1991)
52.219-8 UTILIZATION OF SMALL BUSINESS CONCERNS AND SMALL
DISADVANTAGED BUSINESS CONCERNS (FEB 1990)
52.219-13 UTILIZATION OF WOMEN OWNED SMALL BUSINESSES (AUG 1986)
52.219-14 LIMITATIONS ON SUBCONTRACTING (JAN 1991)
52.220-3 UTILIZATION OF LABOR SURPLUS AREA CONCERNS (APR 1984)
52-220-4 LABOR SURPLUS AREA SUBCONTRACTING PROGRAM (APR 1984)
52.222-1 NOTICE TO THE GOVERNMENT OF LABOR DISPUTES
52.222-20 WALSH-HEALY PUBLIC CONTRACTS ACT (APR 1984)
52.222-26 EQUAL OPPORTUNITY (APR 1984)
52.222-28 EQUAL OPPORTUNITY PREAWARD CLEARANCE OF SUBCONTRACTS
(APR 1984)
52.222-29 NOTIFICATION OF VISA DENTAL (APR 1984)
52.222-35 AFFIRMATIVE ACTION FOR SPECIAL DISABLED AND VIETNAM ERA
VETERANS (APR 1984)
52.222-36 AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS (APR 1984)
52.222-37 EMPLOYMENT REPORTS ON SPECIAL DISABLED VETERANS AND
VETERANS OF THE VIETNAM ERA (APR 1984)
52.223-2 CLEAN AIR AND WATER (APR 1984)
52.223-6 DRUG FREE WORKPLACE (JUL 1990)
52.225-3 BUY AMERICAN ACT--SUPPLIES (JAN 1994)
52.225-11 RESTRICTIONS ON CERTAIN FOREIGN PURCHASES (MAY 1992)
52.227-1 AUTHORIZATION AND CONSENT (APR 1984)
52.227-2 NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT
INFRINGEMENT (APR 1984)
52.227-3 PATENT INDEMNITY (APR 1984)
52.227-19 COMMERCIAL COMPUTER SOFTWARE RESTRICTED RIGHTS
(JUN 1987)
52,228-5 INSURANCE--WORK ON A GOVERNMENT INSTALLATION (SEP 1989)
52.229-3 FEDERAL, STATE, AND LOCAL TAXES (JAN 1991)
52.229-5 TAXES--CONTRACTS PERFORMED IN U.S. POSSESSIONS OR
PUERTO RICO (APR 1984)
52.232-11 EXTRAS (APR 1984)
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52.232-16 PROGRESS PAYMENTS (applicable to CLIN 0001 and all
corresponding CLINS during the option years) (JUL 1991)
52.232-20 LIMITATION OF COST (applicable to CLIN 0003 and all
corresponding CLINS during the option years) (APR 1983)
52.232-23 ASSIGNMENT OF CLAIMS (JAN 1986)
52.236-9 PROTECTION OF EXISTING VEGETATION, STRUCTURES,
EQUIPMENT, UTILITIES, AND IMPROVEMENTS (APR 1984)
52.242-1 NOTICE OF INTENT TO DISALLOW COSTS (Applicable to
CLIN 0003 and all corresponding option years) (APR 1984)
52.242-13 BANKRUPTCY (APR 1991)
52.242-1 CHANGES - FIXED PRICE (AUG 1987) ALTERNATE II
(Applicable to CLIN 0015 and all corresponding CLINS
during the option years) (APR 1984)
52.243-2 CHANGES - COST REIMBURSEMENT (Applicable to CLIN 0003
and corresponding CLINS during the option years)
(AUG 1987)
52.243-7 NOTIFICATION OF CHANGES (The blank is completed as
follows: 14 days) (APR 1984)
52.253-1 COMPUTER GENERATED FORMS (JAN 1991)
II. DEFENSE FAR SUPPLEMENT CLAUSES
252.203-7000 STATUTORY PROHIBITION ON COMPENSATION TO FORMER
DEPARTMENT OF DEFENSE EMPLOYEES (DEC 199 1)
252.203-7001 SPECIAL PROHIBITION ON EMPLOYMENT (APR 1993)
252.203-7003 PROHIBITION AGAINST RETALIATORY PERSONNEL ACTION
(APR 1992)
252.204-7003 CONTROL OF GOVERNMENT PERSONNEL WORK PRODUCT (APR 1992)
252.205-7000 PROVISION OF INFORMATION To COOPERATIVE AGREEMENT
HOLDERS (DEC 1991)
252.209-7000 ACQUISITION FROM SUBCONTRACTORS SUBJECT TO ON-SITE
INSPECTION UNDER THE INTERMEDIATE RANGE NUCLEAR FORCES
(INF) TREATY (DEC 1991)
252.210-7003 ACQUISITION STREAMLINING (DEC 1991)
252.215-7000 PRICING ADJUSTMENTS (DEC 199 1)
252.225-7001 BUY AMERICAN ACT AND BALANCE OF PAYMENTS PROGRAM
(JAN 1994)
252.225-7005 QUALIFYING COUNTRY SOURCES AS SUBCONTRACTORS (DEC 1991)
252.225-7005 IDENTIFICATION OF EXPENDITURES IN THE UNITED STATES
(Applicable to OCONUS delivery orders) (DEC 1991)
252.225-7031 SECONDARY ARAB BOYCOTT OF ISRAEL (JUN 1992)
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252.227-7018 RESTRICTIVE MARKINGS ON TECHNICAL DATA (OCT 1988)
252.227-7026 DEFERRED DELIVERY OF TECHNICAL DATA OR COMPUTER SOFTWARE
(APR 1988)
252.227-7029 IDENTIFICATION OF TECHNICAL DATA (APR 1988)
252.227-7030 TECHNICAL DATA--WITHHOLDING OF PAYMENT (OCT 1988)
252.227-7031 DATA REQUIREMENTS (OCT 1988)
252.227-7036 CERTIFICATION OF TECHNICAL DATA CONFORMITY (MAY 1987)
252.227-7037 VALIDATION OF RESTRICTIVE MARKINGS ON TECHNICAL DATA
(APR 1988)
252.231-7001 PENALTIES FOR UNALLOWABLE COSTS (Applicable to CLIN 0003
and all corresponding CLINS during the option years)
(APR 1993)
252.232-7004 DoD PROGRESS PAYMENT RATES (Applicable to CLIN 0001 and
all corresponding CLINS during the option years)
(NOV 1993)
252.232-7006 REDUCTION OR SUSPENSION OF CONTRACT PAYMENTS UPON
FINDING OF FRAUD (AUG 1992)
252.233-7000 CERTIFICATION OF CLAIMS AND REQUEST FOR ADJUSTMENT OF
RELIEF (MAY 1991)
252.236-7000 MODIFICATION OF PROPOSALS--PRICE BREAKDOWN (DEC 199 1)
252-242-7000 POST AWARD CONFERENCE (DEC 199 1)
252.243-7001 PRICING OF CONTRACT MODIFICATIONS (DEC 199 1)
252.247-7023 TRANSPORTATION OF SUPPLIES BY SEA (DEC 1991)
252.249-7001 NOTIFICATION OF SUBSTANTIAL IMPACT ON EMPLOYMENT
(DEC 1991)
252.249-7002 NOTIFICATION OF PROPOSED PROGRAM TERMINATION OR
REDUCTION (MAY 1994)
III. AIR FORCE FEDERAL ACQUISITION REGULATION SUPPLEMENT
5352.210-9000 ELIMINATION OF CLASS I OZONE DEPLETION SUBSTANCES IN
AIR FORCE PROCUREMENTS (MAY 1993)
5352.223-9000 SAFETY AND ACCIDENT PREVENTION (APR 1984)
IV. ELECTRONIC SYSTEMS CENTER FEDERAL ACQUISITION REGULATION SUPPLEMENT
5352.228-9500 INSURANCE CLAUSE IMPLEMENTATION (JUL 1993)
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EXHIBIT 10.9
AGREEMENT TO PURCHASE HARDWARE, RENDER SERVICES AND LICENSE AND SUBLICENSE DE
USE OF SOFTWARE, EXECUTED ON ONE SIDE BY TELEFONOS DE MEXICO, S.A. DE C.V.,
REPRESENTED HEREIN BY ING. ADOLFO CEREZO PEREZ, IN HIS POSITION AS MANAGING
AND FINANCE DIRECTOR, HEREINAFTER REFERRED TO AS "TELMEX", AND THE OTHER PART
BY AMERICAN COMPUTER AND ELECTRONICS CORPORATION, REPRESENTED HEREIN BY MR.
THOMAS RUSSOTTO, IN HIS POSITION AS VICE-PRESIDENT, HEREINAFTER REFERRED TO
AS "ACEC" PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES:
RECITALS:
I The representative of TELMEX states that:
a) His principal was incorporated as a Sociedad Anonima pursuant to Public
Deed Number 34,726, dated December 23, 1947, which was attested before Notary
Public number 54 of the Federal District, Mr. Graciano Contreras Saavedra,
document which is currently registered under commercial record number 5229 of
the Public Registry of Commerce of Mexico City, Federal District.
b) Under Public Deed number 79,436, dated April 10, 1984, granted before
Notary Public number 54 of the Federal District, Mr. Graciano Contreras
Saavedra, it was protocolized the General Ordinary and Extraordinary
Shareholders Meeting of Telefonos de Mexico, S.A., held on March 15, 1984 in
which it was adopted among others, including the variable capital regime,
being recorded the first testimony in the above mentioned commercial record
at the Public Registry of Commerce of the Federal District.
c) Through Public Deed number 94,333, dated December 11, 1990, granted before
Notary Public number 54 of the Federal District, Mr. Graciano Contreras
Saavedra it was protocolized the General Extraordinary Shareholders Meeting
of Telefonos de Mexico, S.A. de C.V., held on July 15, 1990 in which it was
agreed to increase the corporate capital and fully modify its corporate
bylaws, being recorded the first testimony in the above mentioned commercial
record in the Public Registry of Commerce of the Federal District.
d) The corporate of his principal is, among others, bill, install, maintain,
operate and explode a Public Telephone and Telecommunications Network to
render the public service of conducting voice, sound, data, text and image
signals, at a local and long distance national and international level and
the Public Service of Basic Telephone.
e) His principal has a Title of Concession granted by the Federal Government
for a term of 50 years as of March 10, 1976, in accordance with the
publication in the official Gazette of the Federation dated March 31, 1976
and the amendment to the Title of
<PAGE>
Concession dated August 10, 1990 published in the official Gazette of the
Federation on December 10, 1990 to render the services mentioned in the
preceding paragraph.
f) Under Public Deed number 97,110 dated December 17, 1991, granted be-fore
Notary Public number 54 of the Federal District, Mr. Homero Diaz Rodriguez
whereby the authority to execute this agreement on behalf of its principal,
same which has not been revoked nor modified.
g) His principal is domiciled in Parque Via 190, Col. Cuauhtemoc CP 06500,
Mexico, D.F.
II The representative of ACEC declares under oath:
a) His principal is a corporation organized in accordance with the laws of
the State of Maryland, United States of America, as evidenced with a copy of
the bylaws, certified by the competent authority of the State of Maryland,
United States of America.
b) Has the legal capacity to execute this agreement on behalf of its
principal as evidenced in the Power of Attorney which is enclosed to this
agreement.
c) The corporate purpose of his principal is, among others: design,
manufacture, supply and service mediation devices for billing systems and
fraud control for telephone companies.
d) His principal is currently in compliance with all its obligations as a
supplier of equipment, software and rendering services before the
corresponding authorities.
e) Has the financial and administrative ability to execute this agreement and
the technical and economic conditions to perform the purposes of this
agreement.
f) His Principal is domiciled at 209 Perry Parkway, Gaithersburg, Maryland,
20877 United States of America.
III Joint statements:
a) Both parties state through their representatives that they agree that this
agreement does not restrict ACEC from rendering similar or equivalent
professional services to the ones provided under this agreement to
individuals or entities other than TELMEX, consequently this agreement shall
not be considered at any moment as an exclusive agreement or as a labor
agreement between the parties and therefore there shall not be made nor shall
it be allowed to make any claim that may arise for these matters.
b)(sic) The clauses and titles of the same as well as the exhibits are listed
below:
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CLAUSES
CLAUSE FIRST: PURPOSE OF THE AGREEMENT
CLAUSE SECOND: PRICE
CLAUSE THIRD: APPROVAL COMMITTEE
CLAUSE FORTH: TERMS AND CONDITIONS OF PAYMENT
CLAUSE FIFTH: DELIVERY
CLAUSE SIXTH: DURATION
CLAUSE SEVENTH: WORK PROGRAM
CLAUSE EIGHTH: SITE ENGINEERING SERVICES
CLAUSE NINTH: SOFTWARE SUPPLY
CLAUSE TENTH: TRANSFER OF SOFTWARE
CLAUSE ELEVENTH: DOCUMENTATION
CLAUSE TWELFTH: TRAINING
CLAUSE THIRTEENTH: CONDITIONS TO RENDER THE SERVICES
CLAUSE FOURTEENTH: REPORT
CLAUSE FIFTEENTH: CONVENTIONAL PENALTY
CLAUSE SIXTEENTH: BOND
CLAUSE SEVENTEENTH: WARRANTY
CLAUSE EIGHTEENTH: INFORMATION AND CONFIDENTIALITY
CLAUSE NINETEENTH: COPYRIGHTS
CLAUSE TWENTIETH: PRIOR TERMINATION
CLAUSE TWENTY FIRST: RESPONSIBILITY
CLAUSE TWENTY SECOND: LABOR RESPONSIBILITY
CLAUSE TWENTY THIRD: SUBCONTRACTING AND ASSIGNMENT
OF RIGHTS
CLAUSE TWENTY FOURTH: FORCE MAJEURE
CLAUSE TWENTY FIFTH: CAUSES OF TERMINATION
CLAUSE TWENTY SIXTH: ACKNOWLEDGEMENT
CLAUSE TWENTY SEVENTH: NOTICES
CLAUSE TWENTY EIGHTH: AMENDMENTS
CLAUSE TWENTY NINTH: DISPUTE RESOLUTION
EXHIBITS
l. - DESCRIPTION OF THE PROJECT
2. - DETAILED DESCRIPTION OF THE COSTS
3. - APPROVAL COMMITTEE
4. - WORK PROGRAM
5. - TRAINING
6. - DELIVERY PROCEDURE FOR THE PURPOSE OF PAYMENT
7. - CONDITIONS FOR THE UPGRADE OF THE DCMS LITE
8. - ALARMS
9. - TERMINOLOGY
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c) Both parties state that having made the above statements, they agree to
formalize this agreement pursuant to the following clauses and exhibits of
the agreement.
CLAUSES
CLAUSE FIRST. - PURPOSE OF THE AGREEMENT
ACEC is obligated with TELMEX to sell hardware, render professional services
for the development and installation of the "TELEPROCESS PROJECT" described
in Exhibit 1 of this agreement and to grant to TELMEX and its affiliated a
license and sublicense to use the software as provided in this agreement and
its exhibits. For these purposes, ACEC is obligated to supply, install and
render the services which are described in Exhibit 1 hereof.
CLAUSE SECOND. - PRICE
The maximum amount that TELMEX will pay to ACEC for the development of the
whole "TELEPROCESS PROJECT" shall be the amount of (Confidential material is
omitted and has been filed separately with the Commission) without Value
Added Tax, which is formed as follows:
Material and software (Confidential material is omitted and has been filed
separately with the Commission)
Services and royalties (Confidential material is omitted and has been filed
separately with the Commission)
Expenses (Confidential material is omitted and has been filed
separately with the Commission)
The price corresponding to expenses is an estimate therefore the final amount
of the same shall be determined pursuant to the terms and conditions
established in the clause Terms and Conditions of Payment of this agreement.
The above mentioned price includes a discount of (Confidential material is
omitted and has been filed separately with the Commission) which ACEC undertakes
to grant to TELMEX to support financing.
The detailed description of the costs related with the "TELEPROCESS PROJECT"
are defined in Exhibit 2 of this agreement.
The price of the "TELEPROCESS PROJECT" also includes direct and indirect
expenses that "ACEC" may have do to comply with this "AGREEMENT", except for
those expressly mentioned in this "AGREEMENT".
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CLAUSE THIRD. - APPROVAL COMMITTEE
In order to control the development of the "TELEPROCESS PROJECT" purpose of
this "AGREEMENT", an Approval Committee shall be created, same which shall be
formed by "TELMEX" personnel. This committee shall have the power to
evaluate and approve the advances of the "TELEPROCESS PROJECT", issuing for
these purposes a letter or approval to make the payment-
The Approval Committee is detailed in Exhibit 3 of this "AGREEMENT".
CLAUSE FORTH. - TERMS AND CONDITIONS OF PAYMENT
"TELMEX" shall pay in cash, pursuant to the conditions mentioned in Exhibit 6
of this "AGREEMENT", and prior authorization of the Approval Committee
pursuant to the following:
ITEM PAYMENT
Materials and software 40% upon delivery at "site"
And royalties
50% upon start and test of equipment
5% upon connection with the Central
5% upon polling test with billing equipment
Services 100% upon delivery
Expenses 100% upon delivery
Payment of the software and hardware purpose of this "AGREEMENT", may be made
by "TELMEX" by using any of its existing lines of financing, being obligated
"ACEC" to provide the documents that "EXIMBANK" may require to make such
payment.
Complementary documents that "ACEC" shall deliver to "TELMEX" for each item:
MATERIALS AND SOFTWARE. Commercial invoice of "ACEC" based on the price per
unit indicated in Exhibit 2 of this "AGREEMENT" and the corresponding
"Purchase Order" derived from this "AGREEMENT", enclosing the Certificate of
Origin of the product and evidence that it was manufactured in the United
States of America.
SERVICES AND ROYALTIES. Commercial invoice of "ACEC" based on the price per
unit indicated in Exhibit 2 of this "AGREEMENT" and corresponding "Purchase
Order" derived hereof.
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<PAGE>
If applicable, "TELMEX" shall withhold to "ACEC" the income tax (I.S.R.) in
accordance with the applicable law.
EXPENSES. List of expenses, with enclosed documents and invoices, based on
the price per unit indicated in Exhibit 2 of this "AGREEMENT". The above
mentioned list shall include import duties, freight expenses, insurance and
customs expenses of the software and hardware, purpose of this "AGREEMENT".
ACEC shall deliver the original invoices and import certificate issued on
behalf of "TELEFONOS DE MEXICO S.A. DE C.V.", and complying with all tax
requirements then in effect. "TELMEX" will only reimburse to "ACEC" the
expenses, provided that, they are related with the transportation, insurance
or importation (including import duties) in accordance with the unit values
indicated in Exhibit 2, table "A" of this "AGREEMENT" and pursuant to the
transportation discount policies mentioned in Exhibit 2 and calculated in
accordance with table "B" hereof.
Any excess in the expenses in relation to the price per unit indicated in
Exhibit 2 table "A" shall be paid by "ACEC" except for any variation
increasing import duties, that may not be controlled by "ACEC", as mentioned
in Exhibit 2 hereof. In the event of a decrease in the expenses it shall be
automatically reflected in the invoices that "ACEC" delivers to "TELMEX",
such as the annual decrease of the duties applicable to the equipment
pursuant to NAFTA, "ACEC" guarantees that the software and hardware supplied
hereunder are of U.S. origin.
It shall be the responsibility of "ACEC" to import and make any customs
proceedings required for the Software and Hardware purpose of this
"AGREEMENT" on behalf and for the account of "TELMEX", paying the
corresponding taxes, duties, expenses, import duties and value added tax.
"ACEC" shall obtain the documents with the fiscal requirements in effect,
that evidence the legal importation of the Hardware and Software, and the
expenses deriving from said importation, including insurance, transportation
and customs agent and import duties.
"ACEC" shall be liable for any misuse of this power and hereby undertakes to
maintain "TELMEX"'s interest safe from any damage, and to reimburse any
damages that his misuse may cause without any legal or financial limitation.
"ACEC" undertakes to obtain a Surety Bond from those rendering services to
"ACEC" related with the legal importation of the Software and Hardware
purpose of this "AGREEMENT", under which they release "TELMEX" of any payment
obligation to such individuals or entities in connection with this
"AGREEMENT", being "ACEC" the only liable party before those individuals or
entities for making the payments deriving from the services requested by
"ACEC". This letter shall be delivered to "TELMEX" prior to the acceptance
for reimbursement of any invoice issued by such individuals or entities.
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<PAGE>
It shall be deemed as a payment in cash, the one made by "TELMEX" after
thirty (30) calendar days following the presentation of the invoices by
"ACEC" with all the requirements, at the corporate domicile of "TELMEX" or at
the place previously requested in writing by the latter, pursuant to the
proceeding established by "TELMEX", and shall comply with the corresponding
tax requirements. The invoices shall include the corresponding report of the
activities developed, the advance of the "TELEPROCESS PROJECT" and the
finished products, same which shall be approved by the Approval Committee.
Payments in American dollars in favor of "ACEC" deriving from the performance
of the provisions of this "AGREEMENT" shall be made by wiretransfer in
American dollars, within the Mexican legal framework authorizing the transfer
of currency abroad, and considering the following information:
American Computer and Electronics Corporation 209 Perry Parkway
209 Perry Parkway
Gaithersburg, Maryland 20877
U.S.A.
Citizens Bank of Maryland
14401 Sweitzer Lane
Laurel, Maryland 20707
ABA # 055002969
Account # 121-030-0634
The reimbursement of expenses account denominated in National Currency (N$)
shall be paid in cash in National Currency (N$), such as reimbursement of
import duties, among others. "TELMEX" shall make the reimbursements through
a wiretransfer of the amount of the invoices in National Currency (N$) to the
account in National Currency (N$) indicated by "TELMEX" to "ACEC" in writing
with enough anticipation, provided that such transfer is made outside of the
national territory (Mexico), otherwise, "TELMEX" shall deliver a check in
Nuevos Pesos (N$) in favor of AMERICAN COMPUTER AND ELECTRONICS CORPORATION.
CLAUSE FIFTH. - DELIVERY
"ACEC" shall deliver to "TELMEX" the Hardware and Software purpose of this
"AGREEMENT" in "TELMEX" installations in Mexico, D.F. designated in the
purchase orders deriving from this "AGREEMENT". "ACEC" has included in the
costs mentioned in Exhibit 2 the redistribution of the Hardware and Software
of the telephone Centrals designated by "TELMEX" to be installed by "ACEC".
The delivery proceeding for payment is established in Exhibit 6.
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<PAGE>
CLAUSE SIXTH. - DURATION
The term of this "AGREEMENT" shall be three (3) years as of the date of
execution of the same, consequently it expires on indicated date, without
need of a court notice.
The warranties established in this "AGREEMENT" shall continue in effect until
its expiration.
The licenses and sublicenses to use the Software granted by "ACEC" to
"TELMEX" and its Affiliates and that "TELMEX" has paid in whole shall be
perpetual.
CLAUSE SEVENTH. - WORK PROGRAM
"ACEC" shall deliver to "TELMEX" within the following five days after the
execution of this "AGREEMENT" a detailed WORK PROGRAM, which shall be
submitted for "TELMEX" approval for its performance. "ACEC" undertakes to
supply the Hardware, Software and services to "TELMEX" in the places and
dates designated by the latter, and in accordance with the criteria set forth
in Exhibit 4 to this "AGREEMENT".
In the event of changes to the WORK PROGRAM due to "TELMEX" needs, both
parties shall agree in writing to the corresponding amendments.
CLAUSE EIGHTH. - "SITE" ENGINEERING SERVICES
"ACEC" shall provide in the initial stage of "site" engineering services,
visiting each central, prior the issuance by "TELMEX" of a "Purchase Order"
for the Hardware and Software for such centrals included under this
"AGREEMENT" in order for "ACEC" to obtain the data required by "ACEC" for the
"site survey" procedures or field survey.
Both parties agree that these services are required to determine the
condition of the equipment, of the "upgrade", the condition of the electric
installation, the location of the equipment and devices, wiring and
interfaces among others.
The field surveys performed by "ACEC" shall be delivered to "TELMEX" in a
series of reports grouped in binders by SOT, for its later use and validation.
The field reports shall be performed prior programming with "TELMEX".
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<PAGE>
CLAUSE NINTH. - SOFTWARE SUPPLY
For purposes of this "AGREEMENT", the software includes the operative
Systems, the System Software (including the software for storage and
delivery, software for management of the system, software for diagnosis and
maintenance, software for automatic alarm report), Application Software and
Network Management Software, whether "ACEC" is the author of said Software or
has the authorization to license or sublicense the same.
"ACEC" shall provide to "TELMEX" the software as follows:
a) The supply of the Software shall be made with all the corresponding
related documents, diskettes or magnetic means, in accordance with the
date(s) established hereunder on the requests deriving herefrom.
b) With the purpose of protecting the industrial and intellectual property
related with the Software subject of this "AGREEMENT", "TELMEX" hereby is
obligated to reproduce in copies used as back-up the notices of being a trade
secret and a copyright as applicable in accordance with "ACEC"'s indication
then in effect.
c) "ACEC" undertakes to supply and install the Software or to be installed by
"TELMEX" as the latter deems it convenient, in the equipment and dates
designated in the WORK PROGRAM.
d) "ACEC" shall be responsible for submitting to "TELMEX" any new updated, if
any, Software without additional cost for "TELEMEX", within the next fifteen
(15) working days after the new product is released, during the duration of
this "AGREEMENT".
e) "ACEC" undertakes to supply to the "TELEMEX'S" Systems library an original
additional copy all the documents regarding the Software Application,
including the main programs and documentation of the whole licensed and
sublicensed Software and new versions (the "Documentation"), in the same
delivery dates established in c) of this clause.
f) All Software shall be delivered based on executable programs except for
Software Application, which shall be supplied along with the source code.
With this code "TELMEX" will be able to modify the existing applications as
well as modify the call registration format, increasing or decreasing its
size and auditioning eliminating fields.
CLAUSE TENTH. - TRANSFER OF SOFTWARE
"TELMEX" may transfer the software subject of this "AGREEMENT" without
additional cost for "TELMEX" within the Mexican Republic to a computer
equipment of
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<PAGE>
similar configuration, if the latter substitutes the computer equipment
designated by "TELMEX" or if the computer equipment designated by "TELMEX"
were transferred to a different location within "TELMEX" whether within the
territory of the Mexican Republic or abroad, provided "TELMEX" previously
notifies "ACEC".
CLAUSE ELEVENTH. - DOCUMENTATION
"ACEC" shall deliver all documentation related with the use of the Software
and Hardware in the terms and conditions established in this "AGREEMENT".
The following documents shall be delivered in Spanish:
- - DCMS user's manual
- - DC4S Lite user's manual
- - ANMS user's manual
CLAUSE TWELFTH. - TRAINING
"ACEC" undertakes to provide sufficiently broad training both in the
theoretical and practical aspect, in order for "TELMEX" and INTTELMEX
personnel to be able to train "TELMEX" personnel to perform the functions of:
projecting, installing, testing, receiving, operating, maintaining, and
supervising adequately and satisfactorily the systems and/or equipment
purpose of this "AGREEMENT"; in the understanding that such training shall be
for the time and quality required by "TELMEX" and INTTELMEX without any
additional cost and complying the specifications contained in Exhibit 5 of
this "AGREEMENT".
CLAUSE THIRTEENTH. - CONDITIONS TO RENDER THE SERVICES
a. "TELMEX" shall have the right to continuously supervise the quality
control and to approve the performance of the works under this "AGREEMENT",
at all times and until the end of the same.
b. Upon termination of the "TELEPROCESS PROJECT" dully accepted by "TELMEX",
termination letter of the same shall be signed, provided that the works
contained hereunder have been performed and finished in accordance with
"TELMEX"'s requirements. Through this letter the services shall deemed to
have been accomplished with "TELMEX" conformity.
C. "ACEC" shall provide the Hardware, Software and Services object of this
"AGREEMENT" at "TELMEX" offices and/or in the places indicated in writing by
"TELMEX".
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"TELMEX" shall issue in advance a "Work Order" in which it will specify the
equipment that shall be installed and where at. In addition it shall
coordinate and inform the "TELMEX"'s personnel that shall be responsible for
providing the operative support required in order for "ACEC" to make such
installation or group of installations, likewise "TELMEX" shall allow access
to its installations to "ACEC"'s personnel and shall proceed without delay to
render the services.
"TELMEX"'s operational support shall be performed in advance upon initiation
of the installations, in view of the fact that any delay by "TELMEX" shall be
considered as not attributable to "ACEC" for purposes of compliance with the
"WORK PROGRAM".
d "ACEC" is obligated that any alien personnel hired to perform the works
established in this "AGREEMENT", shall have the necessary immigration quality
and characteristics for the valid performance of the same, in accordance with
the provisions of the applicable Mexican laws. For such effect, "ACEC" shall
timely perform at its cost, any application, authorization, request or
proceeding required before the competent authorities-
e. "ACEC"'s personnel shall perform the works object of this "AGREEMENT"
complying with the general security measures established by "TELMEX", for the
access and circulation in the premises of the latter and of those that may be
provided to them.
f. In regard to the personnel used by "ACEC" or the services object of this
"AGREEMENT", "TELMEX" shall at all times the ability to notify to "ACEC" that
one or more of its employees are not accepted by "TELMEX", being enough for
this purposes simple written notice justifying the causes or reasons for
which the replacement of the personnel is requested. In such event, "ACEC"
shall remove from "TELMEX" the employees and shall replace them with
other(s), for the compliance of the purpose of this "AGREEMENT" within the
time and quality required. All the expenses related with such change shall
be borne by "ACEC".
g. The personnel designated by "ACEC" to perform the purpose of this
"AGREEMENT" within the Mexican Republic, shall speak, understand and read the
Spanish language. Thus all the work performed by "ACEC"'s personnel shall be
in Spanish language except for those which by their own nature have to be in
another language.
h. "ACEC" undertakes to have within the Mexican Republic a permanent
representative for at least the term of this "AGREEMENT".
i. In the event of an "upgrade" of the DCMS Lite the conditions established
in Exhibit 7 hereof shall apply.
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j. "ACEC" shall additionally have a civil liability insurance to cover the
damages that "ACEC" might cause to the Hardware and Software or to "TELMEX"'s
personnel -in the performance of the installation works or during the transit
at "TELMEX" premises.
CLAUSE FOURTEENTH. - REPORT
"ACEC" hereby is obligated to submit a weekly report before the Approval
Committee that shall include the advance and final result of the works and
the activities developed to accomplish the purpose of this "AGREEMENT". Said
report shall be enclosed to the invoice for its payment duly authorized by
the Approval Committee.
"ACEC" shall have the obligation to deliver to "TELMEX" all the information
related to the status of the performance of the works related to the
"TELEPROCESS PROJECT" whenever required by "TELMEX", in a term that shall no
exceed 72 business hours as of the receipt of written request.
CLAUSE FIFTEENTH.- CONVENTIONAL PENALTY
The parties agree that in the event of any delay in any date compromise or
time to answer deriving from this "AGREEMENT", including the guarantees or
causes attributable exclusively to "ACEC", it shall pay to "TELMEX" a
conventional penalty equivalent to 0.066% daily, calculating such percentage
on the total price of the products (Hardware, Software and/or Services),
corresponding to the Central in which such delay occurs, in accordance with
the Purchase Order.
Such conventional penalty shall be subtracted from the payment of the
corresponding invoice, provided there are bills pending of payment by
"TELMEX" to "ACEC", otherwise or when the amount of the Conventional Penalty
is greater than the amount of said invoice, "ACEC" undertakes to deliver to
"TELMEX", when required by the latter, a cheque in favor of "TELEFONOS DE
MEXICO, S.A. DE C.V.", for the amount resulting from the delay.
CLAUSE SIXTEENTH.- BOND
"ACEC" shall guarantee the obligations related to this "AGREEMENT" through a
bond which shall be granted by a Mexican prestige institution, authorized by
the Ministry of Finance, which shall be issued in favor of and to the
satisfaction of "TELMEX" pursuant to the following:
a. The bond shall be granted in national currency, for ten percent (10%) of
the total amount of this "AGREEMENT", considering the exchange rate published
by Banco de Mexico in the Official Gazette of the Federation on the date of
issuance of the bond, same
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which shall be submitted to the Credit management Office and "TELMEX"
"AGREEMENT" for its safekeeping, within the following thirty (30) natural
days to the date of execution of this "AGREEMENT".
b. The bond shall be in order for "ACEC" to guarantee each and every of the
obligations and conditions of this "AGREEMENT".
c. In the event that the performance of this "AGREEMENT" is extended, the
corresponding bond shall also be extended.
d. The bond shall be in effect for the term of this "AGREEMENT".
e. The bond guarantying the compliance of this "AGREEMENT" may only be
cancelled with a written approval of "TELMEX".
CLAUSE SEVENTEENTH. - WARRANTY
a) "ACEC" warranties the Software and Hardware on "site" under normal
operation conditions, for a term of two (2) years, including labor and the
materials, as of the date of acceptance of the installation of the Hardware
and/or Software by "TELMEX". This warranty also includes that the
documentation furnished by "ACEC" shall be in conformity with the related
software. In the event that "TETMEX" modifies the Application Software,
"TELMEX" shall lose the functional warranty of the same except for the minor
changes indicated in Exhibit 5 of training and what is mentioned in paragraph
j) of this clause.
The Hardware of the DCMS Lite "upgrade", except hard disk, shall have in
addition to the warranty established in the preceding paragraph, an
additional limited warranty for three (3) additional years to cover
manufacturing defects, both in materials and labor. This warranty is not on
"site". "ACEC" undertakes to repair the Hardware having this type of defect
during years 3, 4 and 5 and not later than thirty (30) business days, once
the same has been delivered to "ACEC" for its repair together with the
corresponding warranty claim.
b) In the event that the Software and/or Hardware have design problems
attributable to "ACEC", it will have the obligation to perform without any
charge for "TELMEX" all the necessary corrections in a term not longer than
thirty (30) business days as of the notice by "TELMEX".
It shall perform the updating and corrections necessary in the Software in
order to comply with the specified Software. Design corrections shall be
made to the Hardware including the replacement of the whole board or
equipment-
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Software and Hardware design corrections shall be made at the switch
previously designated by "TELMEX" in which the equipment is installed and the
error shall be repaired until the purpose of this "AGREEMENT" is
satisfactorily achieved.
Given that the system allows it, any updating to the Software it may be made
remotely, provided that the purpose of the "AGREEMENT" is fulfilled at all
timed.
c) During the warranty term, "TELMEX" may return to "ACEC" any defective
magnetic means, which may be replaced at no cost within the following thirty
(30) business days after the date of return and in the event that the content
of the documentation is not in conformance with the content of the Software,
"ACEC" undertakes to make any required modifications or to replace the
documentation and/or software with the thirty (30) business days from the
notice.
d) In the event of a breach to the warranty and to the terms and date
compromises established in this "AGREEMENT", and which substitution was not
possible, nor the repair of the Software or Hardware, the penalties indicated
in the Conventional Penalty Clause shall apply during all the time in which
the failure or problem is present. In the event of such substitution or
repair is not possible whether for "TELMEX" decision or by notice of "ACEC",
"TELMEX" may proceed to what is provided in the Causes of Termination Clause
and/or Use the corresponding bond.
e) "ACEC" warrantees only the DCMS Hardware and DCMS Lite Hardware, the
software, the documentation and the installation of the system. In the event
that "ACEC" investigates a warranty claim that thereafter results being a
problem not related to "ACEC", dully justified before "TELMEX", "ACEC" shall
bill "TELMEX" for the labour required in such investigation at the labor
prices published in this "AGREEMENT", being entitled to bill no more than
five (5) hours for each event.
f) "ACEC" shall make any correction to the hardware or software on "site"
(if required), provided they are not of design, in accordance with the
criteria established in Exhibit 8, provided "TELMEX" allows access to the
switch and the corresponding operational support, with the purpose of
guarantying the continuous operation of the system. The time to answer and
repair the Hardware and Software shall be initiated immediately at any time
between 9AM and 6PM. Mexico City time, from Monday to Sunday all year round.
"TELMEX" and "ACEC" undertake to design proceedings in order for "TELMEX" to
be able to report the failures under the same may be timely solved.
"ACEC" shall also render preventive maintenance services to the Hardware
during the warranty term and "TELMEX" has the option at the end of said term
to acquire maintenance services.
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g) "TELMEX" shall furnish the name of the individual who will be responsible
in each region of "TELMEX" together with a back-up who shall be in charge of
the telephone operation -in the "TELMEX" switch.
h) "ACEC" shall replace any part used in "TELMEX" inventory during the
warranty term in less than two (2) business days.
i) "TELMEX" and "ACEC" shall establish a priority of warranty service for
switch in accordance with the criteria established in Exhibit 8.
j) In the event of new applications, the software warranty is maintained
provided that the new application is validated with "ACEC" prior to the
initiation and the end, with the purpose of validating the functionality and
interoperability, in order to avoid an impact on the applications and the
Software of the system. The analysis, design, development and installation
of these new applications shall be made exclusively by "TELMEX" s personnel.
"ACEC" undertakes to participate in this validation process, in accordance
with a methodology to avoid loosing the warranty with the development of new
applications by "TELMEX" during the term of this "AGREEMENT" and the
warranties.
CLAUSE EIGHTEENTH. - INFORMATION AND CONFIDENTIALITY
"Confidential Information" means the prices or information relating to the
new products of the supplier, industrial and trade secrets and any other
property:( right, and any business, market or technical information disclosed
by the parties in connection with this "AGREEMENT", identified in writing as
confidential by the owner. This term does not include information in the
public domain or which may have been legally disclosed to third parties after
the execution of this "AGREEMENT" or made of the public domain by any
individual or through other any act not included within those prohibited or
not authorized in the terms of this "AGREEMENT".
All the information and documentation delivered between both parties pursuant
to this "AGREEMENT", shall be considered Confidential, therefore neither
party may disclose it to third parties by any means whether oral magnetic or
written.
Both parties are obligated not to copy, disclose, distribute, reveal,
communicate, or transfer any mean or manner in general and not to disclose
directly or indirectly through its personnel or third parties the
confidential information provided by any of the parties or to which it may
have had access as a consequence of this "AGREEMENT", except when required
for the execution of the "TELEPROCESS PROJECT", except with a written
authorization from the party issuing the documentation.
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Both parties consider as confidential all the information received by the
other party, related to this AGREEMENT and undertake to apply the provisions
which are usually used for the protection of the secrecy of their own
documents and information.
Especially, both parties shall inform to the members of their personnel and
authorize third parties having access to the documents and the information
from the other party, of prohibition to disclose them to third parties in
whole or in part through one manner or another.
CLAUSE NINETEENTH. - COPYRIGHTS
Copyrights of the Application Software, once finished based on "TELMEX"
requirements and which are paid by the latter, including the source programs,
purpose programs and documentation developed under the "TELEPROCESS PROJECT"
described in Exhibit 1, including the "Documentation" shall be of "TELMEX".
Property Rights of the programs, routines, applications and tools that belong
to "ACEC" and/or to third parties prior to the execution of this "AGREEMENT",
including SBE TCP/IP, QNX, SOFTWARE QNX, AEG, MODCOMP UNIX, MOTOROLA M68,
Marben FTAM, ANMS AND THE SYSTEM SOFTWARE, shall continue being property of
"ACEC" or third parties.
Both parties acknowledge that any additional program that may be developed
for the account of "TELMEX" to supplement or improve the reliability of the
Software developed shall be the property of "TELMEX".
Except for the already existing programs, routines and applications at the
time of execution of this "AGREEMENT" belonging to "ACEC" and/or to third
parties, "ACEC" shall not assign, license, transfer or commercialize the
Application Software without the prior written authorization of "TELMEX" and
when this event occurs "ACEC" shall pay to "TELMEX" the corresponding
royalties in the form and amount mutually agreed.
"ACEC" is solely liable for the copyrights in the use of the Software and
tools utilized or furnished by it to deliver the purpose of this "AGREEMENT".
"ACEC" states under oath that it has the corresponding authorization to
license the software SBE TCP/IP, QNX, SOFTWARE QNX, AEG, MOD COM UNIX,
MOTOROLA M68, MARBEN FTAM and any other that it may use to comply with this
"AGREEMENT".
Within the following one hundred and twenty (120) days from the execution of
this "AGREEMENT", "ACEC" shall deliver to "TELMEX" copy of the documents
evidencing the authorizations that it has to license or sublicense the
Software mentioned in the preceding paragraph, dully certified by the
Secretary of "ACEC".
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In addition, in connection with ANMS SOFTWARE, the System Software and the
tools and applications previously developed by "ACEC", "ACEC" hereby
undertakes to deliver to "TELMEX" within the following one hundred and twenty
(120) days from the execution of this "AGREEMENT" copies of the copyrights
registrations corresponding to these products. This date compromise shall be
subject to the penalties indicated in the Conventional Penalty Clause except
for a cause of Force Majeure.
"ACEC" warrants that it is the holder of the ANMS Software Rights, System
Software and its tools and applications previously developed, therefore in
the event that an individual files a claim in regard to the intellectual or
industrial property rights in connection with the Software purpose of this
"AGREEMENT", "ACEC" undertakes to maintain "TELMEX"'s interests safe.
"ACEC"'s responsibility established in this paragraph shall be applicable
provided that "TELMEX" a) notifies in writing to "ACEC" of the claim or law
suit filed against it and b) allows "ACEC" the defense of the same.
"ACEC" has the express authorization to license the software purpose of this
"AGREEMENT", including Software SBE TCP/IP, QNX, SOFTWARE QNX, AEG MODCOMP
UNIX, MOTOROLA M68, MARBEN FTAM consequently if it is considered that such
software is an invasion of the rights of third parties and the use of the
same is prohibited, "ACEC" shall obtain for "TELMEX" the right to continue
using the Software which was licensed, or if applicable it shall replace it
with a substitute that does not invade the protected Software, or it may
modify such Software in such a manner that it does not invade the rights of
third parties or, finally, with the written authorization of "TELMEX" it
shall remove the software and return to "TELMEX" the total price of the
corresponding software based on "ACEC"'s list of prices then in effect this
regardless of the loses or damages caused to "TELMEX" for this cause.
CLAUSE TWENTIETH. - PRIOR TERMINATION
"TELMEX" may terminate this "AGREEMENT" in whole or in part, without a court
order by a written notice with at least thirty (30) calendar days prior to
the termination date. Within the following two (2) days of the written
notice notice the parties shall meet to define by mutual agreement a work
program to be performed by "ACEC" during this last (30) thirty days
In the event of prior termination of this "AGREEMENT", "TELMEX"'s obligation
to pay the work performed until the date the termination of the "AGREEMENT"
is effective and "ACEC"'s obligation to maintain the corresponding warranties
shall remain valid.
In the event of "Purchase Orders" in process, their suspension or conclusion
shall be mutually agreed and the corresponding payment shall be negotiated.
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CLAUSE TWENTY FIRST. - RESPONSIBILITY
"ACEC" is liable before "TELMEX" of all the loses and damages that it may
cause, without prejudice of the legal actions to which it may be entitled to,
in the event of non-compliance with this "AGREEMENT", as well as for
negligence, lack of skill or dolus, without prejudice of the penalties in the
event of crimes, notwithstanding the foregoing, both parties agree that under
no circumstance "ACEC"'s responsibility shall be for an amount greater than
the total value of this "AGREEMENT".
"ACEC" is liable to "TELMEX" for all the Hardware and Software that "ACEC"
sells, licenses or sublicenses to "TELMEX", as well as the training and
warranty which are provided by "ACEC".
"TELMEX" shall be responsible for the safekeeping and physical wholeness of
the Hardware and Software when the same are within its premises and have been
electrically installed pursuant to the indications of the "Work Order" of
"TELMEX", to the satisfaction of the latter and provided that the damages
caused to the Hardware and Software are not caused by "ACEC". For these
purposes, "ACEC" shall be obligated to obtain broad and sufficient insurance
to protect at all times and until its delivery and electrical installation in
the final place at "TELMEX" premises, the physical wholeness of "TELMEX"'s
Hardware and Software, from the occurrence of any type of accident, loss, or
theft.
"ACEC" has the obligation of repairing the Hardware and Software that it
supplies to "TELMEX" or to correct the services, in the event of failure, in
accordance with the conditions and the times of answer mentioned in the
Warranty Clause of this "AGREEMENT", depending, on the type of problem and
switch.
"ACEC" is not liable for any delay in the delivery or installation of the
Hardware and Software when these are attributable to "TELMEX", prior evidence
of the causes.
"ACEC" is not liable before "TELMEX" for any incidental or consequential
damages caused for the inadequate operation by "TELMEX" of the equipment and
Software supplied by "ACEC", prior evidence to "TELMEX" of said inadequate
operation.
"ACEC" is not liable of "TELMEX" telephone operation, including the lack of
or bad performance by "TELMEX" of the proceedings established that derive
from a loss of data or of the impossibility to recover such data in the event
that one of the products of "ACEC" is totally or partially out of order, even
for a problem in the installation, repair or manufacturing both of the
Hardware or Software, independently of the time of duration of such
condition. "ACEC- shall not be liable if such proceedings are non-existing
or not established.
"ACEC" is not liable for the cost of operating the Hardware and software
provided by "ACEC".
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During the engineering stage of the "TELEPROCESS PROJECT", including the
placement of the Hardware and Software through the DCMS Lite, "ACEC" shall
jointly perform with "TELMEX" tests to the equipment under "TELMEX"
supervision.
The loss of data or unrecovered data that may occur between the delivery of
the equipment and Software to the final acceptance of the same, independently
of the time when the same occurs, shall be considered as part of the tests.
"TELMEX" shall have operational proceedings to preserve the data during this
stage of the "TELEPROCESS PROJECT", without any liability whatsoever for
"ACEC".
CLAUSE TWENTY SECOND. - LABOR RESPONSIBILITY
"ACEC" is obligated to provide the services purpose of this "AGREEMENT" in a
personal manner and with the specialized personnel necessary for the
compliance of the same.
"ACEC" as contractor and employer of the personnel that it will use for the
works deriving from this "AGREEMENT", shall be solely liable of the
obligations deriving from the legal provisions and other regulations in the
area of labor and social security.
"ACEC" undertakes the responsibility of all the claims filed against it or
against "TELMEX" by its employees in connection with the works deriving from
this "AGREEMENT".
Under oath an in terms of article 13 of the Federal Labor Law, "ACEC" states
that it has sufficient elements of its own to comply with the obligations
deriving from the relation with its employees and consequently is the only
employer of each and everyone of the individuals that it has hired to
participate in the development and performance of the purpose of this
"AGREEMENT", releasing "TELMEX" from any labor liability whatsoever.
CLAUSE TWENTY THIRD.- SUBCONTRACTING AND ASSIGNMENT OF RIGHTS
"ACEC" shall not subcontract in whole or in part the obligations of this
"AGREEMENT" with any other individual or entity, nor assign the rights
deriving hereunder, except when there is a prior and written "AGREEMENT"
between the parties.
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CLAUSE TWENTY FOURTH.- FORCE MAJEURE
In the event of an act of God or force majeure that could partially or
totally prevent the execution of this "AGREEMENT", the same may be terminated
by any of the parties through a written notice within the following five (5)
calendar days after this circumstance has occurred, undertaking the parties
to make the required adjustments to the payments for the work already
performed.
"ACEC" shall be subject to the conventional penalties mentioned in the
Conventional Penalty Clause, to guaranty the compliance of the time of
delivery or any date compromised, provided this delay does not derive from
any cause of force majeure such as a natural disaster, violence, political
disorder, temporary or permanent close of customs and airports, amendments to
the customs or copyrights law, amendments or creation of new taxes that
notoriously affect the costs, crimes and/or accident that totally or
partially prevents "ACECI"'s activities as well as other causes of force
majeure.
In case of an event of this nature, "ACEC" shall submit to "TELMEX" in
writing a detailed report of the status with sufficient and complete evidence
to the satisfaction of "TELMEX", and at the option of "TELMEX" it shall
proceed to cancel this "AGREEMENT" in accordance with the first paragraph of
this clause or extend the corresponding term without any penalty. In the
event that no satisfactory evidence is submitted it shall proceed to apply
the conventional penalties in accordance with the Conventional Penalty Clause
of this "AGREEMENT".
CLAUSE TWENTY FIFTH. - CAUSES OF TERMINATION
"TELMEX" may terminate this "AGREEMENT" immediately, without a court order
through a written notice, in the following cases:
a) For breach of any of the obligations established in this "AGREEMENT".
b) For a court or executive order or resolution requesting them to do so.
CLAUSE TWENTY SIXTH. - ACKNOWLEDGEMENT
This "AGREEMENT" is the entire understanding between the parties, in relation
with the purpose of the same and supersedes any other negotiation, obligation
or communication among them, whether oral or written prior to the date of its
execution.
CLAUSE TWENTY SEVENTH. - NOTICES
For purposes of this "AGREEMENT" the parties designate following domiciles:
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" "TELMEX" "
Telefonos de Mexico, S.A. de C.V
Rio Panuco No 71
Col. Cuauhtemoc
Cp 06400, Mexico, D. F.
Attn. Ing. John Locus
" "ACEC" "
AMERICAN COMPUTER AND ELECTRONICS CORPORATION
209 Perry Parkway
Gaithersburg, Maryland, 20877
United States of America
Attn: Mr. Thomas Russotto
All notices required hereunder shall be addressed to the above mentioned
domiciles and sent through fax, personally, registered air mail return
receipt requested, or by express courier service and shall be deemed to have
been received at the time of its delivery or confirmed receipt. Any change
of domicile shall be notified to the other party with at least fifteen (15)
business days in advance from the date on which such event should occur,
otherwise all the notices and communications shall be legally effective on
the date of delivery at the registered domicile.
CAUSE TWENTY EIGHTH. - AMENDMENTS
This "AGREEMENT" may be amended or modified at any time provided the parties
mutually agree to do so in writing.
CLAUSE TWENTY NINTH. - DISPUTE RESOLUTION
The parties shall submit everything related to the validity, intent,
construction, execution, compliance and arbitration of this "AGREEMENT" and
any of its terms and for the resolution of all the disputes, controversies,
or differences that may derive directly or indirectly from this "AGREEMENT"
before two high officials of "TELMEX" and "ACEC", who shall be empowered to
solve the controversy in an amicable manner. If there is no solution to the
controversy within the following fifteen (15) calendar days on the date one
of the parties notifies the other of the existence of said controversy,
difference or dispute, the same shall be solved in a final manner through
arbitration proceedings at law, expressly agreeing to the rules of procedure
and the arbitration in general shall be conducted pursuant to the Regulation
of Conciliation and Arbitration of the International Chamber of Commerce
(ICC).
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The arbitration shall be conducted in Spanish and shall be held in Mexico
City. The applicable law to the arbitration shall be Mexican Law. The
arbitration shall be decided by three arbitrators, one designated by each of
the parties and the third one designated by the two arbitrators selected by
such parties. If one of the parties does not appoint its arbitrator within
the following fifteen (15) business days following the date on which the
request for arbitration from the other party is notified, or if the two
arbitrators, within the following fifteen (15) business days after their
designation do not reach an "AGREEMENT" about the third arbitrator, then the
Mexican Chapter of the International Chamber of Commerce or in lack or excuse
thereof, the Court of Arbitration of the same Chamber shall designate the
third arbitrator, as the case may be, in accordance with the provisions of
said regulation. The arbitration shall be decided within a term that shall
not exceed sixty (60) business days from the date the arbitral proceedings
are initiated and shall be managed by the arbitrators. The arbitral award
shall be final and binding between the parties and may be filed by any of the
parties for its execution before any court, with competent jurisdiction and
the parties agree to expressly submit to the jurisdiction of such court only
for the purposes of executing this arbitral clause and any award based on the
same. The parties hereby expressly waive the right to appeal. The parties
shall decide any matter pursuant to the rules of law, except that, in a later
written "AGREEMENT", as the case may be, the parties agree that it is solved
through amicable composition or arbitration or through a resolution or "fallo
en conciencia".
Having read this "AGREEMENT" and being no error, dolus, bad faith or
violence, the parties executed in duplicate in Mexico City Federal District
on October 11, 1995.
" "TELMEX" " " "ACEC" "
/s/ Adolfo Cerezo Perez /s/ Thomass Russotto
- ----------------------------------- -----------------------------------
Ing. Adolfo Cerezo Perez Mr. Thomass Russotto
Director of Finance and Vice-president
Management
/s/ Carlos Aguerrebere Barroeta
- -----------------------------------
Ing. Carlos Aguerrebere Barroeta
Director of Systems
/s/ Isidoro Ambe Attar
- -----------------------------------
Lic. Isidoro Ambe Attar
General Subdirector of Supply
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EXHIBIT l. - DESCRIPTION OF THE PROJECT
"ACEC" shall supply and install DCMS mediation devices and DCMS Lite upgrades
for existing equipment in the digital switches designated by TELMEX, in
accordance with this description, utilizing ports of tape and X.25, through
which it shall obtain detailed billing records. The project includes the
software of the system used to obtain and manage said information, the
transfer of the same and in addition the development of a series of
applications of software described below as well as a maintenance of the
system as a whole. For purposes of the management of the system a network
supervision software shall be installed.
SOFTWARE APPLICATIONS
All the software applications described below shall be developed in
accordance with the life cycle of the systems indicated in the corresponding
table in Exhibit 4 of the Work Program. Within this process the
requirements-AL-s of each application shall be precisely defined to the
satisfaction of TELMEX.
MESSAGE RATING -
Message rating is the process of taking the detail call record information
collected at the switch and applying billing charges that can be used in the
creation of customer bills. The rating algorithm works as follows:
The originating and terminating phone numbers are looked up in so-called
"Horizontal and Vertical Tables (V&H tables)", which place each call into a
mileage group. The mileage group is then looked up in a rate table, which
tabulates the prices charged by long distance carriers per circuit mile.
This value is then multiplied by the duration of the call, to produce a rated
record.
TELMEX (or a third-party source) will have to provide to ACEC their
Horizontal and Vertical tables, the rate tables or its custom message rating
algorithms in order for this software to correctly calculate and apply rates.
CREDIT LIMIT CHECKING -
Credit limit checking is an extension of the message rating process for
specific billing accounts identified by the user. The DCMS will maintain a
database of specific customers, their credit limit, and current usage value
for customer messages. The number of customers on the credit watch list will
be manageable, no more than approximately 1,000 per switch. On a
time-available basis, the DCMS will read through the collected call record
files, looking for the phone numbers on the credit watch list. If found, the
<PAGE>
credit database will be updated with a new usage figure. The credit limit
function will work in conjunction with the ANMS software application.
If the accumulated message usage figure exceeds the established credit limit
specified for a customer, the DCMS will trigger a software alarm, which will
be passed through ANMS to the management console for further action by the
TELMEX.
RECORD REFORMATTING, SEPARATION, AND FILTERING -
Record reformatting consist of applying TELMEX's defined parameters to the
polled file.
The reformatting proceeds in a straightforward way: given an input record
format, an output record format, and algorithms needed to convert between the
two, the application within the DCMS processes each call record into the new
format.
Separation and filtering works by looking through each record for certain
features -- a phone number, a test string, or other TELMEX definable item.
If found, the record is copied to a separations file for transmission and use
by a customer provided systems capable of acting upon the file.
TELMEX has control over how the separations file is subsequently handled.
Usually, separations files are sent via the DCMS auto transmission function
using FTP to some other computer system.
RECORD VALIDATION
The mechanisms of record validation and error checking vary depending on what
kind of processing is being performed.
TELMEX provided specifications are required to adequately perform record
validation to meet customer expectations. During data collection, the DCMS
uses 1) the data transfer protocol, and 2) the auditing markers in the tape
data to determine whether it received records correctly.
The data transfer protocol ensures that the DCMS receives what the switch
sent; the auditing markers ensure that what was received makes sense.
ERROR CHECKING ALARMS AND AUTO TRANSMISSION -
The call record data passing through the DCMS/DCMS Lite is checked against a
set of predefined, TELMEX provided, conditions. When software detects that
one or more of the conditions are not met, and error is detected and entry is
.Logged in the error file
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contained in the DCMS. As the error file becomes full, an alarm is triggered
that signals the local operator via a local alarm and the centralized ANMS
system that a problem exists. Other alarms are monitored as well including
memory failure, input interface failure, output interface failure, no serial
port response, failure of communications link, failure of the disk system,
disk close to full condition, And application software alarms.
Auto transmission of detail call records is done through a software
application resident within the DCMS/DCMS Lite. Through a TELMEX defined set
of selection parameters, call record data is selected and passed to the auto
transmission application that immediately forwards the information to a
pre-define location for immediate action and/or further processing. The auto
transmission software application resident on the DCMS/DCMS Lite acts on a
near real-time basis for the immediate transmission of data selected based
upon a predefined criteria.
NETWORK MANAGEMENT SOFTWARE.
AMAT Network Management System (ANMS)-
ANMS is a proprietary software application that provides a centralized
command center for the management of AMA billing networks. The ANMS
application is capable of remotely updating and administering the operations
of the DCMS/DCMS Lite and polling system, UPS32. ANMS presents a real-time
window into the state of the DCMS/DCMS Lite network deployed for data
collection across the whole of the TELMEX digital switching telephone
network. Through the use of on-line screens and commands at a centralized
location, ANMS tracks alarms, can alter operational parameters updates
transmitter software, analyzes polled data traffic patterns, and tracks and
reports maintenance needs within the DCMS/DCMS Lite network.
ANMS will be implemented with a direct interface to DCMS and DCMS Lite using
"ACEC"s" proprietary communications protocol.
ACEC will provide TELMEX with basic SNMP agents on the DCMS Lite and ANMS, as
well as training and mechanisms to develop new agents in the DCMS Lite. ANMS
will be implemented with direct interface to the DCMS and DCMS Lite. ANMS
installed using the ACEC proprietary communication protocol. TELMEX has
agreed to be a beta test site for the next release of the ANMS software
system, at no additional cost to TELMEX. Therefore TELMEX has a right to the
following ANMS license without additional charge.
SOFTWARE OF THE SYSTEM
Both, DCMS and DCMS Lite have a software which is owned by ACEC that is
denominated "Software of the System". This software includes the storage and
delivery
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routines, the management software for the system, diagnosis and maintenance
software and automatic alarm report software. The functions of this software
are mentioned in more detail in the description of the DCMS and DCMS Lite
products.
DESCRIPTION OF DCMS
This document provides physical, functional and descriptive information about
the DCMS (Distributed Call Measurement System). The DCMS is an advanced,
microprocessor based data collection, storage, transmission, and processing
system for telephone billing data.
The DCMS is a special-purpose microprocessor based computer designed to
collect, store and process call accounting data obtained from telephone
company central office digital switching systems. The DCMS then makes the
data available to a central data collection facility.
The DCMS can collect, store and process call data for long distance calls,
local calls (when local call detail is available) , and store the processed
data on non-volatile, mass storage disks.
These disks are available with formatted capacities of 1 Gbyte. The call
data can be stored in the specific format output by the switch, in Bellcore
AMA Format (BAF) or in a format designed and specified by the customer. In
addition, TELMEX will use another four record formats which will be between
40 bytes and 336 bytes. TELMEX will provide information about this records
during the duration of the project. Both local messages and long distance
call records can be compressed by eliminating redundant and/or unnecessary
data to increase the call record storage capacity in the same disk space.
The DCMS normally stores data as it receives from the switch and then edits
it before committing the data to long-term storage. This editing, at the
TELMEX option, can include the selective filtering and elimination of
uncompleted calls, abandoned calls and calls below a specified minimum
duration. Editing may also include partitioning (user-specified) of records
for switch traffic or maintenance data or alarm messages.
When required, the DCMS can examine the switch input in realtime and output
information via an RS-232 port based on the input received.
The DCMS has the ability, at the customer option, to rate (price) both local
and long distance calls based on user specifications and/or the industry
standard tables.
TELMEX specific message rating algorithms can be customized into the rating
system. When call rating is performed, the price data is stored as part of
the output call record.
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Transmission of the call record data to a central facility is generally
initiated by the remote computer system. The call data may be sent via the
dial-up network or dedicated (private network) facilities. The DCMS is
capable of transmitting data over a variety of networks. The DC74S
configuration being proposed will use Ethernet TCP/IP for the movement of
data.
The DCMS has been designed to provide a very high level of reliability. The
system contains embedded diagnostic software that can identify and isolate
faults and failures down to the replaceable printed circuit board level.
Diagnostic and maintenance procedures can be performed both locally or
remotely via an optional RS-232 terminal.
The DCMS operational software will detect problems and generate and output
alarms for conditions such as:
- Memory board failure
- Input interface failure
- Output interface failure
- Communications link failure
- Disk subsystem failure
- Disk approaching full capacity
These alarm conditions are signaled visually, audibly, and via relay
contacts. They are reported locally and/or remotely to an RS-232 terminal or
printer. These alarms can be managed centrally and automatically using an
appropriately configured alarm monitoring computer system such as our AMAT
Network Management System (ANMS).
Mirror disk subsystems for mirrored data storage are available with the
simplex DCMS.
The mirror disk subsystem records all data to two separate disk subsystems
within the same chassis. Mirror disks provide an additional level of
redundancy for the only moving part of the DCMS.
The DCMS is designed to interface to most types of telephone switches. The
files of the central are collected via the magnetic tape output port
(denominated P:)C or MTE), or a serial output port using a communication
protocol such a RS232 or through protocols MTP, MNP, or FRAM. In the event
the magnetic tape output port is used, the serial port RS232 may be used to
send commands. In the case of TELMEX the switching vehicles to which the
DCMS can be interfaced are:
Ericsson AXE 10
Alcatel S12
Northern D14S 200
AT&T 5ESS
-5-
<PAGE>
All DCMS components are provided in a standard 19-inch rack configuration.
The DCMS can also be housed in a stand-alone cabinet, to be supplied by ACEC.
The basic DCMS is composed of the following components:
- 1911 Custom chassis
- Power converter module
- Switch interface module
- Monoboard computer module
- Communication subsystem
- Modem subsystem
- Winchester disk drive and interface
- System monitor/alarm panel
- Terminal/printer interface
The main processor complex of the DCMS consists of a monoboard computer
operating a high-speed 32-bit microprocessor. The monoboard computer also
has a real-time clock for time-keeping, a watchdog timer for casualty
testing, interval timers for task scheduling, and four RS-232 ports for
initialization, diagnostics, debugging and interprocessor communications.
The monoboard computer connects to other components via a VME bus.
Ethernet networking facilities, a printer interface, four RS232 ports, and
the SCSI (Small Computer System Interface) high-speed peripheral bus are
included on the DCMS monchoard CPU.
The DCMS uses UNIX System V with real-time extensions. UNIX is a
multitasking operating system with support for multiple users, three levels
of access security, and task prioritization.
The DCMS comes equipped with 8MB of DRAM although an additional 8MB are
available as an option in the customer requested configuration. The DPAM is
the buffer memory for call record storage.
The main processor complex backplane which interconnects the
microprocessor(s), the system monitor and high-speed peripherals is the VME
bus.
A power converter module is provided with the main processor complex. The
power converter module is provided as a "plug-in" module.
The power converter provides up to 350 watts of +5VDC, +12VDC and -12 VDC.
-6-
<PAGE>
A Simplex DC14S Configuration, like the ones included in this agreement has
the following:
lpc. 32 Bit Processing Unit Including
A self backed box in accordance with "TELMEX" specifications
Processor with 256k ROM, 8MB DRAM
Power converter
Multi-slot chassis
Output port RS-232
Administrative port with V-22 modem
Console Interface
Disk Interface
System Monitor Board
-Store-and-forward software
-Administration software
-Maintenance diagnostics software
-Automatic alarm reporting software
24 month warranty
Cable up to 151 in the case of tape port and up to 1001 in the case
of X.25 port.
optional features that may be added to the DCMS
8 MB RAM
Disk Mirroring
30 ft. Cables with signal amplification for MTE 50 ft. Cables with signal
amplification for MTE
X.25/FTAM protocols
X.25/MNP protocols
DESCRIPTION OF DCMS LITE
This document provides the physical, functional and description of the DCMS
Lite (Distributed Call Measurement System Lite). The DCMS Lite is a
proprietary software application that provides a centralized command center
for the management of AMA billing networks.
The DCMS Lite application shall be implemented through the execution of an
"upgrade" to "TELMEX" existing equipment utilized in the SML system (Local
Measure Service) which are formed by industrial PC's supplied by Pro-Log
Corp. All the functions mentioned in the following paragraphs shall be
available after performing the "upgrade".
-7-
<PAGE>
The DCMS Lite is based in a special purpose computer designed to interface
with digital telephone switches, obtain the billing data and process them.
The DCMS Lite makes this data available to the higher collection equipment.
The DCMS Lite can collect, store and process long distance and local calls
data (provided the latter are available) the processed data on nonvolatile,
mass storage disks. These disks are available with formatted capacities of
0.5 Gbyte. The call data can be stored in the specific format output by the
switch, in Bellcore AMA Format (BAF) or in a format designed and specified by
the customer. In Addition, "TELMEX" will use another four record formats
which will be between-40 bytes and 336 bytes. "TELMEX" will provide
information about this record during the duration of the project. Both local
messages and long distance call records can be compressed by eliminating
redundant and/or unnecessary data to increase the call record storage
capacity in the same disk space.
The DCMS Lite normally stores data as it receives from the switch -and then
edits -it before committing the data to long-term storage.
This editing at the customer option, can include the selective filtering and
elimination of uncompleted calls, abandoned calls and calls below a specified
minimum duration. Editing may also include partitioning and calls below a
specified minimum duration. Editing may also include partitioning
(user-specified) of records for switch traffic or maintenance data or alarm
messages.
When required, the DCMS Lite can examine the switch input in real-time and
output information via an RS-232 port based on the input received.
The DCMS Lite has the ability, at the customer option, to rate (price) both
local and long distance calls based on user specifications and/or the
industry standard Vertical and Horizontal (V&H) Coordinate Tables.
Customer specific message rating algorithms can be customized into the rating
system. When call rating is performed, the price data is stored as part of
the output call record.
Transmission of the call record data to a central facility generally
initiated by the remote computer system. The call data may be sent via the
dial-up network or dedicated (private network) facilities.
The DCMS Lite is capable of transmitting data over a variety of networks.
The DCMS Lite configuration being proposed will use Ethernet TCP/IP for the
movement of data.
The DCMS Lite has been designed to provide a very high level of reliability.
The system contains embedded diagnostic software that can identify and
isolate faults and failures down to the replaceable printed circuit board
level. Diagnostic and maintenance procedures can be performed both locally
or remotely via an optional RS-232 terminal.
-8-
<PAGE>
The DCMS Lite operational software will detect problems and generate and
output alarms for conditions such as:
- Memory board failure
- Input interface failure
- Output interface failure
- Communications link failure
- Disk subsystem failure
- Disk approaching full capacity
These alarm conditions are signaled visually, audibly, and via relay
contacts. They are reported locally and/or remotely to an RS-232 terminal or
printer. These alarms can be managed centrally and automatically using an
appropriately configured alarm monitoring computer system such as our AMAT
Network Management System (ANMS).
Mirror disk subsystems for mirrored data storage are available with the
simplex D04S. The mirror disk subsystem records all data to two separate
disk subsystems within the same chassis. Mirror disks provide an additional
level of redundancy for the only moving part of the D04S Lite.
The DCMS Lite is designed to interface to most types of telephone switches.
Stored Program Control (SPC) switch output is collected via the magnetic tape
output port or a serial output port using a communication protocol such a MTP
or FTAM. The following identifies the switching vehicles to which the DCMS
can be interfaced are:
Ericsson AXE 10
Alcatel S12
AT&T 5ESS
All DCMS Lite components are provided in a standard 19-inch rack
configuration. The DCMS Lite can also be housed in a stand-alone cabinet, to
be supplied by TELMEX. Custom mountings can be readily accommodated.
The basic DCMS Lite is composed of the following components:
- Custom chassis (available at TELMEX)
- Power converter module (available at TELMEX)
- Switch interface module (to be supplied with upgrade kit)
- Monoboard computer module (to be supplied with upgrade kit)
- Communication subsystem (to be supplied with upgrade kit)
- Modem subsystem (available at TELMEX)
- Winchester disk drive and interface (to be supplied with upgrade kit)
-9-
<PAGE>
- System monitor or/alarm panel (partially available at TELMEX)
- Terminal/printer interface (to be supplied with upgrade kit)
In order to perform the "upgrade", "TELMEX" guarantees to have in operation
condition the following hardware in, each switch where the "upgrade" is to be
performed:
1pc. 7872 CPU with 386 processor 2 MB RAM, 25 or 33 Mhz
1pc. 7325 V.22 or 7326 modem
1pc. 7316 serial card with 4 RS232 ports
1pc. 7909A termination board
1pc. BX15R-01 rack
1pc. 48 VDC power supply (in-rack or external)
1pc. Break out panel with 2 RS232 ports and keyboard interface
1pc. Floppy disk unit 3.511
1pc. On/Off switch (In-rack with power supply or external)
1pc. 19" box made of extruded aluminum, self-clinching screws, 6 PC. RS232,
Ethernet and power connectors, fan and mounting rails
1pc. QNX operating system version 2.1 or 2.15
The "upgrade" will be accomplished by installing the following parts:
1pc. 7874 CPU with 486DX2 processor 16MB RAM, 66 MHz
1pc. 7331A Ethernet interface card
1pc. Switch interface card - either X.25 or MTE/PDC
1pc. SCSI disk 500 MB
1pc. SCSI 500ME mirror disk (optional)
1pc. DAT unit (optional)
1pc. External alarm module
1pc. QNX operating system version 4.2 or higher
1pc. System Software ort and up to
1pc. Cable up to 15' in the case of tape port and up to 100' in the case
of X.25 port.
The main processor complex of the DCMS Lite consists of a "monoboard"
computer operating a high-speed 32-bit microprocessor. The "monoboard"
computer also has a real-time clock for time-keeping, a "watchdog timer" for
casualty testing, interval timers for task scheduling, and four RS-232 ports
for initialization, diagnostics, debugging and interprocessor communications.
The "monoboard" computer connects to other components via a STD bus.
Printer interface, two RS-232 ports, and the SCSI (Small Computer System
Interface) high-speed peripheral bus are included on the DCMS Lite monoboard
CPU. Ethernet network facilities is supplied as a separate board. Another
four RS232 ports come with
-10-
<PAGE>
an independent 7316 model card (already existing in "TELMEX"). DCMS Lite has
a total of 6 serial ports.
The DCMS Lite uses QNX version 4.2 or latest real-time operating system. QNX
is a multitasking operating system with support for multiple users, three
levels of access security, and task prioritization.
The DCMS Lite comes equipped with 16 MB of RAM . The DRAM is the buffer
memory for call record storage.
The main processor complex "backplane" which interconnects the
microprocessors), the system monitor and high-speed peripherals is the STD
bus.
A power converter module is provided with the main processor complex. The
power converter module is provided as a "Plug-in" module.
The power converter provides up to 180 watts of +5VDC, +12VDC AND -12VDC.
A DCMS Lite simplex configuration, as contemplated in this agreement after
the upgrade shall have the following:
1 pc. Processor unit 32 bits includes,
Processor with 16MB RAM
Power converter module
Multi-slots chassis
RS232 outgoing ports
V.22 or V.32 modem
Interface console SCSI interface for disk
Monitoring system module
Standard cable set
Store/send Software
Administration Software
Application Software
Maintenance diagnosis Software
Automatic Alarm report Software
Cable up to 15' for interrace to tape port or up to 100' par X.25 port.
1 pc. QNX system version 4.2 or higher
1 pc. X.25 (MTP), PDC or MTE interface switch
1 pc. Ethernet TCP/IP interface
-11-
<PAGE>
Optional equipment that can be included,
- - Mirror disk
- - 30' cable with amplifying signals for MTE
- - 50' cable with amplifying signals for MET
- - X.25/FTAM protocole
- - X.25/MNP protocole
-12-
<PAGE>
EXHIBIT 2. - DETAILED DESCRIPTION OF COSTS
(Exhibit 2 is confidential and has been omitted and filed separately with the
Commission).
<PAGE>
EXHIBIT 3. APPROVAL COMMITTEE
To commonly timely and correctly perform the corresponding works during the
"TELEPROCESS PROJECT" duration, a work committee from the areas involved in
the project, whose mission is to take decisions, concentration, supervision
and execution of the specific tasks to the successful accomplishment of the
"TELEPROCESS PROJECT".
The approval committee is integrated by:
- Ing. John Locus
- Dr. Radl Rojas
- Ing. Manuel Padilla
Responsibilities:
- Responsible for the good direction, decisions and conclusion of the
"TELEPROCESS PROJECT".
- General administration of the 'TELEPROCESS PROJECT" and communication of
"TELMEX" policies.
- Progress reports of the "TELEPROCESS PROJECT", presented by "ACEC".
- Take the necessary action regarding "TELMEX" internal and external area
situations with "ACEC" during the "TELEPROCESS PROJECT".
- Approve and validate the Hardware and Software quality supplied by "ACEC",
as well as the engineering services.
- Authorize the payment for Hardware and Software delivered by "ACEC", as
well as the engineering services provided by "ACEC".
The aforementioned is not limited and may vary according to the circumstances.
<PAGE>
EXHIBIT 4. WORK PROGRAM
<TABLE>
<CAPTION>
DCMS DCMS DCMS
DCMS DCMS DCMS DCMS lite lite DCMS lite
Product cycle Parallel X.25 X.25 DCMS X.25 lite X.25 X.25 spare spare
Activity Activity MNP FTAM MTE MTP MTE MTP FTAM part part
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
"Site" engineering 7 7 7 7 7 7 7
O.C. process 10 10 10 10 10 10 10 10 10
1st delivery eng. 0 0 0 0 80 90 90
Manufacture Electric 90 90 90 90 90 90 90 90 90
modification
Shipping and Customs 15 15 15 15 15 15 15 15 15
Installation and start up 30 30 30 30 30 30 30
Acceptance 10 10 10 10 10 10 10
Total Calendar 162 162 162 162 222 252 252 125 125
After first delivery 162 162 162 162 162 162 162 125 125
Capacity Installation 30 30 30 32 75 75 75
Minimum initial order 10 10 18 32 75 75 75
</TABLE>
-2-
<PAGE>
Note: All purchase orders placed after the first initial for each type of
item will be installed within the following thirty (30) days after the
installation period of the first order and according to the installation
capacity. If the capacity is exceeded the remaining and not installed units
will be installed in the immediate 30 day period subject to installation
capacity limits. 30 day extensions will be added until all exceeding
capacity is installed, without any penalty.
Application Software
<TABLE>
<CAPTION>
Activity Software ANMS FTAM
<S> <C> <C> <C> <C> <C> <C>
Analysis 30 10 30
Design 45 10 45
Development 60 25 60
Tests 15 15 15
Acceptance 10 10 15
Total 160 70 165
Minimum initial 100 1 100
Order
Development Seminary Training
Training of training material preparation period Total
DCMS Operation 30 5 5 40
DCMS Maintenance 30 5 5 40
DCMS Lite Operations 120 5 5 130
DCMS Lite Maintenance 120 5 5 130
Software engineering 90 5 15 110
New applications 120 5 15 140
Design
ANMS 30 5 5 40
SNMP 120 5 10 135
</TABLE>
Note: The time shown on the tables are represented as calendar days.
<PAGE>
EXHIBIT 5.- TRAINING
The "ACEC" training courses will follow general outline according to
INTTELMEX:
Duration: 16-40 hours (between 2 and 5 days)
Breaks: Daily, 1 hour lunch
Hourly, 10 minutes
Class size: 12 students
Instructor: Qualified and experienced DCMS, DCMS Lite Software "ACEC"
Technician
Customer Provided:
- - Classroom or acceptable work area
- - DCMS and DCMS LITE System
- - 48 volt battery power
- - Printing Terminal and PC
- - 1200/2400 modem
- - Two telephone lines
- - Direct cable for console port
- - Digital Volt meter
- - Small hand tool set
"ACEC" Provided:
- - Appropriate Spanish course manual
- - Snapshot document
- - Diagrams
- - Brochures
- - Evaluation forms
Others to be provided by "ACEC" if approved by "TELMEX":
- - Trouble shooting tree document
- - Material return procedures
- - Failure report procedures
"ACEC" is undertakes to provide the necessary training and skill to "TELMEX"
personnel without additional cost, providing the necessary material and
instruction in Spanish.
<PAGE>
Regarding personnel, courses, contents, programs, place for instruction,
equipment and/or material for the students according to INTTELMEX (Instituto
Tecnologico de Telefonos de Mexico.
"ACEC" shall provide two (2) courses in Spanish, in Mexico City, without
charge, which shall include the following:
- - DCMS operation
- - DCMS installation and maintenance
- - DCMS Lite Operation
- - DCMS Lite Installation and maintenance
- - ANMS operation
"ACEC" shall provide one (1) English course in the United States as follows:
- - Software engineering applications
- - New applications development
- - SNMP agents development
With the "Software engineering applications" "ACEC" shall provide, without
cost, the processor "C" and the bookmaker required for the development of
software on DCMS and DCMS Lite platform. In addition "ACEC" as part of the
transference process applications during the warranty period, will
participate with "TELMEX" in minor changes or extensions to this applications
during the warranty period, validating the development and support during the
tests, as part of the training. "ACEC" and "TELMEX shall establish by mutual
agreement the methodology for modifications as part of the transference
process to be respected in order to preserve the warranty of the "software
applications".
"TELMEX" personnel's travel and lodging expenses in the United States shall
be on "TELMEX" account.
(Annexo B is confidential and has been omitted and filed separately with the
Commission)
-2-
<PAGE>
EXHIBIT 6.- DELIVERY PROCEDURES FOR PAYMENT PURPOSES
ACCEPTANCE TESTING,
"TELMEX" and "ACEC" shall define the proceeding for the acceptance of the
equipment including the tests to be performed during the start and test
period, connection to the central and polling test.
DELIVERY CYCLE
All payments mentioned below are 30 (thirty) days after presentation of the
corresponding documents, duly validated; according to "TELMEX" procedures.
a) Delivery
For payment 40% of the equipment, and reimbursement of expenses, insurance,
and import taxes, it shall be considered that the equipment be delivered at
"TELEMEX's" office designated by "TELMEX", in Mexico City in the quantity and
quality expected, to "TELMEX" satisfaction.
b) Start up and test acceptance
The equipment shall be considered tested and working in order to authorize
the payment of 50% once it has been started and proved to be functioning
according to the approval tests and proceedings to "TELMEX" satisfaction.
c) Switch connection acceptance
The system has been installed at the switch and all functions are working
according to the specifications with the exception that the polling test
cannot be performed through not fault of ACEC. This will generate payment of
5%.
d) Polling acceptance
The equipment shall be considered pole tested, for 5% final payment once the
centralized detailed invoicing recollection, according to the approval and
test proceedings, to "TELMEX" satisfaction.
"TELMEX" shall issue purchase orders in accordance with this agreement
showing the place of installment of the equipment and the delivery dates
based on the time table of the Work Program clause of this agreement.
<PAGE>
Upon each delivery stage "TELMEX" shall, within 10 days, notify "ACEC" the
following:
I. Acceptance
The system or product complies with the acceptance criteria.
II. Accepted with exceptions
The system or product was accepted by "TELMEX" and complies with the criteria
but there are some details to be corrected by "ACEC". "TELMEX" shall include
these in a problems to solve list, to achieve the total acceptance. "ACEC"
and "TELMEX" shall establish a program to solve these problems. This
commitment is subject to the Penalty clause of this agreement. Acceptance
with exceptions will be considered as valid for payment riot being a serious
situation.
III. Not Accepted
The system was not accepted according to the mutually agreed criteria due to
one or more problems. "TELMEX" shall include these in the list of problems
to be solved for total acceptance. "ACEC" and "TELMEX" will jointly
establish a program to solve such problems. This commitment is subject to
the Penalty clause of this agreement. Payments do not proceed in this case
due to the serious situation.
-2-
<PAGE>
EXHIBIT 7. - DCMS LITE UPGRADE CONDITIONS
DCMS Lite "upgrade" the following conditions shall apply:
1. "TELMEX" shall provide all units to upgraded, in a satisfactory operating
condition, including the below mentioned parts:
1 pc 7872 CPU processor 386, 2MB RAM, 25 or 33 Mhz
1 pc 7325 V.22 or 7326 V.32 modem
1 pc 7316 serial card with 4 RS232 ports
1 pc 7909A termination bus card
1 pc BX15R-01 rack
1 pc 48VDC power supply (internal or external)
1 pc Break out panel with 2 RS232 ports and keyboard interface
1 pc 3.5" floppy disk unit
pc On/Off switch (in-rack with power supply or external)
1pc 19" box made of extruded aluminum, self-clinching screws,
6 pc. RS232, Ethernet and power connectors, fan and mounting rails
1 pc QNX operating system version 2.1 or 2.15
II. In case they are not operational, or they do not exist, "ACEC" can sell
them at the prices listed in the price catalogue, or "TELMEX" can supply them
at the site, at "TELMEX" choice.
III. The operational status of this equipment must be indicated in the
"site" survey to be presented to "TELMEX", and can be verified by SML polling
software and ratified by "ACEC" during "site" engineering.
IV. "ACEC" will use any or all of the existing parts in PC's ProLog as
"upgrade," platform.
V. "ACEC" has the obligation to inform "TELMEX" about the parts not used
in the upgrade and store them in he place designated by "TELMEX".
Parts that definitely will be used:
1 pc 7325 V.22 or 7326 V.32 modem
1 pc 7316 serial card with 4 RS232 ports
1 pc 7909A termination bus card
1 pc BX15R-01 rack
1 pc 48VDC power supply (internal or external)
1 pc Break out panel with 2 RS232 ports and keyboard interface
1 pc 3.5" floppy disk unit
1 pc On/off switch (in-rack with power supply or external)
1 pc 19" box made of extruded aluminum, self-clinching screws,
<PAGE>
6 pc. RS232 Ethernet and power connectors, fan and mounting rails
1 pc QNX operating system version 2.1 or 2.15
Parts with less possibility to be reused:
1 pc. 7872 CPU with 386 processor, 2MB RAM, 25 or 33 Mhz may be used as
additional communications buffer, if approved by TELMEX.
VI. "ACEC" can reuse partially or totally the existing platform with the
obligation to supply a DCMS Lite functioning in accordance with the
aforementioned specifications.
VII. All reused parts shall be included in the two year warranty so that the
whole system shall have the same warranty period.
Annexo B is confidential and has been omitted and filed separately with the
Commission)
-2-
<PAGE>
EXHIBIT B - ALARMS
"TELMEX" and "ACEC" shall establish the central by central priority for alarm
attendance according to the following criteria;
<TABLE>
<CAPTION>
TYPE OF CENTRAL ALARM ALARM ALARM
CLASS I CLASS II CLASS III
--------------- ------- -------- ---------
<S> <C> <C> <C>
Central Priority A 8 hrs. 16 hrs. 24 hrs.
Central Priority B 24 hrs. 36 hrs. 48 hrs.
Alarm Alarm Alarm Alarm
Class I Class II Class III
Alarm of homework or process x
of the software system
Process alarm of the software x
of application
Alarm of homework of x
the software application
DCMS no respond x*
"Time-out" of the interface x
Fault in the network x
Bad facts x
Serial port no respond x
75% Full disc x
(85%) Full disc x
Error in the write of the disc x
Error in the read of the disc x
Disc on full mirror at x
-3-
<PAGE>
75%
Disc on full mirror at (85%) x
Error in the write of the x
mirror disc
Error in the read of the x
mirror disc
</TABLE>
*"DCMS no response" may become an Alarm Class II or Alarm Class III once the
DCMS is accessed via the dial-in modem and the reason for no response is
defined.
DCMS Lite supports both hardware and software alarms, grouped into I
(critical), Class II (major), Class II (minor) categories. The actual number
of alarms can range into the hundreds, so it is impractical to list them all,
but in general they can be grouped as follows:
Task control alarms
-4-
<PAGE>
EXHIBIT 9.- TERMINOLOGY
TURN KEY
"ACEC's" commitment to deliver, install and totally functioning to "TELMEX"
satisfaction the Software and Hardware subject of this AGREEMENT.
DCMS
Initials for "Distributed Call Measurement System".
DCMS LITE
"Distributed Call Measurement System Lite".
SOFTWARE APPLICATION
The specific programs property of "TELMEX" required for detailed data
processing of calls.
SOFTWARE BASE
Tools, subroutines and applications, property of "ACEC" and existing before
this agreement, required for the Software Application development.
ANMS
"AMAT Network Management System". Network administration Software to detect
alarms, monitor and administer DCMS and DCMS Lite.
SYSTEM SOFTWARE
The store and forward software, administration software, maintenance
diagnostics software, automatic alarm reporting software required, are
property of "ACEC".
SOFTWARE
Application software
HARDWARE
Processor, circuits, disks. General electronic components to be installed in
each Central.
<PAGE>
CENTRAL
TELMEX Switchboard or network station.
TLC
NAFTA
ENGINEERING "SITE"
ACEC's engineering service rendered to determine the system, equipment,
interface and place conditions for the installation of the DCMS and DCMS Lite
system. Architecture for the installation also referred to as "Site Survey".
"SITE"
Installation site. Usually a TELMEX central or office.
UPGRADE
Actualization of the existing system. Actualization of an industrial PC to a
DCMS Lite.
SOT
Software of a processor. Made by third party and installed with DCMS and
DCMS Lite license.
SERVICE ORDER
SOT's specifying the service to be provided at the central and permits access
to the same.
SBE TCP/IP
A third party software with license.
ONX
A third party software with license.
AEG MODCOM UNIX
A third party software with license.
MOTOROLA M68
A third party software with license.
-2-
<PAGE>
MARBEN FTAM
A third party software with license.
X.25
OSI 3 level model. Communications protocol.
REGISTRATION FORMAT
Registration data structure
FTP
"File Transfer Protocol"
PROTOCOL
Communication mechanism for assuring the good reception and forwarding of
signals or data between two systems.
TAPE PORT
Interface communication central where tape units are installed.
AMA NETWORK
Specification for a billing network.
UPS 32
ACEC polling software
SNMP
SIMPLE NETWORK MANAGEMENT PROTOCOL.
Beta Test Site
Installation site for a preliminary version of a product to evaluate its
performance.
BAF
"Bellcore AMA Format".
-3-
<PAGE>
TCP/IP
Communications protocol.
FTAM
Communications protocol.
MNP
Communications protocol.
MTP
Communications protocol.
RS232
Standard ports serial.
Chassis
Stand-alone cabinet
AXE
Central type
S12
Central type
5ESS
Central type
DMS200
Central type
SWITCH
Usually define a telephone central
-4-
<PAGE>
MTE
Magnetic Tape Emulator.
PDC
Passive Data Collector. Interface electronic card for tape unit.
MONOBOARD
A single card electronic processor.
VME
Standard processing architecture
STD
Standard processing architecture
SCSI
"Small Computer System Interface"
UNIX
Operating system type
ETHERNET
Network type
BACKPLANE
PLUG- IN
V.22
Type of Modem
-5-
<PAGE>
V.32
Type of Modem
MB
Mega Bytes
PRO-LOG
Industrial computer manufacturer
INDUSTRIAL PC
Industrial Personal Computer
KIT
Parts kit
DAT
Magnetic tape unit
"C"
software language
SML
Local Service Measured
-6-
<PAGE>
EXHIBIT 11.1
ACE*COMM CORPORATION
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
UNDER TREASURY STOCK METHOD SET FORTH IN APB NO. 15
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1995 MARCH 31, 1996
-------------- ------------------
<S> <C> <C>
SHARES (1)
Average outstanding during the year........................................... 3,939,505 3,944,248
Add: Incremental shares under stock compensation and stock purchase plans
(2).......................................................................... 417,543 722,143
Add: Incremental shares due to automatic conversion of mandatorily redeemable
Series C preferred stock (3)................................................. 1,843,944 1,843,944
-------------- ----------
Number of shares on which published earnings per share
is based..................................................................... 6,200,992 6,510,335
-------------- ----------
-------------- ----------
EARNINGS
Net (loss) income applicable to common stockholders........................... $ (1,592,646) $ 778,658
-------------- ----------
-------------- ----------
Pro forma (loss) income per share (4)......................................... $(0.26) $0.12
-------------- ----------
-------------- ----------
</TABLE>
- ------------------------
(1) All share amounts give effect to the proposed 5.42 for 1 stock split
effected in the form of a stock dividend.
(2) Incremental shares include the exercise of options under the treasury stock
method when dilutive in a particular period. In addition, incremental shares
include stock exercised and options granted in the year preceding the filing
using the offer price for all years presented (dilutive or antidilutive) in
accordance with SAB 83.
(3) To give pro forma effect to the conversion of the mandatorily redeemable
Series C Preferred Stock which will automatically convert to shares of
Common Stock upon the initial public offering.
(4) There is no difference between primary and fully-diluted earnings per share.
Therefore, only one EPS figure is presented in accordance with APB 15.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 8, 1996,
except as to the extension of their credit facilities as described in Note 5
which is as of January 25, 1996, and except as to the stock split described
in Note 11 which is as of June 23, 1996, relating to the financial statements
of ACE*COMM Corporation, which appears in such Prospectus. We also consent to
the references to us under the headings "Experts" and "Selected Financial
Data" in such Prospectus. However, it should be noted that Price Waterhouse
LLP has not prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Washington, D.C.
June 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1996
<PERIOD-START> JUL-01-1994 JUL-01-1995
<PERIOD-END> JUN-30-1995 MAR-31-1996
<CASH> 189,903 2,407
<SECURITIES> 0 0
<RECEIVABLES> 4,712,740 4,926,683
<ALLOWANCES> 10,000 10,000
<INVENTORY> 964,501 1,360,289
<CURRENT-ASSETS> 5,987,536 6,527,547
<PP&E> 1,893,417 2,047,454
<DEPRECIATION> 724,769 1,124,403
<TOTAL-ASSETS> 8,293,337 8,861,196
<CURRENT-LIABILITIES> 7,361,712 3,939,334
<BONDS> 0 0
2,121,733 2,226,654
1,000 1,000
<COMMON> 39,713 42,310
<OTHER-SE> (1,282,904) (576,542)
<TOTAL-LIABILITY-AND-EQUITY> 8,293,337 8,861,196
<SALES> 12,415,331 13,111,225
<TOTAL-REVENUES> 12,415,331 13,111,225
<CGS> 6,579,504 6,671,913
<TOTAL-COSTS> 13,673,172 12,046,962
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 334,805 285,605
<INCOME-PRETAX> (1,592,646) 778,658
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,592,646) 778,658
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,592,646) 778,658
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
